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income-tax Officer Vs. Vickers Sperry of India - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1983)3ITD739(Mum.)
Appellantincome-tax Officer
RespondentVickers Sperry of India
Excerpt:
1. the first and the main issue in these two appeals is whether the assessee is or not entitled to depreciation under section 32(1) on scientific research assets relating to the business carried on by it, the cost of which has been allowed as deduction in full under section 35(1)(iv)/35(2)(ia) in the earlier year. long and elaborate arguments were advanced by the counsels on the two sides and by those who appeared as interveners on behalf of their respective clients. in fact the hearing continued for three days. while for the sake of brevity, we do not propose to refer to their individual arguments in detail and will be dealing with them in the course of our judgment, we would like to express our appreciation of the disciplined manner in which the counsels made their respective.....
Judgment:
1. The first and the main issue in these two appeals is whether the assessee is or not entitled to depreciation under Section 32(1) on scientific research assets relating to the business carried on by it, the cost of which has been allowed as deduction in full under Section 35(1)(iv)/35(2)(ia) in the earlier year. Long and elaborate arguments were advanced by the counsels on the two sides and by those who appeared as interveners on behalf of their respective clients. In fact the hearing continued for three days. While for the sake of brevity, we do not propose to refer to their individual arguments in detail and will be dealing with them in the course of our judgment, we would like to express our appreciation of the disciplined manner in which the counsels made their respective submissions and for the contribution made and the assistance rendered by them.

2. Briefly stated, the relevant facts are that the assessee, a company carried on extensive business of manufacture and sale of hydraulic equipments and accessories. The business requires the final products to conform to rigid international standards and specifications and to match in the competitive world market. With this end in view, the assessee, inter alia, incurred a capital expenditure of Rs. 1,53,301 during the previous year relevant for the assessment year 1972-73 for the purpose of carrying on scientific research to enable it to maintain and improve the quality of its final products and also to make it economically viable. The above expenditure, it may be stated, was allowed as deduction under Section 35(1)(iv)/35(2)(ia) in that year. It is common ground that part of the aforesaid capital expenditure had also resulted in depreciable capital assets, which continued to be used for scientific research related to the assessee's business and the assessee claimed depreciation under Section 32 on the cost of such assets both for the assessment years 1973-74 and 1974-75. According to the ITO, however, the claim was not tenable in view of Section 35(2)(iv). On the other hand, following a number of the Tribunal's decisions noted in paragraph 20 of his order, the AAC held that the assessee was entitled to depreciation.

3. It was submitted by Shri Joshi, the learned standing counsel for the revenue, that the AAC has failed to appreciate that assets used for scientific research are not and cannot be simultaneously used for the purpose of business ; so much so that, as long as those assets continued to be used for scientific research, they did not satisfy the requirement of Section 32 and could not qualify for depreciation. It was argued that Section 35 provided a complete code for all allowances or deductions regarding expenditure on scientific research and, therefore, when depreciation was not specifically provided for in Section 35 on assets continuing to be used for scientific research, the question of claiming and/or allowing depreciation on such assets should not arise. He contended that provisions of Section 35 and Section 43 read carefully showed that there was an implied, if not express, prohibition to the allowance of depreciation on scientific research assets, so long as they continued to be used for scientific research.

For this purpose, Shri Joshi strongly relied on a Special Bench decision of the ITAT, Madras Bench 'A' dated 26-4-1978 in the case of ITO v. H.S. Sheo Shankar [IT Appeal No. 1828 (Mad.) of 1976-77] where all earlier Division Bench decisions of the ITAT are stated to have been considered. He, of course, referred to the history of legislation of these provisions since 1946 and stated that legislative intention was clearly against double or excessive allowance. In his view, allowance of full cost of scientific research assets under Section 35 was nothing but accelerated depreciation.

