COMMISSIONER OF INCOME TAX Vs. SANDOZ INDIA LIMITED

JUDGEMENT

(1.) BY this reference under S. 256(1) of the IT Act, 1961, the Tribunal has referred the following question of law to this Court for opinion :

(2.) THE assessee is a company. The business of the assessee is that of manufacturing pharmaceutical dye stuff and pesticides. In its return of income under the IT Act, 1961 ("the Act") for the asst. year 1975 76, the assessee claimed deduction under S. 35(1)(iv) of the Act of a sum of Rs. 26,984 expended by it on the construction of approach road to the premises of its research and development laboratories. This claim was disallowed by the ITO. The assessee appealed to the CIT (A). The CIT(A) also rejected the claim of the assessee and upheld the order of the ITO on the ground that the approach road was not exclusively used for research purposes. Against the order of the CIT(A), the assessee appealed to the Tribunal. The Tribunal, however, accepted the contention of the assessee that the road in question being an approach road to the research and development laboratories of the assessee, the expenditure incurred on the construction thereof was expenditure on scientific research within the meaning of S. 35(1)(iv) of the Act. The Tribunal, therefore, allowed the appeal of the assessee and set aside the orders of the ITO and the CIT(A) in this regard. Hence this reference under S. 256(1) of the Act at the instance of the Revenue.

(3.) FROM a perusal of the above provision, it is clear that deduction under this section is not confined to revenue expenditure on scientific research. Any capital expenditure incurred by the assessee on scientific research related to his business is also allowable as a deduction by virtue of s. 35(1)(iv). It is not disputed by the Revenue that expenditure on construction of approach road to the research laboratories of the assessee is an expenditure of capital nature. The only controversy is whether it is an expenditure on scientific research related to the business carried on by the assessee. The assessee claims it to be so. According to him, without construction of road there would be no easy access to the research and development laboratory. The ITO rejected this contention on the ground that this expenditure was not directly related to research. It is only incidental. The AAC upheld the disallowance on the ground that the road in question was not used exclusively for research purpose. The above findings of the ITO and the AAC did not find favour with the Tribunal. The Tribunal accepted the contention of the assessee that the road in question being an approach road to the research and development laboratories, it was an expenditure of capital nature on scientific research within the meaning of cl. (iv) of S. 35(1) of the Act and held that the assessee was entitled to deduction under S. 35(1) in respect thereof. It is this finding of the Tribunal which is challenged by the Revenue in this reference.