COMMISSIONER OF INCOME TAX Vs. INDIAN OXYGEN LTD

JUDGEMENT

(1.) This consolidated reference under Section 256(1) of the Income-tax Act, 1961, is at the instance of both the revenue as also the assessee. The facts found and/or admitted may be shortly noted as' follows :

(2.) Messrs. Indian Oxygen Ltd., the assessee, is a public limited company manufacturing and selling gases. It also manufactures electrodes. For the assessment year 1965-66, the assessee claimed deduction on account of expenses aggregating to Rs. 3,40,053 incurred for research. This was disallowed by the Income-tax Officer on the grounds that as such expenses constituted capital expenditure and the research was not conducted by the assessee itself, the provisions of Section 35(1) of the Income-tax Act, 1961, were not applicable. The Appellate Assistant Commissioner, however, allowed such expenses and set aside the order of the Income-tax Officer. The decision of the Appellate Assistant Commissioner was affirmed by the Tribunal.

(3.) For the same assessment year the assessee had also claimed the relief under Section 84 of the Income-tax Act, 1961, in respect of its wire mill factory on the ground it was a new industrial unit, the products whereof were being used by the assessee in its electrode factory. The Income-tax Officer held that the assessee was not entitled to the relief claimed inasmuch as the products of this mill had not been sold in the market. On appeal, the Appellate Assistant Commissioner, following the decision in the case of Anil Starch Products Ltd. [1966] 59 ITR 514 (Guj), allowed the appeal and held that for the purpose of allowing relief under Section 84 of the Income-tax Act, 1961, the profits of the new industrial undertaking would have to be computed on ordinary commercial principles. The Tribunal, on further appeal, however, reversed the finding of the Appellate Assistant Commissioner following its earlier decision based on a judgment of this court in the case of Textile Machinery Corporation Ltd.