4. Counsels appearing on behalf of the assessees, on the other hand, contended that the question was being unnecessarily complicated, that the short point for consideration was and should be whether scientific research assets in the case before us were used for business so as to qualify for depreciation under Section 32(1) According to them, there was no justification whatsoever, for holding that assets used for scientific research could not be used for business within the meaning of Section 32. For this purpose, they strongly relied on the provisions of Section 33, where similar use for business was a must and yet the Legislature had provided for a special rate of development rebate on scientific research assets. Their submissions have been that scientific research assets qualify for depreciaion under Section 32, that there is no express or implied bar or prohibition anywhere in the Act including Section 35 and that depreciation cannot, therefore, be denied on such assets. In this connection the comparison was made between the Indian Act and the UK Act to show that in the UK Act, there was a specific prohibition against allowing depreciation under Section 29(4), while there was none in the Indian Act. Referring then to a number of instances it was submitted that wherever Legislature wanted such a prohibition, it was specifically provided for. In fact we were taken through the relevant provisions of Sections 32, 32A, 33, 41 and 43, etc., for the purpose of showing that the provisions on the contrary, contemplate allowance of depreciation on scientific research assets.

5. Before we proceed to consider rival contentions, it may be desirable to mention that almost all the Benches in Bombay have held that the scientific research assets, even when they were used for scientific research purposes, qualify for depreciation in the years following the year in which their cost is allowed as deduction under Section 35. The question was again examined by Special Bench of the ITAT at Madras, which took a contrary view. The dispute came up once again before a Division Bench of the Tribunal at Bombay. After hearing the counsels for the assessee and the department at great length, the Bench felt that some important aspects requiring consideration were not brought to the notice of the Special Bench and were not considered by it. Being of the view that the question required reconsideration, the Bench made a reference to the President for constituting a larger Bench. This was done. It is in these circumstances that the case has come up for hearing before a large Bench.

6. The assets in dispute are, admittedly, used for scientific research related to the assessee's business. The question arises whether they can be and or are used for the purpose of business, it being common ground that such assets will not qualify for depreciation unless they are found to be used for the purpose of business as laid down in Section 32(1). For this purpose, we will have to consider the meaning and scope of expressions 'expenditure on scientific research related to the business' and 'used for the purpose of business' as found in Sections 35 and 32, respectively. The expression 'for the purpose of business' has, it may be stated, been the subject-matter of consideration by the Supreme Court in the case of Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265, where it was held that the expression 'used for the purposes of business' in Section 10(2)(vi) of the 1922 Act meant 'used for the purpose of the business, the profits of which were charged to tax'. The expression has been held to mean by Subba Rao, J. (as he then was), speaking for the Supreme Court in CIT v.Malayalam Plantations Ltd. [1964] 53 ITR 140 ; The expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide ; it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures...for the protection of its assets and property from expropriation, coercive process or assertion of hostile title ; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business ; it may comprehend many other acts incidental to the carrying on of the business.(p. 140) To our mind, in view of the aforesaid observations of the Supreme Court in Malayalam Plantations' case (supra) and similar observations in other decisions of the Court reported at Sree Meenakshi Mills Ltd. v.CIT [1967] 63 ITR 207, CIT v. Birla Brothers (P.) Ltd. [1971] 82 ITR 166 and Indian Aluminium Co. Ltd. v. CIT [1972] 84 ITR 735, the expression 'used for the purpose of the business' has got to be held to be of wider import which may include within it expenditure on scientific research related to the business.

