TaxTMI 
TaxTMI 
2008 (8) TMI 580
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....under section 35 ? (ii) Whether on the facts and in the circumstances of the case the Tribunal was correct in holding that the expenditure of a capital nature was admissible as deduction when the expenditure was not incurred for the existing business ?" 2. This appeal relates to the assessment year 1992-93. The undisputed facts of the case are that the assessee was carrying on the business of manufacture and sale of precision sheet metal components. In the assess-ment year under reference, the assessee decided to manufacture and market automatic coffee machine named Vendomate. The case of the assessee was that before manufacturing and marketing such a machine, the assessee had imported an automatic coffee machine from abroa....
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.... and rejected the case of the Revenue. Hence, the present appeal by the Revenue. 5. To appreciate the rival contentions of the parties, it would be appro-priate to quote section 35(1)(i) and (iv) of the Income-tax Act (for short : the Act) which reads as under : "35. (1) In respect of expenditure on scientific research, the following deductions shall be allowed- (i) any expenditure (not being in the nature of capital expendi-ture) laid out or expended on scientific research related to the busi-ness . . . . (iv) in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduc-tion as may be admissible under the provisions of sub-section (2)....
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....that this expenditure was not in relation to the business. It was lastly contended that the matter should have been referred to the prescribed authority under section 35(3) of the Act. 9. Section 43(4) defines scientific research. In sub-clause (i), scientific research has been defined to mean any activity for the extension of know-ledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries. It is contended on behalf of the Revenue that this is the sole definition of scientific research and sub-clause (iii) cannot be read in isolation of sub-clause (i). This argument cannot be accepted. Section 43(4) in totality defines scientific research. The definition is comprehensive but the use of the....
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....(i)relating to or based on science, (ii) systematic or methodical. The word "research" has been defined in the same dictionary as "the systematic investigation into and study of materials and sources in order to establish facts and reach new conclusions". 12. On a combined reading of the meanings of the aforesaid two words, it is obvious that any methodical or systematic investigation based on science into the study of any materials and sources, is a scientific research. The dis-mantling of the imported coffee machine with a view to decipher how the said machine functions and also with a view to develop a new model of the machine with the intention of making the said machine suitable to Indian conditions is an investigation based on....
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....s scientific research. In support of his contention, he has relied upon a judgment of the Allahabad High Court in J. K. Synthetics Ltd. v. O.S. Bajpai, ITO [1976] 105 ITR 864 (All). 15. At the outset, we may note that this contention was neither raised before any of the income-tax authorities nor was raised in the grounds of appeal and for the first time it was raised at the time of hearing of the matter. We are, therefore, of the view that at this stage the Revenue cannot be permitted to raise this ground. 16. However, we have also considered that aspect of the matter in detail. After referring to section 35, the Allahabad High Court held as follows (page 884) : "It is apparent that if the Income-tax Officer does no....