TaxTMI 
TaxTMI 
2009 (3) TMI 643
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....m of deduction under section 35(1)(iv) of the Income-tax Act, 1961 (hereafter referred to as 'Act') an amount of Rs. 49,32,013 being capital expenditure on scientific research. The return was processed under section 143(1) and same was not scrutinised under section 143(3) of the Act. On finding that the Assessing Officer claimed above deduction under section 35(1)(iv) when he is engaged in that business of scientific research for the group companies, the Assessing Officer initiated the reassessment proceedings by issues of notice under section 148 dated 14-5-2004. The reasons for reopening were supplied to the assessee on demand. Assessee raised objections to the said reassessment proceedings as well as on merits relating to the deduction under section 35(1)(iv). Rejecting the assessee's request for dropping the reassessment proceedings, the Assessing Officer proceeded to complete the reassessment proceedings after denying the deduction claimed under section 35(1)(iv). Assessing Officer considered the assessee's reply vide its letter dated 16-12-2004 and the contents therein as mentioned in paragraphs 3 and 4 of the assessment order. On jurisdiction issue, during the reassessment p....
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....ss' before distinguishing the said order. 3. Aggrieved with the above decision of the Assessing Officer, assessee filed an appeal before the CIT(A). On the jurisdictional High Court issue, the assessee submitted before the CIT(A) that the very issue of deduction under section 35(1)(iv) was decided in assessee's favour in the assessment year 1999-2000 and, thus, an opinion in favour of the assessee was already in existence at the time of initiation of reassessment proceedings. Resultantly, the current opinion for the instant assessment year 2000-01 is a case of mere change of opinion and consequently, the reassessment proceedings initiated must be quashed. On considering the above submissions of the assessee, CIT(A) observed that this is case where the Assessing Officer initiated the reassessment proceedings within 4 years from the end of the relevant assessment year (i.e., assessment year 2000-01) and the original assessment was not completed under section 143(3) and, thus, the CIT(A) approved the validity of the reassessment relied on the jurisdictional High Court in the case of Dr. Amin's Pathology Laboratory v. P.N. Prasad, Jt. CIT (No. 1) [2001] 252 ITR 673 (Bom.) and Gujara....
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....h assessment year 1999-2000. This was the assessment reopened after 4 years for failure of full and true disclosure of relevant facts and Hon'ble High Court, as discussed in para 4 of the judgment, held in favour of the assessee and quashed the reassessment proceeding for assessment year 1999-2000. However, as per the ld. AR, the Hon'ble High Court had no occasion to go into the present issue. Further, in response to a query from the Bench on the applicability of the Apex Court's judgment in the case of the Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 . Ld. counsel argued that said judgment is distinguishable on facts and original opinion was not existing in that case. Per contra, learned DR argued stating that principle of res judicata applies to the matters relating the income-tax and every assessment must be decided independent of the others. Therefore, the opinion formed in respect of the assessment year 1999-2000 is applicable to the instant assessment year. Further, ld. DR outlined the significance of the relationship between the summary assessment under section 143(1) and the formation of opinion in view of the judgment in the case of Rajesh Jhaver....
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.... the reassessment proceedings have the genesis of 'change of opinion' is dismissed. Further, it is decided issue that the principle of res judicata applies to income-tax matters and every assessment is independent. In view of the same, we are of the considered view that Assessing Officer has rightly assumed jurisdiction under section 147 of the Act. 6. Further, we have also heard the arguments of the both the parties in connection with the merits of the denying the claims of deduction under section 35(1)(iv) in respect of capital expenditure on scientific research related to business amounting to Rs. 49,52,013. Ld. counsel for assessee argued that the claims of the assessee under clause (iv) of section 35(1) should be allowed. His arguments in this regard are : (i) assessee's business is conducting scientific research and investing in joint ventures and the said research is related to that business; (ii) undisputedly, the outcome of such research is for the business of the subsidiary companies; (iii) the words 'related to business' used in clause (iv) of section 35(1) has wider connotation vis-a-vis the words 'for the purposes of the business' used in section 37 and, therefore, ....
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....d the dispute for this assessment year, it is necessary to examine the scope of the relevant provisions in the Act. Certain provisions of section 35 and the definition of 'scientific research' as given in section 43 are relevant. They are: "35. Expenditure on Scientific Research.-(1) In respect of expenditure on scientific research, the following deduction shall be allowed- (i)to (iii)****** (iv)in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2). ****** (2) For the purpose of clause (iv) of section (1),- (i)to (iii)****** (iv)where a deduction is allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under clause (ii) of sub-section (1) of section 32 for the same or any other previous year in respect of that asset; ****** Further, sub-section (4) of section 43 relating to "Definitions of certain terms relevant to income from profits and gains of business or profession" provides for the definition of "scientific resear....