6.1 Coming then to the expression 'expenditure on scientific research related to the business', we are of the view that the phrase 'scientific research' does not present much difficulty as such because if scientific research is incidental and integral part of the business, it has got to be held that use for scientific research is 'use for business'. The difficulty, it appears, has arisen because of the use of the words 'related to' between 'the scientific research' and 'the business'. The words 'related to', according to plain dictionary meaning, mean connected or associated with which connection or association may be direct or remote. It may mean related in some manner or the other. The word 'related' has been defined in Webster Universal Dictionary (unabridged international edition 1970) as having a casual or logical connection, etc. In the premises we find it difficult to accept that the expression 'for the purposes of business' covers within it the expression 'related to the business'. On the other hand, we are of the view that all expenditure for the purpose of business has got to be related to the business but the reverse may not always be true. Our aforesaid view finds support from the inclusive definition of the expression 'scientific research related to a business' in Section 43(4) as under : 43. In Sections 28 to 41 and this section, unless the context otherwise requires- (4) (i) scientific research' means any activities for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries ; (i) references to expenditure incurred on scientific research include all expenditure incurred for the prosecution, or the provision of facilities for the prosecution, of scientific research but do not include any expenditure incurred in the acquisition of rights in, or arising out of, scientific research ; ("77) references to scientific research related to a business or class of business include - (a) any scientific research which may lead to or facilitate an extension of that business or, as the case may be, all businesses of that class ; The inclusive definition clearly contemplates expenditure on scientific research to be in connection with the expansion of the business as distinct from in connection with the existing business. Therefore, the possibility that Section 35 may cover expenditure on scientific research under Clauses (i) and (iv) of Sub-section (1) of Section 35 also which may not be for the purposes of the business as such, cannot be altogether ruled out. In our view, the learned standing counsel for the revenue has perhaps this extended scope of scientific research in mind when he contends that the entire scheme of Section 35 is for an expenditure incurred on a separate and fundamental scientific research and development unit, which cannot be treated as used for the purpose of the business so long as it is used for scientific research. In this view of the matter, we do not agree with the learned standing counsel for the revenue that 'expenditure on scientific research related to business' and 'used for the purpose of business' are two altogether different concepts. Nor do we agree with the counsel for the assessee that the expenditure on scientific research related to business must necessarily be expenditure for the purpose of the business. Having regard to the inclusive definition of the expression 'scientific research related to the business' in Section 43(4)(iii)(a) and the plain dictionary meaning of the word 'related', we are inclined to hold that the Legislature has used two expressions at two different places on purpose, though we also hold that the two expressions do not represent the two sides of a coin so that there can never be simultaneous user for scientific research and for the business.

6.2 That our aforesaid view is correct is clear from the fact that Clause (a) of Section 33(1), which provides for development rebate, inter alia, requires the capital assets to be wholly used for the purpose of business. At the same time, Clause (b)(B)(iii) of the same section, i.e., 33(1) provides that if such assets happen to represent capital expenditure on scientific research related to business, the rate of development rebate to be allowed will be 35 per cent as against 25 per cent in other cases. This obviously negatives the proposition that so long as capital assets are used for scientific research, they cannot be said to be used for the purpose of the business. Indirect support for this view is also found from the language of proviso (d) to Section 32A. Section 32A, it may be stated, provides for investment allowance on certain types of machinery or plant wholly used for the purpose of the business. There are four clauses to the proviso to Sub-section (1) which debar allowance on certion assets. Proviso (d) is one which lays down that any machinery or plant, the whole of the actual cost of which is allowed as a deduction, whether by way of depreciation or otherwise (emphasis supplied by us) will not qualify for investment allowance. The word 'otherwise', to our mind, refers to the deduction allowed under Section 35(2)(i)/(ia). It is pertinent that Section 32A also requires the machinery or plant to be used wholly for the purpose of the business like Section 33 and, but for the proviso (d) to Sub-section (1), assets representing capital expenditure on scientific research would have also qualified for investment allowance.

6.3 It may be stated that in the present appeals we have only to consider whether 'use for the purpose of business' and 'expenditure on scientific research related to business' can be simultaneous and if so what is the factual position in the case before us. Therefore, our observations that the capital assets used for scientific research related to the business can be for the purpose of business in some cases, should be read in that context only. Coming then to the facts of the case, we find that development rebate was allowed to the assessee on the cost of assets in dispute in the assessment year 1972-73 during which their cost representing capital expenditure on scientific research was also allowed in full under Section 35(2)(ia). This, according to us, clearly shows that the department has accepted that, during the previous year for the assessment year 1972-73 the assets in dispute representing capital expenditure on scientific research were used for the purpose of business. Having regard to the nature of the assets and the use they are put to (briefly mentioned by us in paragraph 2 of this order) and keeping in view the ratio of the Supreme Court's decision in the case of Malayalam Plantations Ltd. (supra), we have no difficulty in holding that the capital assets in the case before us, which represent capital expenditure on scientific research related to the business, are and can be said to have been used for the purpose of the business.

