By Geeta Jani, Dhishat B. Mehta, Chartered Accountants
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Laboratory expenditure incurred by the HO for R&D, which was attributable to the Indian branch was fully allowable and was not subject to the restriction in section 44C.
Facts
The taxpayer was a company incorporated in the UK, which was engaged in manufacturing pharmaceutical products. The taxpayer had a separate and independent research laboratory in India and the head office of the taxpayer had research laboratory in the UK.
While computing its income, the taxpayer claimed deduction in respect of laboratory expenditure incurred by the HO for R&D in UK, which was attributable to Indian Branch.
According to the AO, the R&D was centralised in UK and further, the R&D was connected with executive and general administration. Therefore, as it was merely general administrative and executive expenditure, it was subject to restriction u/s 44C of I T Act .
The issue before the Tribunal was whether the laboratory expenditure incurred by the HO for R&D in UK, which was attributable to India Branch was in nature of general administrative expenditure mentioned in section 44C of I T Act.
Held
The Tribunal observed and held as follows.
- The financial statements filed by the taxpayer show that the HO has separately shown executive or general administration expenditure and thus, the taxpayer has proved beyond doubt that the expenditure claimed did not include any executive or general administrative expenditure.
- Though the taxpayer filled all the details, without examining the same or without pointing out any item of disallowable nature, the tax authority disallowed the said expenditure on the ground that it was in the nature of general administration and executive expenditure mentioned in section 44C.
- In the absence of any contrary material brought on record by the tax authority, the laboratory expenditure could not be disallowed.
