INCOME TAX ACT, 1961

Section 35(1)(iv)

Business deduction under section 35(1)(iv) - Capital expenditure on scientific research - Allowability -

Assessee was a research based agricultural biotech company engaged in seeds processing and trading. It had also earned agriculture income from agriculture land owned by it for cultivating agricultural seeds. The assessee claimed deduction under section 35(1)(iv) for capital expenditure for R&D office building, ginning Project, Lab Project and other machineries, furniture and fixture, electrical installation installed in the research building. AO disallowed deduction holding that alleged capital expenditure was attributable to agricultural operation for which the assessee was showing exempt income.Held: Section 35(1)(iv) provides for deduction of any expenditure of capital nature on scientific research related to the business carried on by the assessee. Assessee in the instant case incurred capital expenditure on scientific research to fetch higher price for the cotton seeds prepared by it as against the cotton seeds sold by ginning units. Alleged connection of research building and machineries with agricultural operations was a guess work not supported by any fact. Accordingly, capital expenditure on scientific research and development was fully allowable.

Relied:CIT v. Sales Magnesite (P.) Ltd. [(1995) 214 ITR 01 (Bom) : 1995 TaxPub(DT) 0796 (Bom-HC)], CIT v. Dhanrajgirji Raja Narasasingiriji [(1973) 91 ITR 544 (SC) : 1973 TaxPub(DT) 0452 (SC) and Hemraj Nebhomal v. CIT [(2005) 278 ITR 345 (MP) : 2005 TaxPub(DT) 1463 (MP-HC)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2008-09 & 2009-10

INCOME TAX ACT, 1961

Section 143(3)

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