2009 (3) TMI 48 - HC - Income Tax

High Court denies weighted deduction claim for research expenses on mentha arvensis.

The High Court rejected the claim of the assessee-company for weighted deduction under Section 35C for expenses related to research on mentha arvensis, ... Claim for weighted deduction u/s 35C in respect of expenses on research in mentha research centre, expenses on distillation services provided to the cultivators; expenses on scientific farming – tribunal is justified in disallowing assessee’s claim for weighted deduction on above expenses - Tribunal was justified in holding that the claim of deduction of sur-tax payable under the Companies (Profits) Sur-tax Act, in working out the business income was not admissible Issues:1. Justification of rejecting the claim of the assessee-company for weighted deduction under section 35C for various expenses.2. Admissibility of the claim of deduction of sur-tax payable under the Companies (Profits) Sur-tax Act, 1964, in working out the business income.Analysis:Issue 1:The High Court considered the claim of the assessee-company for weighted deduction under Section 35C for expenses related to research on mentha arvensis, distillation services, and scientific farming. The Income-tax officer had allowed deduction only on specific expenses, challenging the allocation and bifurcation made by the assessee. The Court upheld the rejection of the claim for research expenses, distillation services, and scientific farming under Section 35C(b), emphasizing that these expenses did not fall within the ambit of the term 'goods, services, or facilities' as defined in the Income-tax Act. The Court agreed with the findings of the ITAT that research is an independent activity not directly linked to dissemination of information or demonstration of modern techniques. Similarly, the claim for distillation services was denied as the distillation plant was not used directly by cultivators but by the assessee for commercial purposes. The Court also rejected the claim for scientific farming, stating that mere use of scientific methods in farming on the assessee's land did not qualify as dissemination of information or demonstration of modern techniques.Issue 2:Regarding the additional question for the assessment year 1972-73 on the deduction of sur-tax liability in working out the business income, the High Court referred to the Supreme Court judgment in a similar case against the assessee. The Court concurred with the Supreme Court's decision against the assessee, thereby upholding the rejection of the claim for deduction of sur-tax liability. Consequently, the Court disposed of the reference with no orders as to costs, affirming the decisions against the assessee on both issues.This detailed analysis of the judgment from the Bombay High Court provides insights into the legal reasoning behind the rejection of the assessee's claims for weighted deductions and the deduction of sur-tax liability, as well as the interpretation of relevant provisions under the Income-tax Act.