Weighted deduction for hybrid seed processing depends on actual expenditure, while central subsidy need not reduce asset value.

Weighted deduction under section 35C applied to processing of hybrid seeds because hybrid seeds were treated as agricultural products, bringing such processing within the provision's scope. The deduction, however, was confined to expenditure actually incurred by the assessee for eligible goods, services, facilities, or dissemination of agricultural information; amounts recovered from growers, including inspection costs embedded in seed charges, had to be excluded after proper factual scrutiny. Central subsidy was not required to be deducted from the value of assets for depreciation and development rebate, following existing Tribunal authority.

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Issues: (i) Whether the assessee, engaged in processing hybrid seeds, was entitled to weighted deduction under section 35C of the Income-tax Act, 1961; (ii) Whether the deduction under section 35C could be allowed on the full claims without scrutinising whether the expenditure was actually incurred by the assessee and not recovered from growers; (iii) Whether central subsidy was liable to be deducted from the value of assets for depreciation and development rebate.

Issue (i): Whether the assessee, engaged in processing hybrid seeds, was entitled to weighted deduction under section 35C of the Income-tax Act, 1961.

Analysis: The relevant statutory relief was held applicable not only to manufacture but also to processing of articles or things made from agricultural products. Hybrid seeds were treated as products of agriculture, and the assessee's activity of processing such seeds brought it within the scope of the provision.

Conclusion: The assessee was entitled in principle to weighted deduction under section 35C of the Income-tax Act, 1961.

Issue (ii): Whether the deduction under section 35C could be allowed on the full claims without scrutinising whether the expenditure was actually incurred by the assessee and not recovered from growers.

Analysis: Only expenditure actually borne by the assessee for goods, services, facilities, or dissemination of agricultural information could qualify. Amounts recovered from growers, including inspection-related cost embedded in the seed charges, had to be excluded. As the factual details of expenditure had not been properly examined, the earlier allowance could not stand.

Conclusion: The assessment and appellate orders on this aspect were set aside and the matter was remanded for fresh quantification of eligible expenditure.

Issue (iii): Whether central subsidy was liable to be deducted from the value of assets for depreciation and development rebate.

Analysis: The issue was treated as covered by existing Tribunal authority, and no reason was found to depart from that view.

Conclusion: The deduction of central subsidy from the value of assets was not permitted, and the issue was decided in favour of the assessee.

Final Conclusion: The principal controversy on weighted deduction under section 35C was remitted for fresh examination on actual expenditure, while the subsidy issue was answered for the assessee and the remaining cross-objections were rejected.

Ratio Decidendi: Weighted deduction for agricultural development expenditure is confined to amounts actually incurred by the assessee for eligible goods, services, facilities, or agricultural dissemination activities, and any portion recovered from growers must be excluded on proper factual scrutiny.

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