TaxTMI 
TaxTMI 
2003 (1) TMI 740
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....were sold in the year under consideration and before they ceased to be scientific research without using them in the business. These assets were thus held for more than 36 months and consequently they were long term capital assets on the date of sale. The sale consideration to the extent of cost as was allowed under section 35 was assessed to tax under section 41(3) of the Act. The difference between the cost as increased to indexed cost and sale consideration was claimed as a long term loss under the head "capital gain". It is also claimed as loss under the head "business". The position of the cost, the sale price, the indexed cost and the loss in tabulated as under:- Particulars Cost as Increase on Sale Consider- Loss wit Loss wit Allowed account of ation assessed reference reference under indexed under to actual to to indexed section cost section 41(3) cost cost 35 Rs. Rs. Rs. Rs. Rs. (1) (2) (3) (4) (5) (2 + 4) (6) (3 + 5) Equipment & fu....
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....er:- "Assessee has himself emphasised that loss on account of sale of R&D assets is in fact a business loss. But it is quite interesting to note that he has computed it under the chapter capital gain. In fact, there are clear provisions of section 41(3) of the Act which have dealt out the income (inclusive of losses) to be worked out on account of sale of the R&D assets. As per these provisions, assessee has in fact earned the income chargeable under section 41(3) of the Act. The decision quoted by the assessee company of Hon'ble Gujarat High Court in the case of CIT v. Bhavnagar Trust Corporation P. Ltd. ( 69 ITR 278) is not applicable at all because the dividend income earned on the shares were in fact the business assets held as stock-in-trade. Accordingly, dividend income has correctly been treated as business income as per the decision of Gujarat High Court. In fact, this decision goes against the assessee's claim of computing the capital gain on the sale of R&D assets as it was a business asset and accordingly expenditure on that allowed as a revenue expenditure under section 35 of the Act. Assessee had also quoted a Supreme Court decision in the ca....
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....ious year in which the sale took place. It is an established principle that the taxing statutes are to be strictly construed. It is also an established principle of interpretation of statutes that a specific provision of the statute over-rules the general provision of the statute. Vide its judgment reported as 101 ITR 764 , the Supreme Court has laid down that if the language of the statute is clear and unambiguous, it would be wrong to discard the plain meaning of the words. Similar principle has been laid down by the Supreme Court in its judgments reported as 55 ITR 741 and 32 ITR 615. Considering the facts of the appellant's case and considering the clear and unambiguous language of section 41(3), it is held that the appellant's case is covered by the provisions of section 41(3). Accordingly, it is held that the Assessing Officer's action in disallowing the appellant's claim for the alleged capital loss is in keeping with the statutory provisions of section 41(3). Therefore, the Assessing Officer's action in rejecting the appellant's claim for alleged capital loss on the sale of research and development (scientific research) assets stands confirmed. Moreover, considering the fac....
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....ee submitted that the departmental authorities are not justified in disallowing its claim merely on the ground that the deduction of the cost of these assets had been allowed under section 35 of the Act. He referred to in this connection two decisions of Bombay High Court (1) in the case of CIT v. Morris Electronics Ltd. [1991] 190 ITR 653 and (2) CIT v. A.L.A. Chemicals (P.) Ltd. [1993] 203 ITR 891 and a decision of Andhra Pradesh High Court in the case of CIT v. Warner Hindustan Ltd. [1986] 160 ITR 217 , the decision of Karnataka High Court in the case of CIT v. HMT Ltd. [1993] 203 ITR 811 and the decision of Gujarat High Court in the case of CIT v. Sarabhai Sons (P.) Ltd. [1993] 204 ITR 728. These are the cases where the cost of the assets used in scientific research were attempted to be excluded while computing the capital employed for the purposes of deduction under section 80J on the ground that the entire cost of these assets had been allowed as a deduction under section 35. The courts have held that these were not to be reduced. For the proposition that the loss is to be allowed a set off, the learned counsel o....