7. With respect, there does not appear to us any scope for dichotomy that use for scientific research related to the business is opposite of use for the purposes of business. In the case before us, the assets representing capital expenditure on scientific research related to the assessee's business and continuing to be so used are 'used for the purpose of business' within the meaning of Section 33(1). Accordingly, we hold that these assets are also used for the purposes of business under Section 32(1) and qualify for depreciation. We have next to consider the nature of the deduction by way of depreciation under Section 32 and the allowance under Section 35 because one of the points urged by the learned standing counsel for the revenue was that they are of the same nature and that, therefore, in the absence of an express provision authorising allowance of both, both cannot and should not be allowed. This submission also, to our mind, suffers from a fallacy.

Firstly, allowance under Section 35 is generally available in respect of expenditure incurred on scientific research. Depending on the facts of a case, such an expenditure may or may not involve user for the purposes of the business. Further, such expenditure may or may not result in depreciable capital assets. On the other hand, depreciation is allowable on only such capital assets as are depreciable and are used for the purpose of business. The purport and scope of two sections is quite different. Mere fact that originally capital expenditure on scientific researeh was to be allowed in five equal yearly instalments does not, in our opinion, at all mean that the deduction can be equated with depreciation. In any event, after the insertion of Clause (ia) in Section 35(2) with effect from 1-4-1967, the position has undergone a material change. It may not be out of place to observe that all capital expenditure does not necessarily result in depreciable capital assets and in any event under Section 35 expenditure incurred before the commencement of the business is also allowable, while, for allowance of depreciation under Section 32, the capital asset has. got to be used for the purposes of the business. Moreover, double allowance, as we understand, means allowances of same nature on the same assets in the same year and not different types of deductions allowed in different years.

7.1 Sections 35 and 32 thus operate in their own respective fields.

While Section 35 is special qua scientific research expenditure, Section 32 is special qua depreciation allowance. They do not take over the functions of each other and in fact operate in their own respective fields which may some time overlap. That apart, it is to be remembered that the object of bringing in the provisions of Section 35 initially in 1946 by inserting Clauses (xii), (xiii) and (xiv) in Section 10(2) of the Indian Income-tax Act, 1922, was to encourage expenditure on scientific research and not to merely provide accelerated depreciation on depreciable capital assets. It has to be borne in mind that these provisions were enacted to encourage expenditure on scientific research which was otherwise shy. Mere allowance of the expenditure in full, to our mind, may not be even sufficient compensation. In any event, if the purpose was only to provide accelerated depreciation, these provisions would have been part of Section 10(2)(vi) of the 1922 Act and Section 32 of the 1961 Act.

7.2 We also do not agree with the learned standing counsel that, but for Section 35, expenditure on scientific research could not be allowed as deduction or that Section 35 is a self-contained code as regards expenditure on scientific research and, therefore, the rights and obligations of the assessees should flow as regards expenditure on scientific research from that section only. These submissions are also, it may be stated, without any merit. In this connection, it has to be borne in mind that the expenditure on scientific research, as contemplated in Section 35(1)(ii) and Section 35(1)(iii), is, of course, not allowable but for the specific provision therein. A part of the expenditure, contemplated in Section 35(1)(i) and Section 35(1)(iv), may also be, inter alia, for extension of the existing business or incurred before the commencement of the business and having regard to our earlier observations in this behalf, it may not qualify for deduction but. for this specific provision. This, however, does not justify the inference that no expenditure, contemplated to be allowed under Section 35, could have been allowed as deduction but for the provisions in that section. The department, to our mind, has tried to over-simplify the situation. While providing for these allowances, which might or might not have been allowed earlier, the Legislature has just listed them together. Just as it cannot be anybody's case that, but for express provisions for allowance of rent, salary, bonus, etc., expenditure thereon cannot be allowed under Section 37, it cannot be argued that no expenditure contemplated under Section 35 could have been allowed under Section 37, if Section 35 was not there. It will depend on the facts of each case.

