TaxTMI 
TaxTMI 
2023 (7) TMI 23
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....ted for scrutiny and the statutory notices were duly served on the assessee. The Assessing Officer while completing the assessment made addition towards gifts and sales promotion expenses and also disallowed the amount claimed towards scientific research as a weighted deduction under section 35(2AB). Aggrieved, the assessee preferred appeal before the CIT(A), who sustained the order of the Assessing Officer. Aggrieved, he assessee filed appeal before the Tribunal. 4. The assessee vide letters date 07/01/2021, 26/03/2021 and 02/05/2022 raised additional grounds. The issues contended which are common for all the assessment years under consideration through various grounds including the additional ground are tabulated as below - Sl.No Issue AY 2012-13 AY 2013-14 AY 2014-15 AY 2015-16 1 Disallowance of Expenditure incurred on gifts & Sales promotion Ground No.1 Ground No.1 Ground No.1 Ground No.1 2 Normal deduction for Research & Development expenditure Ground No.2 Ground No.2 - 3 Allowability of education cess paid on Income Tax Ground No.3 (raised as Additional ground) Ground No.2 (raised as Additio....
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.... Weighted deduction for expenditure towards Scientific Research u/s.35(2AB) 7. Brief facts of the impugned issue for A.Y. 2012-13 are that during the course of assessment proceedings, the assessee was required to furnish form 3CL which is a certificate issued by the Department of Scientific and Industrial Research(DSIR) under section 35(2 AB) of the Income-tax Act, 1961 (in short, the Act). On verification of the said certificate, the Assessing Officer noticed that the DSIR had specified an amount of Rs. 22,62,84,000/- as capital expenditure whereas the assessee has claimed a weighted deduction @ 200% of Rs. 24,24,43,314/-. The Assessing Officer accordingly proceeded to disallow the difference amount of Rs. 1,61,59,314/- as being amount not approved by DSIR and therefore the weighted deduction cannot be allowed. The Ld.CIT(A) upheld the disallowance. 8. Before us, the Ld.AR submitted that the assessee's scientific research facility has been approved by the prescribed authority, viz. DSIR and the said approval is given in form 3CM. As per the DSIR guidelines, the assessee is required to furnish the details of expenditure incurred towards scientific research as certified b....
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....ed by the DSIR. We notice in this regard that the coordinate bench in the case of Strides Arcolab Limited (supra) has considered a similar issue and held that - 11.6.5 We heard the parties and perused the materials on record. Before proceeding further, we will look at the relevant provisions of section 35(2AB), Rules and the Guidelines for approval by DSIR of the in-house R&D facility :- Section 35(2AB): (1) Where a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule]] incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and one-half times of the expenditure so incurred. Explanation.-For the purposes of this clause, "expenditure on scientific research", in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory a....
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....ture or production of any drugs, pharmaceuticals, electronic equipment, computers, telecommunication equipment, chemicals or any other article or thing notified in this behalf. It is also proposed that no deduction shall be allowed in respect of expenditure on land and building. It is also proposed that the company shall enter into an agreement of co-operation and audit with the prescribed authority before approval of the research and development facility. The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years." In terms of Sec.35(2AB)(4), the prescribed authority has to submit its report in relation to the approval of the said facility to the Director General in such form and within such time as may be prescribed. Income Tax Rules, 1962 (Rules) prescribes the procedure for approval of the prescribed authority and the manner in which report has to be prepared by the prescribed authority. The relevant rules in so far as it concerns to deduction u/s.35(2AB) of the Act are provided in Sub-Rule(1B), (4), (5A) and 7A of Rule 6 of the Rules. These rules read as follow....
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.... I have audited the accounts of the in-house R&D Centre of M/s _______________________ located at ___________________ which is approved U/S 35(2AB) by the Prescribed Authority (Secretary, DSIR). I certify that: a) The company has maintained separate accounts for the R&D Centre approved by DSIR U/S 35(2AB). b) The accounts have been satisfactorily maintained. The expenditure certified are also in consonance with DSIR guidelines. c) The firm has extended full co-operation to me in carrying out the audit of the accounts of the R&D Centre. The expenditure of Rs. ------------ reported for the financial year ----------relevant to the assessment year -------------- as detailed out in Appendix II to Annexure IV of DSIR guideline at para Rs. 4' is correct to the best of my knowledge and belief as per the result of the audit of the approved R&D Centre carried out by me. Also R&D capital expenditure is reflected on page ----and revenue expenditure on page ---- in the audited financial statement/annual report It is further certified that the expenditure claims do not include the following: - i. Expenditure on outsourced R&D activities. ii.....