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....ortance. Consequently, the scientific research related to a business carried on by the assessee should be read to restrict the scope of the deductions. Consequently, the deduction is not available when the scientific research relate to a business is not carried on by the assessee. The nexus between the scientific research on one side and its relationship with the business carried on by the assessee on the other side assumes great significance. The reference to 'scientific research related to a business' in section 43(4)(iii)( a) is defined to include the cases of scientific research, which may 'lead to or to facilitate an extension of that business' and the words 'that business' refers to the business of the assessee. To continue the discussion, we find that an assessee may be engaged in a particular business and may also undertake the scientific research activity relating to that business and incur capital expenditure on such research. Alternatively, an assessee, as in the instant case, may be engaged in the scientific research activity as its business and by that activity, assessee may be catering to the said research needs of the business carried on by the other assessees, say t....
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.... covered by section 43(4)(iii)( a), i.e., the cases of scientific research, which may 'lead to or to facilitate an extension of that business'. Thus, by conducting the said research, the assessee generates a marketable product or stock-in-trade in the form of the scientific research. In these circumstances, we are of the opinion that the provisions of section 35(1)(iv) have no applicable to assessee's case and, accordingly, this part of the arguments of the assessee's counsel is dismissed. 11. A. Further, we find it is necessary to examine the arguments of the counsel relating to reliance on the Tribunal decision in the case of Vickers Sperry of India (supra) for the proposition that the use of the language i.e., 'related to the business' has wider connotation vis-á-vis 'for the purpose of the business' and, therefore, the benefits of section 35 must be available even when the assessee is engaged in the business of scientific research and such research is not used for the business carried on by the assessee. The perusal of the said judgment revealed that it was pronounced in the times when there was debate on the issue whether the assessee is entitled to depreciation clai....
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....s 'related to', according to plain dictionary meaning, mean connected or associated with which connection or association may be direct or remote. It may mean related in some manner or the other. The word 'related' has been defined in Webster Universal Dictionary (unabridged international edition 1970) as having a casual or logical connection, etc. In the premises we find it difficult to accept that the expression 'for the purposes of business' covers within it the expression 'related to the business'. On the other hand, we are of the view that all expenditure for the purpose of business has got to be related to the business but the reverse may not always be true. Our aforesaid view finds support from the inclusive definition of the expression 'scientific research related to a business' in section 43(4) as under : (which is reproduced on page 8 of this order). ****** The inclusive definition clearly contemplates expenditure on scientific research to be in connection with the expansion of the business as distinct from in connection with the existing business. Therefore, the possibility that section 35 may cover expenditure on scientific research under clauses (i) and (iv) of su....
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....ing capital expenditure on scientific research were used for the purpose of business. Having regard to the nature of the assets and the use they are put to (briefly mentioned by us in paragraph 2 of this order) and keeping in view the ratio of the Supreme Court's decision in the case of Malayalam Plantations Ltd. (supra), we have no difficulty in holding that the capital assets in the case before us, which represent capital expenditure on scientific research related to the business, are and can be said to have been used for the purpose of the business." C. The factual position before the Hon'ble Special Bench was that the assessee was carrying on a business, viz., of manufacture and sale of hydraulic equipments and did scientific research related to that business. In the present case, the business of the assessee itself was to carry out scientific research. The Hon'ble Special Bench, therefore, had no occasion to consider issues as to whether where a business of an assessee itself undertaking Scientific Research, deduction under section 35(1)(iv) was available. This aspect gets further strengthened by the observations in the first and second sentence of Para 6.3 and the italicis....
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....to make him eligible for deduction under section 35 of the Income-tax Act. We, therefore, hold that the assessee is not entitled for the deduction under section 35 of the Act of the capital expenditure incurred on scientific research. Accordingly, the order the CIT(A) stands confirmed." (part of para 12). 13. In the light of the above scope and the discussion on the arguments of ld. counsel of the assessee, we are of the considered opinion that the assessee incurred capital expenditure on the scientific research and undisputedly it is related to the subsidiary company such as CIBA Basle. Assessee does not have any active business activity carried on by him to which the said research relate to. Further, we find that this is not a case of cacus omicus after the amendment to section 35(2)(iv) to suppress the effects of the Tribunal decision in the case of Vickers Sperry of India (supra). Consequently, the recent Co-ordinate Bench decision in assessee's own case for assessment year 2001-02 as discussed above is applicable and binding. Regarding the Assessing Officer's decision in thrusting of the depreciation under section 32 of the Act, in the facts and circumstances of the issue w....