7.3 That Section 35 is not a complete code in itself in respect of expenditure on scientific research is also evident from the fact that provisions pertaining to scientific research are not confined to Section 35 only and are, inter alia, found in the following other sections : (a) the rate of development rebate is provided in Section 33(1)(b)(B)(iii) ; (b) profits, if any, on sale of scientific research assets are made taxable under Section 41(3) ; (c) in case the assets cease to be used for scientific research, but continue to be used for the purpose of the business, how actual cost would be computed is found in Explanation 1 to Section 43(7) ; (d) the expression 'scientific research' and references thereto are defined in Section 43(4) ; and (e) what will be the impact of changes in the rate of exchange of currency on the amount of expenditure of a capital nature, referred to in Clause (iv) of Section 35(1), is also found in Section 43A.It is, therefore, not possible to accept that all rights and obligations of the assessees should flow from Section 35 only as regards expenditure on scientific research. If provisions contained elsewhere in the Act are applicable, the assessee should get the benefit or lose it, as the case may be.

8. One of the arguments advanced was that if the assessee was held entitled to depreciation under Section 32 on scientific research assets, it will result in an analogous position. It was stated that, in that event, there will be two written down values : one on the basis of Section 43(6)(b) and the other on the basis of Explanation 1 to Section 43(7). According to the learned standing counsel, there cannot be two written down values on the date when the assets ceased to be used for scientific research and on the date when they are used for the purpose of the business. This argument also to our mind, is without any merit.

Firstly, because after the insertion of Clause (ia) in Sub-section (2) of Section 35 with effect from 1-4-1967, the provisions of Clauses (ii), (iii) and (v) of Sub-section (2) of Section 35 have become redundant inasmuch as the entire cost of capital expenditure itself is allowed deduction in full in the year of its incurrence. Therefore, when such assets continue to be used in the business after they ceased to be used for scientific research, the question of depreciation will not arise as actual cost, in view of Explanation 1 to Section 43(7), will be nil. In any event, there is no scope for two written down values with regard to the same assets at the same time. Explanation I to Section 43(7), it may be stated, applies to such depreciable assets only with regard to which deduction has been allowed under Section 35 ; so much so that when such assets will cease to be used for scientific research and continue to be used for the purposes of the business only, the written down value will be worked out with reference to Explanation 7 to Section 43(1), read with Section 43(6)(b). Thus, there is no anomaly.

9. As regards legislative intention, we may usefully refer to the comments of the learned Commentators Kanga and Palkhivala (which are based on decided cases) as found on page 2 of their treatise on Law and Practice of Income-tax, Seventh Edition, as under : Our duty...is to find out what the Legislature must be taken to have really meant by the expressions which it has used, without necessarily attributing to (it) a precise appreciation of the technical appropriateness of its language. The court is entitled and indeed bound, when construing the terms of any provision found in a statute, to consider the context and any other parts of the Act which throw light upon the intention of the Legislature and which may serve to show that the particular provision ought not to be construed, as it would be if considered alone and apart from the rest of the Act. But the court must disregard any assumption of the Legislature as to prevailing law, if it is mistaken, though the result...the effect intended by Parliament : 'the beliefs or assumptions of those who frame Acts of Parliament cannot make the law'.

Naturally, therefore, there is not much purpose in speculating as to what was the legislative intention.

9.1 Assuming that the legislative intention is to be gathered, we find from the history of the legislation regarding expenditure on scientific research that its necessity was first felt in the UK after the Second World War, when the provisions for expenditure on scientific research were introduced through the Finance Act, 1944. No doubt, the statement of Sir John Anderson, Chancellor of the Exchequer, in moving the UK Finance Act, 1944, is suggestive of the assumption that the Chancellor perhaps thought that, but for the provisions he was introducing, such an expenditure was not allowable as deduction. Apart from the fact that the Chancellor was contemplating a case of trader, going through the provisions actually enacted, i.e., Part IV containing Sections 27 to 30 and onwards, we find that the assumption perhaps did not survive. It is significant that Sub-section (4) of Section 20 of the UK Finance Act, 1944, reads as under: (4) Where a deduction is allowed for any year under this or the last preceding section in respect of expenditure represented wholly or partly by any assets, no deduction shall be allowed under any provisions of the Income-tax Act other than this part of this Act in respect of wear and tear, obsolescence, depreciation or exceptional depreciation of these assets for any year of assessment during any part of which they are used by the person carrying on the trade for scientific research related to the trade.

