TaxTMI 
TaxTMI 
2012 (12) TMI 406
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....for its branch business in India. The original assessment was completed on 16-11-1983 on an assessed income of Rs. 1,34,34,300/- as against the income returned of Rs. 69,10,646/-. The said assessment was subject matter of appeal before the ld. CIT(A) and thereafter before the Tribunal. The ITAT vide its consolidated order in ITA No. 6471 & 6908/Bom/1983, 3695 and 6911/Bom/1984 for assessment years 1980-81 and 1981-82 order dtd. 16-12-1992 on the issue of disallowance of laboratory expenses has observed and held vide para 8 as under:- "8. The next dispute in revenue's appeals for the two years is for laboratory expenses incurred outside India and attributable to Indian Branch and whether would be treated as head office expenses for the purposes of disallowance under s. 44C of the Act. We find that in the assessment year 1979-80, an identical point was sent back to the file of the assessing officer, by the Tribunal. For similar reasons and with similar directions, we set aside the orders of the departmental authorities on the point and sent back the matter to the assessing officer to examine the issue afresh after affording an opportunity of being heard to the assessee." Pursua....
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....order of the ld. CIT(A) the assessee is in appeal before us challenging in the common grounds for the assessment years 1981- 82 and 1982-83 the sustenance of disallowance of laboratory expenses Rs. 66,90,924/- in A.Y. 1981-82 and Rs. 68,25,014/- in A.Y. 1982-83. 5. At the time of hearing the ld. counsel for the assessee, at the outset, submits that the Tribunal in assessee's own case in ITA Nos. 1916(Bom) and 1917(Bom) of 1980 for assessment years 1975-76 and 1976-77 order dtd. 12-4-1983 on the appeal filed by the Revenue while upholding the order of the ld. CIT(A) has held vide para 7 of the order as under:- "7. Having heard the parties and after going through the details of the World expenses and the manner in which they have been apportioned as made in annexure 'A' and 'B' to the order of the Commissioner of Income-tax (Appeals) and other statements prepared by the assessee at our instance, we hold that the assessee's claim for deduction was correctly accepted by the Commissioner of Income-tax (Appeals). As pointed out by the Inspecting Assistant Commissioners and the Commissioner of Income-tax (Appeals), the fact that no portion of the expenses under some of the heads is ....
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....tificate from Arthur Andersen & Co. re. Laboratory expenses - assessment year 1981-82 (page No. 21-24 of paper book). 2. Allocation Statement of London Overheads - assessment year 1981-82 (Page No. 25-27 of paper book). 3. Certificate from Arthur Andersen & Co. re. laboratory expenses - assessment year 1982-83 (Page No. 28-33 of paper book). 4. Allocation Statement of London Overheads - assessment year 1982-83 (page No. 34-36 of paper book). 5. Computation of tax for the assessment year years 1981-82 and 1982-83 (Page No. 37-43 of paper book). In view of the above, the ld. counsel for the assessee submits that the apportionment of laboratory expenses based on the percentage of gross sales of the Indian Branch to total gross sales of Head Office - U.K. are equivalent to Indian Rupees 66,90,924/- for A.Y. 1981-82 and Rs. 68,25,014/- for A.Y. 1982- 83 and did not include any expenditure under clauses (a), (b), (c) and (d) of Explanation (iv) to section 44C of the Act and, hence, the same are allowable as claimed by the assessee. The ld. counsel for the assessee further submits that the Hon'ble Supreme Court of the United States in the case of Arthur Andersen LLP, Petiti....
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....ed apportionment of laboratory expenses based on the percentage of gross sales of the Indian Branch to total gross sales of Head Office in U.K. However, in the assessment years under consideration the A.O. disallowed the claim of the assessee on the ground that the expenses claimed by the assessee are merely in the nature of general administration and executive in nature, therefore, according to the provisions of section 44C of the Act the same are not allowable. On appeal the ld. CIT(A) while observing that the appellant has failed to produce the books of accounts and relevant documents and particularly the evidence that the said expenditure had not been allowed or proportionately disallowed in the case of parent company in U.K. Income Tax assessment, confirmed the disallowance made by the A.O. 8. Their Lordships in assessee's own case in John Wyeth and Brother Ltd. vs. CIT (2009) 312 ITR 80 (Bom) has examined the provisions of section 44C of the Act in detail and observed and held as under (page 87 to 89):- "The definition of " head office expenditure" given in Explanation (iv) to section 44C is once again reproduced hereunder. "(iv) head office expenditure` means....
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.... assessee` s statement that the research and development expenditure claimed does not include the expenditure in the nature of rents, rates, taxes, salaries, etc., reached the conclusion that the laboratory expenditure was not connected with the general and administrative expenditure covered by clauses (a), (b), (c) and (d) of Explanation (iv) of section 44C. We are of the view that the Tribunal in the absence of any evidence has not reached a final conclusion whether laboratory expenses are covered under section 44C or not and has taken a very reasonable and rational view, namely, that the matter requires consideration as to whether the laboratory expenses include any of the expenditure mentioned in clauses (a), (b), (c) and (d) of Explanation (iv) to section 44C of the Income-tax Act, 1961. We see merit in the suggestion of the Tribunal that the establishment/supporting staff may exist in connection with maintaining of the laboratory and that could be the expenditure in the nature of that indicated in clauses (a) to (d) for such establishment/supporting staff. This is all the more required because as recorded by the Assessing Officer the assessee had in fact clubbed this expendit....
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....y by the Indian branch, Pound 13,803 is in agreement with the financial statements of the Indian branch as received by the Company in the United Kingdom and incorporated into the statutory accounts for the year ended 31 October 1980. We also confirm that an additional apportionment of pound 362,063 was made to the Indian branch. This apportionment is based on the percentage of gross sales of the Indian branch to total gross sales of John Wyeth & Brother Limited........" The relevant paras of the certificate of the Chartered Accountant dtd. 25-1-1985 for the A.Y. 1982-83 read as under:- "......We confirm that total laboratory expenses of Pound 3,404,133 were incurred by John Wyeth & Brother Limited and are incorporated in the statutory accounts of John Wyeth & Brother Limited at 31 October 1981 upon which our firm gave an unqualified audit report. We also confirm that the detailed analysis of this expenditure as shown on Schedule 1 (document two above) is in agreement with the accounting records of the Company which formed the basis of the statutory accounts referred to in the preceding paragraph. We confirm that laboratory expenses incurred directly by the Indian branch....