COMMISSIONER OF INCOME TAX Vs. SUNDARAM FASTENERS LIMITED

JUDGEMENT

(1.) AT the instance of the Department, the Tribunal referred the following question for the opinion of this Court under S. 256(1) of the IT Act, 1961 (hereinafter referred to as the Act) :

(2.) BEFORE us, learned standing counsel for the Department submitted that the Tribunal was not correct in granting deduction of expenditure by the assessee to the extent of Rs. 1,71,281 since that expenditure was not incurred in the assessment year under consideration. According to learned standing counsel, the said amount is not an expenditure going out of the hands of the assessee in the assessment year under consideration. It was pointed out that the machineries were purchased earlier and when those machineries were purchased in the earlier years, the expenditure would have been incurred for purchasing those machineries. After using these machineries in its business, if the assessee transfers, those machineries for the purpose of scientific research and development, it cannot be said that the assessee would have incurred expenditure in the assessment year under consideration for claiming benefit under S. 35(1)(iv) of the Act. Inasmuch as the expenditure has not gone out of the hands of the assessee, the assessee cannot claim deduction under S. 35(1)(iv) of the Act. According to learned standing counsel for the Department, unless the assessee irretrievably loses the expenditure incurred, the assessee is not entitled to say that the assessee incurred the expenditure in the assessment year under consideration. Therefore, according to learned standing counsel, the expenditure was not incurred in the assessment year under consideration, the expenditure said to have been incurred has not gone out of the hands of the assessee and it was not irretrievably lost. Therefore, the assessee is not entitled to claim deduction under S. 35(1)(iv) of the Act. In order to elucidate the meaning of the words, 'spending' and 'expenditure', learned standing counsel appearing for the Department relied upon the two decisions reported in Indian Molasses Co. vs. CIT (1959) 37 ITR 66 (SC) : TC 16R.205 and CIT vs. Nainital Bank Ltd. (1966) 62 ITR 638 (SC) : TC 16R.320. Reliance was also placed upon a decision of the Supreme Court in Escorts Ltd. vs. Union of India (1992) 108 CTR (SC) 275 : (1993) 199 ITR 43 (SC) : TC 15R.369 in order to contend that the assessee is not entitled to claim deduction under s. 35(1)(iv) of the Act. Finally, learned standing counsel also relied upon a decision of the Orissa High Court in Balpahar Refractories Ltd. vs. CIT (1994) 118 CTR (Ori) 181 : (1994) 207 ITR 144 (Ori) : TC 15R.409 in order to contend that the assessee is not entitled to deduction under S. 35(1) (iv) of the Act.

(3.) WE have heard both learned standing counsel for the Department as well as learned counsel for the assessee. In the accounting year relevant to the assessment year, the assessee established a department for scientific research and development. The assessee transferred some of its machineries for scientific research and development. The written down value of the said machineries comes to Rs. 1,71,281. On this amount, the assessee claimed deduction under S. 35 (1)(iv) r/w S. 35(2) of the Act. This was rejected by the Department on the ground that the expenditure on these assets have been incurred even in the earlier accounting years, when they were first brought into use for the purpose and it cannot again be treated as a capital expenditure for the purpose of S. 35(1)(iv) of the Act, merely because the assessee chose to transfer them to the research and development in the later years.