In our view, there was no necessity for having a provision like this unless the Legislature in UK was of the view that assets representing capital expenditure on scientific research qualified for depreciation and that depreciation should not be allowed thereon because of a different allowance contemplated through these provisions. Again in 1968, another legislation was introduced in UK by the name Capital Allowances Act, 1968, where similar provisions are found enacted in Sub-sections (1) and (2) of Section 93 as under : (1) No initial allowances under Chapter I or Chapter II(a) of Part 1 of this Act shall be made in respect of expenditure on the provision of an asset if that expenditure is expenditure in respect of which a deduction may be allowed under Section 91 above or the corresponding provisions of Schedule 10 to this Act.

(2) Where a deduction is allowed for any chargeable period under Sections 91 and 92 above, or the corresponding provisions of Schedule 10 to this Act, in respect of expenditure represented wholly or partly by any assets there shall not be made or allowed- (a) any written down allowance under Chapter I of Part 1 of this Act, or (b) except under this Part of this Act, any allowance or deduction in respect of wear and tear, obsolescence or depreciation of those assets.

for any chargeable period during any part of which they are used by the person carrying on a trade for scientific research related to that trade.

Legal position in UK, thus, appears to be that in spite of allowance of all expenditure on scientific research, depreciable assets represented by capital expenditure on scientific research related to the business qualified for wear and tear allowance. Since, however, the Legislature intended not to allow wear and tear allowance, it expressly prohibited the allowance vide Section 29(4) of the UK Finance Act, 1944 and Section 93(1) and (2) of the Capital Allowances Act, 1968.

9.2 Let us now examine the legislative intention in India. This is what was stated in the Indian Legislature while moving the Indian Income-tax (Amendment) Act, 1946 : The proposals follow generally (emphasis supplied by us) the provisions in the United Kingdom Finance Act, 1944 ; it has been described by the Chancellor of Exchequer as a comprehensive attempt to relief from taxation altogether funds devoted by the industries to the support of fundamental research, the translation of laboratory research to production and to the full scale development of the product.

The use of word 'generally' is not without significance. This is for two reasons, namely : 1. The necessity for scientific research was perhaps more felt in an underdeveloped country like India than in UK which was at the material time a developed country.

2. Corresponding provisions prohibiting depreciation enacted are materially different.

The are found in Section 35(2)(iv). The material difference is and continues to be till today, that unlike UK Acts, the bar for allowance of depreciation is only for the year in which the deduction is allowed under Section 35 and not for any other year. This remains, in spite of so many amendments of the provisions since 1946, in 1961, 1967, 1974, etc.

9.3 The only argument in favour of the revenue's stand appears to be based on the following part of the statement of objects and reasons given while piloting the Indian Income-tax (Amendment) Act, 1946, for inserting these provisions [section 10(2)(xiv)] : This clause purposes to allow expenditure on scientific research related to a business or to the class of business carried on. The first two items, viz., revenue expenditure by the assessee on such scientific research and sums paid to research associations or institutions will be allowed in the assessments of the profits of the year in which the expenses were incurred. The other items, viz., capital expenditure, will be allowed in five consecutive equal instalments and will be given also in respect of such expenditure incurred not more than- three years before the commencement of the business. Provision is also made for allowing the difference between the residual value of an asset representing such expenditure and the amount allowed in the yearly instalments. Other provisions in connection with the allowance safeguard the revenue position, e.g., prevent double allowance or excessive allowance. A provision in this Finance Bill is designed to give retrospective effect for one year to the grant of this allowance.

Let us, therefore, see what does the expression 'other provisions in connection with the allowance safeguard the revenue position, e.g., prevent double allowances or excessive allowances' hereinabove means.

