TaxTMI 
TaxTMI 
2023 (7) TMI 23
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....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 Additional ground) Ground No.2 (raised as Additional ground) 4 Allowability of education cess paid on dividend distribution tax ....
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....CL 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 by a Chartered Accountant before DSIR and the DSIR issued the certificate in form 3CL. The Ld.AR drew our attention to the amendment to Rule 6(7a) with effect from 01/07/2016 wherein for the purpose of weighted deduction, the amount a....
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....oceeding 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 authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970). (2) No deduction shall be allowed in respect of the expenditure mentioned in clause (1) under any other provision of this Act. (....
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.... 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 follows: "(1B) For the purposes of sub-section (2AB) of section 35, the prescribed authority shall be the Secretary, Department of Scientific and Industrial Research."; "(4) The application required to be furnished by a company under sub-section(2AB) of section 35 shall be in Form No.3CK."; "(5A) The prescribed authority shall, if he is satisfied ....
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....es. 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. Expenditure purely related to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature. iii. Lease rent paid for research farms or research labs. iv. Capitalized expenditure of intangible nature. v. Expenditure on foundation seeds multiplication, demonstration crops and grow out test etc. beyond breeder seed development. vi. Foreign patent filing expenditure. vii. Con....
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....rom 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 above provisions merely provided that the prescribed authority shall submit its report in relation to the approval of in-house R & D facility in Form No.3CL to the DGIT (Exemption) within 60 days of granting approval. Therefore prior to 1.7.2016 there was no legal sanctity for Form No.3CL in the context of allowing deduction u/s.35(2AB) of the Act. This view has been held by the various judicial pronouncements as relied on by the ld AR including the decision of the Pune Bench of the Tribunal where in the case of Cummins India ltd (supra) it has been held that - "45. The issue whi....
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.... 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 as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and two times of the expenditure so incurred." 113. It is clear from the provisions of section 35(2AB) that once R&D facility is approved by the DSIR, the expenses incurred by the assessee have to be allowed. If the law wanted the expenditure to be approved by the prescribed authority, same would have been expressly provided in the section. 114. The Bangalore Tribunal in case of Natural Remedies (P.) Ltd. v. Asstt. CIT [IT Appeal No. 704 (Bang.) of 2020, dated 1-1-2021] has held that for the period prior to the ....
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....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 deduction u/s.35(1)(i) is allowed only at 100%. The conditions for allowing deduction u/s.35(1)(i) of the Act and under sec.35(2AB) of the Act are identical with the only difference being that the Assessee claiming deduction u/s.35(2AB) of the Act should be engaged in manufacture of certain articles or things. It is not in dispute that the Assessee is engaged in business to which sec.35(2AB) of the Act applied. The other condition required to be fulfilled for claiming deduction u/s.35(2AB) of the Act is that the research and development facility should be approved by the prescribed authority. The prescribed authority is the Secretary, Department of Scie....
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....le 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 regard do not warrant any adjudication. Weighted deduction for expenses incurred towards clinical trial expenses 14. The assessee, through ground 5 for AY 2012-13 made a plea that a sum of Rs. 3,24,39,000 incurred by the assessee towards clinical trial expenditure has inadvertently omitted to be claimed in the return of income filed for A.Y. 2012-13. In this regard, the Ld.AR drew our attention to the annual report (page 2 of paper book) and also submitted that DSIR in form 3CL has certified this amount as incurred towards clinical research (page 125 of paper book). The Ld.AR further drew our attention to the Explanation to section 35(2AB) which reads as under and prayed that since the amount inc....
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....search 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 in the computation of income has already claimed 100%. Allowance of MAT credit 17. The assessee is contending the issue of allowance of credit towards Minimum Alternate Tax (MAT) is inclusive of surcharge and education cess as per the normal provisions and the MAT provisions. The Ld.AR in this regard submitted that the eligible MAT credit to be considered for set off should include surcharge and education cess which are part of the tax. The Assessing Officer while adjusting the credit, however, has considered only the gross tax and not surcharge and education cess. The Ld.AR relied on the decision of the Hon'ble Calcutta High Court in the case of Srei Credit Infrastructure Finance Ltd vs DCIT (2016) 72 taxmann.c....
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....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 undisputed and hence the same are not reiterated for the sake of brevity. We find that the issue under dispute has been addressed against the assessee by the decision of Delhi Tribunal in the case of Richa Global Exports Pvt. Ltd. reported in 25 taxmann. com 1 (Del). We find that the issue under dispute is covered in favour of the assessee by the Co-ordinate Bench of Hyderabad Tribunal relied upon by the Ld. AR (supra). We find that Hyderabad Tribunal after considering the decision of Delhi Tribunal (supra) and after considering the decision of the Apex Court in the case of CIT vs. K. Srinivasan reported in 83 ITR 346 (SC) had held that tax includes surcharge and cess and accordingly the entire component of taxes including surcharge and cess shall have to be reckoned for calculating the MAT credit u/s 115JAA of the Act....
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....A 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 Tax Payable on total income a Tax at normal rates Rs. 327,839,585 b Tax at special raes - c Tax payable on total income Rs. 327,839,585 3 Surcharge on 2c Rs. 32,783,959 4 Education cess on (2c+3) Rs. 10,818,706 5 Credit under section HSJAA of tax paid in earlier years a Income-tax Rs. 29,976,115 b Surcharge Rs. 2,597,612 c Education Cess on (5a+ 5b) Rs. 857,212 Rs. 29,430,939 Tax payable after credit under section 115JAA Rs. 342,011,311 During the course of hearing, the Ld. DR also fairly submi....
