By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Chartered Accountants
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29 (2008) 25 SOT 46 (Mum.)
ITO v. Mahyco Vegetable Seeds Ltd.
ITA No. 6171 (Mum.) of 2004
A.Y. : 2001-02. Dated : 28-7-2008
S. 72A read with S. 35 of the Income-tax Act, 1961 — On
demerger, unabsorbed capital expenditure on scientific research u/s.35(1)(iv) is
not different from unabsorbed depreciation for purposes of S. 72A(4) and,
therefore, assessee is entitled to carry forward unabsorbed scientific research
expenditure.
The assessee-company came into effect following demerger of a
division of ‘M’ Ltd. The assessee claimed the benefit of S. 72A(4) read with S.
35(4) in respect of unabsorbed depreciation and expenditure on scientific
research. The AO allowed the benefit of S. 72A(4) in respect of unabsorbed
depreciation. However, benefit of carry forward in respect of expenditure on
scientific research was denied. The CIT(A) allowed the assessee’s claim.
The Tribunal upheld the CIT(A)’s order and allowed the
unabsorbed capital expenditure on scientific research to be carried forward.
The Tribunal noted as under :
(a) ‘Unabsorbed depreciation’ for the purpose of S. 72A has
been defined in Ss.(7) to mean so much of the allowance for depreciation of
the demerged company which remains to be allowed and which would have been
allowed to the demerged company under the provisions of this Act if the
demerger had not taken place.
(b) In S. 35(1)(iv) it can be seen that the unabsorbed
capital expenditure on scientific research has to be dealt with in the same
manner as the unabsorbed depreciation u/s.32(2). There is no difference in the
depreciation allowance and the allowance of capital expenditure on scientific
research u/s.35 but for the fact that the deduction which would otherwise have
been spread over a number of years in the form of depreciation is allowed in
the year of incurring of such capital expenditure u/s.35.
(c) On a conjoint reading of these provisions the
inescapable conclusion which follows is that the unabsorbed capital
expenditure of scientific research of the demerged company has been considered
as similar to and at par with the unabsorbed depreciation. The amount
representing the unabsorbed capital expenditure on scientific research
u/s.35(1)(iv) was not different from the unabsorbed depreciation for the
purposes of S. 72A(7) and, hence, the assessee was entitled to carry forward
the unabsorbed scientific research expenditure.