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....sions of Sec.35 of the Act. 11.6.8 In assessee's case, there is no dispute that the assessee has fulfilled all the conditions for the purpose of section 35(2AB). This fact has been accepted by the revenue which is evidenced by the AO's order of assessment where he has allowed deduction towards the impugned amount @ 100% as against the 150% claimed by the assessee. Therefore the issue for consideration is limited to whether the expenditure claimed by the assessee as incurred towards scientific research is eligible for weighted deduction since the assessee's facility from where the expenditure is incurred is approved by DSIR. As already seen, once the assessee submits the details of expenditure as certified by the Director and the Auditor, the DSIR is required to certify the same in Form 3CL certifying the amount eligible for weighted deduction. It is very relevant here to note that there was an amendment with effect from 01.07.2016 to Rule 6(7A)(b) of the Income Tax Rules whereby it has been laid down that the prescribed authority, i.e., DSIR shall quantify the quantum of deduction to be allowed to an Assessee u/s.35(2AB) of the Act. Prior to such substitution, the....
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....hereafter the role of Assessing Officer is to look into and allow the expenditure incurred on in-house R&D facility as weighted deduction under section 35(2AB) of the Act. Accordingly, we hold so. Thus, we reverse the order of Assessing Officer in curtailing the deduction claimed under section 35(2AB) of the Act by Rs. 6,75,000/-. Thus, grounds of appeal No.10.1, 10.2 and 10.3 are allowed." 11.6.9 We also notice that the coordinate bench of the Tribunal in the case of UltraTech Cement Ltd. vs DCIT [2022] 139 taxmann.com 151 (Mumbai - Trib.) has considered a similar issue and held that 112. We have heard the rival contentions and perused the material on record. To understand the controversy, it's important to examine the requirements of section 35(2AB)(1) which reads as under : "(2AB)(1) Where a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility a....
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....tion u/s 35(2AB) of the I.T. Act has significance. Therefore, we hold that the deduction u/s 35(2AB) of the I.T. Act be granted as claimed by the assessee instead of restricting it to the quantum of claim as mentioned in .Form No. 3CL by the prescribed authority. It is ordered accordingly." 115. As can be noted above, the Tribunal relied on another decision of the same Bench in the case of Mahindra Electric Mobility Ltd. v. Asstt.CIT [ITA No. 641 (Bang.) of 2017, dated 14-9-2018] wherein it was observed as under: "20. From the above discussion it is clear that prior to 1-7-2016 Form 3CL had no legal sanctity and it is only w.e.f 1-7-2016 with the amendment to Rule 6(7A)(b) of the Rules, that the quantification of the weighted deduction u/s.35(2AB) of the Act has significance. In the present case there is no difficulty about the quantum of deduction u/s.35(2AB) of the Act, because the AO allowed 100% of the expenditure as deduction u/s.35(2AB)(1)(i) of the Act, as expenditure on scientific research. Deduction u/s.35(1)(i) and sec.35(2AB) of the Act are similar except that the deduction u/s.35(2AB) is allowed as weighted deduction at 200% of the expenditure while de....
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....e in earlier assessment years. In view of these discussions and respectfully following the above judicial pronouncements we hold that the assessee should be allowed the weighted deduction as has been claimed in the return of income and accordingly direct the assessing officer to delete the disallowance made in this regard. 11. Respectfully following the above decision of the coordinate bench we hold that the assessee should be allowed the weighted deduction as has been claimed in the return of income and accordingly direct the assessing officer to delete the disallowance made in this regard. 12. This issue is common for AY 2013-14 to 2015-16 also and therefore the above decision is applicable mutatis mutandis for these years too. Accordingly the disallowance made by the Assessing Officer towards claim of weighted deduction is deleted for these assessment years also. 13. Since we have held the ground raised with regard to weighted deduction in favour of the assessee the alternate plea that if weighted deduction under section 35(2AB) is not allowed, then 100% of the expenditure should be allowed under section 37(1) has become academic. Accordingly the grounds raised in this ....