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....enditure of capital nature on scientific research related to the business carried on by the assessee, but the mere fact that it has been allowed as a deduction under section 35 does not mean that the asset used for scientific research ceases to be an asset or a capital asset within the meaning of section 2(14) of the Act. We may usefully refer to the decision of the Andhra Pradesh High Court in the case of Warner Hindustan Ltd. (supra) wherein the court observed at page 227 of the reports as under:- "The fact that deduction is given for the purpose of computing taxable income under section 35 for expenditure on scientific research does not mean that it ceases to be capital employed or an asset." These observations were approved by Their Lordships of Gujarat High Court in the case of Sarabhai Sons (P.) Ltd. (supra) by stating "hence the fact that deduction is given for the purpose of computing taxable income under section 35 or the expenditure on scientific research does not mean that it ceases to be capital employed or an asset and, therefore, in computing the total value of assets under rule 19A(2) of the Income-tax Rules, 1962, capital expenditure on scientific resear....
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....statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions - both under section 10(2)(vi) and section 10(2)(xiv) of the 1922 Act or both under section 32(1)(ii) and section 35(1)(iv) of the 1961 Act." It is also held that "the deduction of the allowance on scientific research asset and the depreciation are basically of the same nature intended to enable the assessee to write off certain items of capital expenditure against his business profit" 11. On a careful reading of the decision of Supreme Court, it would be noticed that the court itself made an exception by stating that "if in absence of clear statutory indication to the contrary". In other words, the Legislature may provide for allowance of the same amount of expenditure for various purposes. We may mention a few cases which come under section 80J and the inclusion of scientific research assets allowed fully under section 35, were again held includible in computing capital employed. The cost of acquisition is included in value of assets while computing the capital employed under section 80J. It is not an allowance as such. It is included to determine the capital employe....
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.... [page 874 of (1922) 2 Scale] when it says that the two deductions, i.e. deductions under sections 32 and 35 are (at page 59 of 199 ITR) : "basically of the same nature intended to enable the assessee to write off certain items of capital expenditure against his business profits". A deduction under section 80J is not of the same nature as a deduction under section 35. Therefore, in our view, the ratio of the Supreme Court judgment in Escorts Ltd.'s case (1993) 199 ITR 43, will not apply to the computation of capital under section 80J for the purpose of determining the quantum of deduction under section 80J." 13. The observations of Gujarat High Court in the case of Sarabhai Sons (P.) Ltd. (supra) in this connection are at page 733 of the report as under:- "Section 80J falls in Chapter VI-A of the Act. Section 80A, as it then stood, provided that, in computing the total income of the assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in sections 80C to 80U. Clause (5) of section 80B defined "gross total income" as the total income computed in accordance with the provision....
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....pose of that Chapter, the income as computed in terms of sections 28 to 43A was to be regarded as the gross total income. Having provided like this, the Legislature then provided for a deduction under section 80J. This is a clear indication in the Act itself to show that the deduction contemplated by section 80J was to be granted in addition to other deductions that were available under other provisions of the Act." 14. The deduction claimed by the assessee is of the indexed cost which is the amount of the actual cost which is allowed under section 35 and the amount of increase on account of inflation index. The cost of acquisition for the purposes of section 48 as is generally understood in the common parlance is the price paid for the acquisition of an asset. Section 55(2) provides for some different amount to be the cost of acquisition in certain eventualities with which we are not concerned in this case. If the cost of acquisition of an asset is the price paid by the assessee that amount has to be allowed as a deduction under the main provisions of section 48 of the Act. It has to be allowed at a higher amount as an indexed cost of acquisition by virtue of the second proviso....
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....ting income by way of capital gain and the other for computing business income. The fact that a deduction of the entire cost of acquisition has been allowed to an assessee under section 35 while computing the business income of the assessee may be a relevant consideration for not allowing the cost of acquisition while computing the capital gain arising on transfer of the capital asset, on the principle of prohibition for double deduction of the same amount of capital expenditure or the cost of acquisition. As both the sections deal with computing the income of the assessee under the same Chapter IV of the Act, it would be a case of allowing double deduction to the assessee of the same amount once while computing income under section 28 and again under section 45 of the Act and which may be held to be not contemplated by the Legislature as envisaged by the Supreme Court in the case of Escorts Ltd. (supra). We, therefore, hold that the assessee is not entitled to deduction of cost of acquisition of the scientific research assets as the same has been allowed already as a deduction under section 35. 16. The further claim of the assessee that the said loss is to be allowed as a busin....