TATA CHEMICALS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) In this reference at the instance of the assessee relating to its assessment for the year 1973 -74, the Income -tax Appellate Tribunal has referred to this court the following question of law for opinion under section 256(1) of the Income -tax Act, 1961 : '1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the payment of Rs. 1,12,715 to the National Chemical Laboratory, Poona, for carrying out research for manufacture of anhydrous aluminium chloride from bauxite was not deductible under section 37(1) of the Income -tax Act on the ground of being expenditure of the nature described under section 35 ?

(2.) WHETHER , on the facts and in the circumstances of the case, the Tribunal was right in rejecting the assessee's claim for deduction of the sum of Rs. 4,52,000 in respect of gratuity liability in view of the provisions of section 40A(7) of the Income -tax Act, 1961 ?' 2. As regards the first question of law, we would like to observe even at the outset that the question, it appears to us, does not bring out the real controversy between the parties. In this context, it may be mentioned that the assessee had, inter alia, paid a sum of Rs. 1,12,715 to the National Chemical Laboratory Poona, for carrying out research in manufacture of anhydrous aluminium chloride from bauxite and had claimed deduction before the Income -tax Officer under section 35(1)(ii) of the Act. The Income -tax Officer had rejected the claim on the ground that the National Chemical Laboratory, Poona, was not an institution within the meaning of section 35(1)(ii). In appeal before the Appellate Assistant Commissioner also, the assessee's claim for deduction was primarily under section 35(1)(ii). Without prejudice to that claim, the assessee also contended that such a contribution was allowable as a deduction under section 37 of the Income -tax Act, 1961. The Appellate Assistant Commissioner remanded the matter to the Income -tax Officer for the purpose of verification whether the National Chemical Laboratory, Poona, was an approved institution for the purpose of section 35. However, he rejected the assessee's alternate claim on the ground that the expenditure could not be considered to have been incurred in the course of running a business which is that of manufacturing soda ash. Before the Tribunal also, the assessee's claim in the first instance was for deduction under section 35(1)(ii). But, as recorded by the Tribunal in paragraph 3 of its order, it was also claimed before it that there was a factual error, and that the payment of Rs. 1,12,715 to the National Chemical Laboratory, Poona, was made in respect of a research programme undertaken by them at the assessee's instance for manufacture of anhydrous aluminium chloride. Another alternative claim was, of course, that the deduction was allowable under section 37. In paragraph 4 of its order, the Tribunal has given a finding that the contribution for scientific research exclusively falls within the domain of section 35 and hence it could not be considered for deduction under section 37(1).

(3.) THE Tribunal reframed the question of law and referred to us question No. 1 as reproduced in paragraph 1. Since there was also a controversy before the Tribunal as to whether the expenditure herein was of the nature mentioned in section 35(1)(i) on which the Tribunal did not give any finding, we are of the view that the proper question of law is the question that was suggested by the assessee. Accordingly, we reframe the question of law referred to us by the Tribunal in the form as was suggested by the assessee.