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....e 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 prescribed algorithm i.e. difference between tax liability and MAT liability including surcharge and cess is a balancing figure. In our view there cannot be any debate as to the exclusion of surcharge and cess. Therefore, the observation of the Ld.CIT(A) that the issue is debatable one is not sustainable. Further, we observe that majority of the decisions including the decisions of the Hon'ble Calcutta High Court and Hon'ble Madras High Court are in favour of the assessee and therefore it cannot be said that it is a debatable issue. In the circumstances, respectfully following the above said decisions allowing the grounds of appeal of the assessee, we direct the Assessing Officer to allow ITA NO. 2397/MUM/2019 (A.Y: 2014-15) M/s. Tata Motors Ltd., set off of MAT credit inclusive of surcharge and education cess and recompute the tax payable by the assessee for the year under consideration. 11. In the result, appeal of the assessee is allowed as indicated above. Order pronounce....
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....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 report of the company for the year ended 31 March 2015 (page 129 of paper book) were it is stated that the Hon'ble High Court of Mumbai on February 27, 2015 sanctioned the scheme of amalgamation of 6 investment companies with the assessee company. The Ld. AR submitted that the dividend declared by the assessee to these companies have been reversed as a result of the amalgamation and therefore prayed that the DDT paid should be refunded to the assessee. The Ld. AR in this regard relied on the decision of the High Court of Gujarat in the case of torrent private limited vs CIT (2013) 35 Taxman.com 300 (Gujarat). 26. We heard the parties and produced the material on record. During the course of hearing the Ld. AR submitted the following details with regard to the dividend distributed for the year relevant to assessment year 2015-16. Particulars Total for all shareholders (100%) For amalgamating Companies (51.13%) Number of shares fully paid up Rs. 8,47,69,750 Rs. 4,33,42,270 Dividend paid Rs. 25,43,....
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....s little doubt that such date would be the date of amalgamation/date of transfer. But where the Court does not prescribe any specific date but merely sanctions the scheme presented to it - as has happened in this case - it should follow that the date of amalgamation/date of transfer is the date specified in the scheme as "the transfer date". It cannot be otherwise. It must be remembered that before applying to the Court under Section 391(1) a scheme has to be framed and such scheme has to contain a date of amalgamation/transfer. The proceedings before the Court may take sometime; indeed, they are bound to take some time because several steps provided by Sections 391 to 394-A and the relevant Rules have to be followed and complied with. During the period the proceedings are pending before the Court, both the amalgamating units, i.e., the Transferor Company and the Transferee Company may carry on business, as has happened in this case but normally provision is made for this aspect also in the scheme of amalgamation. In the scheme before us, clause 6(b) does expressly provide that with effect from the transfer date, the Transferor Company (Subsidiary Company) shall be deemed to have c....
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....income of the day on which it is declared. If something happens during the previous year due to which the declaration of dividend is cancelled and the amount paid as dividend is directed to be treated as loans or payment of a part of capital, it is possible to conceive that, at the end of the year, there will not be accrual of income by way of dividend despite a factual declaration. Similarly, if, by operation of law, the declaration of dividend becomes illegal, inoperative or invalid during the previous year itself, it is possible to conceive of a situation in which an assessee would be entitled to say that no income by way of dividend accrued to him during the previous year. What is important is that something factual or legal should have happened during the previous year in which the dividend is declared." Likewise, in the case of New Shorrock Spg. & Mfg. Co. Ltd. (supra), facts were that the assessee company had on 25.5.72 declared its dividend for the year 1971. One Mafatlal Gagalbhai and Co. Pvt. Ltd. case (supra) holding shares in the assessee company received dividend in respect of its holdings in the assessee company. On 27th October 1972, a proposal was initiated for am....
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....Division Bench of this Court held that such transfers would cease to be sales between two independent entities but would be treated as branch transfers. It was observed as under : "20. As already noted, the term 'sale' has been defined under section 2(23) of the Act. Upon the High Court sanctioning the scheme for amalgamation, the effective date of amalgamation would be the date mentioned in the scheme, namely, 1st June 1995. Such legal fall out must be given its full implication for all purposes including for the purposes of the Act. If, therefore, in eye of law from 1st June 1995, the transferor companies did not exist, and by virtue of the order of the High Court sanctioning the scheme relating back to the date envisaged in the scheme, ceased to have any legal existence, any transfer from the transferor to the transferee companies must be treated as branch transfer. This was also the view expressed by the Bombay High Court in the case of National Organic Chemicals Industries Ltd. (supra). In the said case, this precisely was the issue presented before the High Court. A Division Bench of the High Court ruled that the Company loses its corporate personality from the date....
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....further provides that the principal officer of the domestic company and the company shall be liable to pay tax on distributed profits to the credit of the Central Government within fourteen days from the date of declaration of any dividend or distribution or payment of any dividend whichever is earliest. Sub-section (1) of section 115-O of the Act thus is a charging section and pertains to collection of tax on declaration, distribution or payment of dividend by a domestic company. Sub-section (3) does nothing beyond prescribing the date within which such tax must be credited to the Central Government. Neither of these two provisions or anything else contained in section 115O of the Act, in our opinion, would change the position. In the present case, we are concerned with a situation under which after certain dividend was declared and tax thereon was actually paid, by virtue of the High Court sanctioning the amalgamation scheme, which took effect from a date anterior to the declaration of the dividend would change the very character of such payment and such payment ceased to enjoy the character of dividend. In that view of the matter, the petitioner was perfectly justified in seekin....