We have already held that Sections 32 to 35 are independent and operate in different fields and that their purport and scope are different. We have also held that allowance of capital expenditure on scientific research, which may or may not represent depreciable assets, does not mean allowance of depreciation. Therefore, on the face of it, allowance of expenditure on scientific research, as and when incurred and the depreciation on depreciable assets used for the purposes of business is not and cannot be a double or an excessive allowance. Moreover, double allowance or excessive allowance would cover a case of two identical allowances in the same year and not two different allowances in the same year. Assuming it was so, the purpose, in our view, was achieved by insertion of provisions of Clause (d) of the second proviso to Section 10(2)(xiv) of the 1922 Act corresponding to present Section 35(2)(iv) of the 1961 Act. In the circumstances, we do not agree with the learned standing counsel for the revenue that the legislative intention was in any way different from what has been expressed in the language of the section. In any event, the trite law being that where the provisions enacted are clear and unambiguous, the legislasive intention is of no consequence, we need first consider the provisions themselves.

10. There being admittedly not even a suggestion that there is an express bar to the allowance of depreciation on depreciable assets represented by eapital expenditure on scientific research related to business, we have to examine the provisions of Section 35(2)(iv) and (v) and Explanation 1 to Section 43(7), etc., which were stongly relied upon by the learned standing counsel for the proposition that there was an implied bar to the allowance of depreciation on such assets so long as they continue to be used for scientific research.

35.(1) In respect of expenditure on scientific research, the following deductions shall be allowed- (iv) in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of Sub-section (2).

(i) in a case where such capital expenditure is incurred before the 1st day of April 1967, one-fifth of the capital expenditure incurred in any previous year shall be deducted for that previous year; and the balance of the expenditure shall be deducted in equal instalments for each of the four immediately succeeding previous years ; (ii) in a case where such capital expenditure is incurred after 31st day of March 1967, the whole of such capital expenditure incurred in any previous year shall be deducted for that previous year.

Explanation : Where any capital expenditure has been incurred before the commencement of the business, the aggregate of the expenditure so incurred within the three years immediately preceding the commencement of the business shall be deemed to have been incurred in the previous year in which the business is commenced ;(ii) & (iii) ** ** ** (iv) where a deduction is allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under Clauses (i), (ii), (iia), (iii) and (vi) of Sub-section (1) or under Sub-section (1A) of Section 32 for the same previous year in respect of that asset ; (v) where the asset mentioned in Clause (ii) is used in the business after it ceases to be used for scientific research related to that business, depreciation shall be admissible under Clauses (i), (ii) and (iii) of Sub-section (1) of Section 32.

"43. In Sections 28 to 41 and it this section, unless the context otherwise requires- (1) 'actual cost' means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority : Provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of March 1967, but before the 1st day of March 1975 and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored and the actual cost thereof shall be taken to be twenty-five thousand rupees.

Explanation 1 : Where an asset is used in the business after it ceases to be used for scientific research related to that business and a deduction has to be made under Clause (i), Clause (ii) or Clause (iii) of Sub-section (1) or Sub-section (1A) of Section 32 in respect of that asset, the actual cost of...Sub-section (1) of Section 35 or under any corresponding provision of the Indian Income-tax Act, 1922(11 of 1922).

It is evident that Clause (iv) provides that no deduction shall be allowed under Section 32 for the same previous year in which deduction has been allowed under Section 35. If we understand the provisions correctly, it can only mean that, but for the specific bar, depreciation under Section 32 was allowable and the bar to allowance of depreciation under Section 32 has been only for the year in which the deduction has been allowed under Section 35. On the face of it, this clause supports the assessee's stand that in the years following deduction under Section 35, deduction is allowable under Section 32 and there being no bar, the assessee should get it. On independently, it appears that clause makes a provision (sic) for allowance of depreciation in a situation where the assets cease to be used for scientific reasearch and are used in the business. This may in a way suggest that if depreciation was allowable on the scientific research assets as such, there was no necessity for this clause. As regards Explanation 1 to Section 43(1), we do not think that that by itself presents any difficulty inasmuch as Explanation 1 only indicates how actual cost is to be computed when the assets are no longer used for scientific research but continue to be used for the business. It was argued at one stage that Clause (iv) above was a proviso, on the other hand, if we interpret Section 35(2)(v) to Clause (v) and that, if so read, the meaning would be clear and there will be no contradiction (sic). On the other hand, it was argued on behalf of the assessees that after the insertion of Clause (ia) in Section 35(2), the provisions of Clauses (ii), (iii) and (iv) thereof and also Explanation 1 to Section 43(7) have become redundant and need not be looked into.

