MULTI METALS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) ON an application under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question for the opinion of this court:

(2.) THE assessee-company derives income from sale and manufacture of rubes, print rolls, etc. THE relevant assessment year is 1980-81. THE brief facts in the return filed by the assessee are that the assessee claimed an expenditure of Rs. 11,53,294 incurred under the head "Capital" as expenditure relatable to scientific research. This amount included a sum of Rs. 11,14,885 which represented the written down value of assets, which assets were acquired earlier and used for the purpose of business but transferred to the scientific research department during the financial year relevant to the assessment year in question.

(3.) MR. Ranka, learned counsel for the assessee, submits that when the entry was passed on March 31, 1979, debiting the research and development account by an amount of Rs. 11,53,294, there is a transfer and that amounts to expenditure on scientific research and the transfer entry of written down value must be treated as cost of the assets within the meaning of Explanation 1 to Section 43, Sub-section (1) of the Act. MR. Ranka places reliance on the decision of the Madras High Court in the case of CIT v. Sundaram Fasteners Ltd. [1997] 223 ITR 455. He further places reliance on the decision in the case of CIT v. J.K. Hosiery Factory [1986] 159 ITR 85 (SC) and submitted that in that case, unabsorbed depreciation was there of the unregistered firm which was registered next year. In that case their Lordships have taken the view that the unabsorbed depreciation can be carried forward and the benefit can be given to the registered firm next year. MR. Ranka further submits that in the case of Saroj Aggarwal v. CIT [1985] 156 ITR 497, their Lordships (Supreme Court) have taken the view that while a partner of the firm died and the firm sustained speculation loss, three days thereafter the widow can run the firm under the provision in the partnership deed regarding continuation of the partnership. Their Lordships have held that the widow could be said to have succeeded by inheritance and she can claim the set off of loss of her deceased husband sustained by the firm in speculation business against the speculation profit.