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....iled, the assessee has not included the above amount incurred towards clinical trial as a deduction under section 35(2AB). During the course of hearing, the bench posed a question to the Ld.AR as to whether the amount disallowed in the computation of income i.e.Rs. 11,72,64,041/- includes the clinical trial expenses debited to the P&L Account. The Ld.AR in reply submitted that the amount disallowed does not include clinical trial expenses and, therefore, prayed that the assessee through this ground is praying only for the additional 100% deduction since the other 100% is already debited and claimed in the return of income. We have already held that the approval by DSIR of the facility from which the scientific research expenditure are incurred is the deciding factor for allowing the expenditure, which in assessee's case is available on record. The section allows the expenditure incurred towards clinical trial by the approved entity and, therefore, we see no reason to deny the benefit of weighted deduction or the expenditure incurred by the assessee towards clinical trial. Accordingly, we direct the Assessing Officer to allow the additional 100% of the deduction since the assessee i....
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....M/s. Scope International Pvt. Ltd., (supra) the Hon'ble Madras High Court considering the decision of the Hon'ble Supreme Court in the case of CIT v. K. Srinivasan [83 ITR 346] held that MAT credit has to be given including the amount of surcharge and education cess. 6. The Hyderabad Bench of the Tribunal in the case of Virtusa (India) (P.) Ltd., v. DCIT (supra) taking note of the decision of the Hon'ble Apex Court in the case of CIT v. K. Srinivasan (supra) wherein the Hon'ble Apex Court held that the word "Income-tax" would include surcharge and additional surcharge". The Tribunal held that the eligible MAT credit available to set off for the company during the captioned assessment year needs to be arrived at by comparing difference between the tax liability (inclusive of surcharge and cess) computed under normal provisions of the Act and the tax liability (inclusive of surcharge and cess) computed under the provisions of section 115JB of the Act. 7. In the case of Bhagwati Oxygen Ltd., v. ACIT (supra) the Kolkata bench of the Tribunal held as under: - "8. We have heard the rival submissions. The facts stated hereinabove remain undispute....
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.... available should be done in accordance with law and not on the basis of 'inappropriate' form prescribed under the rules inadvertently. It is noted that Hon'ble Calcutta High Court has held that for the purpose of section 115JB, surcharge and cess are part of income-tax payable in accordance with provisions of section 115JB. Therefore, when the tax is paid u/s 115JB along with surcharge and cess, then entire amount would be considered for carry forward of the credit available u/s 115JAA and accordingly the entire amount would be available for the benefit of set off in the subsequent years from the amount of gross tax payable by the assessee. During the course of hearing before us, Ld. Counsel submitted before us three types of work sheets wherein tax payable after setting off amount of credit available u/s 115JAA was worked out in three different methods. We find that the following working shows the appropriate method of computing tax liability and setting off amount of credit available u/s 115JAA:- COMPUTATION OF TAX LIABILITY ON TOTAL INCOME AS PER INCOME TAX ACT, 1961 1 Total Income Rs. 1,093,157,260 2 ....
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.... debatable. We observed that this decision of the Delhi Bench of the Tribunal was rendered for A.Y. 2010-11. However, in the case on hand the assessment year involved is A.Y. 2014-15 and this decision of the Delhi Bench of the Tribunal is not applicable to the facts of the assessee's case for the reason that the Format of ITR-6 prior to A.Y. 2012-13 was designed in such a manner that the tax liabilities in ITA NO. 2397/MUM/2019 (A.Y: 2014-15) M/s. Tata Motors Ltd., Part B-TTI (i.e. Total taxable income) both under normal provisions and under MAT provisions was computed without surcharge and cess and on the net amount (i.e. after grant of MAT credit) surcharge and cess was levied. We noticed that the Format ITR-6 was amended from A.Y. 2012-13 wherein the tax liability in Part-B -TTI both under normal provisions and under MAT provisions computed including surcharge and cess. MAT credit is computed automatically using the prescribed algorithm which is nothing but the balancing figure i.e. different between tax liability and MAT liability including surcharge and cess. Therefore, post A.Y. 2012-13 as the format of ITR-6 is so designed to compute MAT credit automatically using the pr....