10.1 We have applied our mind very seriously to all these aspects. In our view, the provisions do not at least explicitly cover a situation where scientific research assets continue to be used for the purpose of scientific research in subsequent year as such. Moreover, as stated by us earlier, if we draw inference from Clause (iv), it supports the assessee's stand, on the other hand, if we draw inference from Clause (v), it may support the department's stand. All this shows that so far as provisions of Section 35(2) are concerned, they do not directly provide for allowance or non-allowance of depreciation on assets continuing to be used for scientific research in the year following the year in which the cost of it is allowed as deduction in full under Section 35 and if we draw the inferences, both inferences are possible.

To say the least, inference in support of either view is possible.

Therefore, following the below mentioned well-known principles of construction of statutes : 1. A provision for exemption or relief should be construed liberally and in favour of the assessee.

2. When one section provides for a deduction the claim for deduction cannot be disallowed by inferring an implied bar and the same can be dented only when there is an express provision.

3. In case of reasonable doubt, the construction most favourable to the assessee should be adopted even if it results in his obtaining a double advantage.

We are inclined to accept the interpretation which promotes relief and is in favour of the assessee.

10.2 In this connection, it may not be out of place to observe that the provisions relating to expenditure on scientific research were brought in to encourage expenditure on scientific research and that naturally, therefore, if such assets continue to be used for scientific research, they were expected to get a preferential treatment, subject, of course, to the fulfilment of conditions laid down in Section 32. If we adopt the interpretation canvassed by the department, it could mean that in case where assets earlier used by the concerned assessee for the purposes of business are subsequently used by it for scientific research, the said assessee would neither be entitled to deduction under Section 35 nor to depreciation under Section 32. This is certainly not what the Legislature could have contemplated.

10.3 Moreover, we find that whenever and wherever the Legislature wanted to restrict any allowance under any provisions of the Act, apart from the relevant provisions under which deduction or allowance is permitted, the language used by the Legislature is very specific.

Reference may be made to Sections 35B(2), 35C(2), 35CC(3), 35D(6), 35E(8) and 80GGA(4) for the purpose. The above restriction is not out of abundant caution or for the purpose of removal of any doubt.

Whenever it is so, a specific appropriate language has been used, e.g., Explanation 2 to Section 5, Explanation to Section 15, 23(2A) and 32A(9), Explanation to Section 34(3)(a), Section 37(3C), Explanation 2 to Section 40A(7) and Explanations 2 and 5 to Section 80G. Similarly, whenever the concessions under the various sections or under the same sections are not meant to be cumulative it is so expressly provided, e.g., under Section 20(2), Clause (c) of the second proviso to Section 23(1), Explanation to Section 23(2), Sections 24(2), 35(2A)(b), 37(1), 42(6), 80A(2)/(3), 80E(10), 80GGA(3), 80HH(9A), read with Sub-section (7), 80L(2), 80M(2), 80MM(3), 80P(3) and 80QQ(2).

10.4 We are also of the view that Sections 30 to 36 are disjunctive, cumulative, mutually exclusive and not alternative. If that was not so, Section 37 would not have used the expression "Any expenditure (not being expenditure of the nature described in Sections 30 to 36...)". It is, therefore, not correct to say that merely because a provision is made for allowance of certain expenditure in Section 35, it cannot be an expenditure for the purposes of business within the meaning of Section 37 of the Income-tax Act.

11. Having regard to the above discussion, we are, with respect to the Special Bench of the ITAT, Madras, of the view that for the purpose of seeing whether the assessee is entitled to depreciation on particular assets or not, one has to see whether such assets, inter alia, are used for the purposes of the business and that in the case before us, the assets in question have been and are being used for the purposes of the business. We also hold that there is no express or implied prohibition to the allowance of depreciation under Section 32 or Section 35 or in any other section of the Act and that, therefore, the assessee is entitled to depreciation on the cost of the assets in dispute in the two assessments to which these appeals relate.

12&13. [These paras are not relevant to the main question. They are, therefore, not being printed here.]


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