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....4A is levied for delay in furnishing the return of income. We therefore direct the Assessing Officer to verify and delete the interest after giving a reasonable opportunity of being heard to the assessee. Refund of DDT 24. During the assessment year 2015-16 the assessee paid dividend aggregating to Rs. 25,43,09,250 to its shareholders on which the assessee had paid DDT of rupees for, 32,19,857. Out of the total dividend paid to its shareholders dividend aggregating to Rs. 13, 00, 26, 810 had been paid to 6 companies that got amalgamated into the assessee company. The assessee company had paid DDT of Rs. 2,20,98,056 on the dividend paid to these 6 companies. The appointed date of amalgamation as per the order of the High Court's 1st April 2014, which date is prior to the date of declaration of dividend. The assessee in the books of accounts has reversed to the entry of dividend cost amalgamation since there could not be any declaration/distribution of dividend to self. The assessee to this ground is praying for refund of DDT paid on dividend declared to the 6 companies which got amalgamated with the assessee company. 25. The Ld. AR also drew our attention to the annual ....
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....t by order dated 20th June 2000. In the return of income filed by the transferee company, a detailed note to this effect was filed pointing out that distribution dividend tax was already paid which, by virtue of such merger of companies, was required to be refunded. 14. By now it is well settled that a merger or amalgamation scheme once sanctioned by the competent court would take effect from the date of the order envisaged in the scheme itself unless, of course, the court sanctioning such scheme otherwise provides. In the case of Marshall Sons and Co. (India) Ltd. (supra), the Apex Court observed as under : "Every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation/transfer shall take place. The scheme concerned herein does so provide viz. January 1, 1982. It is true that while sanctioning the scheme it is open to the Court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in this facts and circumstances of the case. If the Court so specifies a date, there is little doubt that such date would be the date of amalgamation/date of transfer. But where the Court does not presc....
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....of dividend, negotiations were going on for amalgamation of both the companies. Both the companies, therefore, presented a scheme for amalgamation before the High Court. The High Court sanctioned the scheme under an order dated 6th January 1969. Under the order of the Court, amalgamation was to take effect from 1st April 1968. In this context, the High Court considered the question whether the Tribunal erred in holding that a sum of Rs. 2,14,000/- declared as dividend on 2nd September 1968 was liable to be taxed as income in the hands of the assessee company. In this context, the High Court observed that the assessee company ceased to be a shareholder of the jute company with effect from 1st April 1968. It is trite law that a company cannot hold shares of its own company. As a natural corollary, it cannot receive dividend out of its own profits. The High Court eventually held as under : "Evidently, dividend is made taxable as the income of the previous year in which it is declared. The dividend income, thus accrues as income of the previous year in which it is declared as distinct from income of the day on which it is declared. If something happens during the previous year....
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....claration and payment of dividend, scheme for amalgamation was framed. By virtue of the decision of the High Court, such scheme was sanctioned with no variation in the effective date. Thus, the date of amalgamation which actually took effect was prior to the date on which dividend was declared and paid. In that view of the matter, we have no hesitation in holding that by virtue of such subsequent developments, the payment of dividend could no longer retain the character of dividend paid by Torrent Power Ltd since there cannot be payment of dividend by one company to its own self. 16. Our attention was also drawn to a decision of Division Bench of this Court dated 13/16th July 2012 in Special Civil Application No.9980 of 2001 in case of Cadila Healthcare Ltd. In the said case, question of payment of sales tax on the sales made by the transferor company to the transferee company between effective date as envisaged in the amalgamation scheme till the date the High Court sanctioned such scheme. In that context, referring to the decision of the Apex Court in the case of Marshall Sons & Co. (India) Ltd. (supra), Division Bench of this Court held that such transfers would cease t....
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....e having once declared dividend subsequently passed a resolution to treat such amount as credit in the accounts of the shareholders. In the present case, however, situation is substantially different. It was not the Company's own volition by which it desired to change the character of payment of dividend to any other nature. It was because of the subsequent developments, which however, had the effect from the date anterior to the date of payment of dividend and by virtue of which such payment ceased to retain the character of dividend. Any other view would effectively nullify the effective date of amalgamation of companies. 18. Counsel for the Revenue, we may recall, placed reliance on the provisions of section 115-O of the Act. It is undoubtedly true that sub-section (1) of section 115-O starts with a non-obstante clause and provides that notwithstanding anything contained in any other provisions of the Act, in addition to the income chargeable to tax in case of a domestic company, there shall be tax on any amount declared, distributed or paid by such company by way of dividend or interim dividend. Sub-section (3) thereof further provides that the principal officer of....