Bush Boake Allen (India) Ltd. v. Assistant Commissioner Of Income-Tax

S.R Singharavelu, J.:— The assessee is a company carrying on business in the manufacture and sale of flavours, essence, etc. For the assessment year 1989-90, the company filed a return, in which, a claim of deduction under sections 80HH, and 80-I of the Income-tax Act, 1961, was made. In the assessment made, the Assessing Officer allocated a sum of Rs. 54,92,889 as expenditure on research and development pertaining to Chittoor unit. The assessee's appeal and further appeal to the Tribunal having proved unsuccessful, the assessee is now before us.

2. Counsel for the assessee submitted that the amount so included does not pertain to the Chittoor unit, in which unit there is no research and development activity undertaken and carried out.

3. Learned counsel for the assessee also submitted that regarding the products that were manufac-tured in Chittoor unit, no research and development was undertaken at Madras and that therefore, the allocation of some amount on that head to the Chittoor unit was not warranted.

4. It is pertinent to point out that both under sections 80HH and 80-I where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking to which that section applies, there shall be allowed in computing the total income of the assessee a deduction from such profits and gains of an amount equal to 20 per cent. thereof. The assessee claims benefits under the above provisions after excluding the expenses on research and development carried out by it at its establish-ment at Madras. The Assessing Officer allocated a sum of Rs. 54,92,889 as expenses for the benefit of the Chittoor unit as a consequence of which the deductions under sections 80HH and 80-I of the Income-tax Act got reduced and the burden of taxation becomes heavier for the assessee.

5. Learned counsel for the assessee submitted that there was no research and development expenses at Chittoor unit, and that research and deve-lopment carried out at Madras was not with regard to the product manu-factured at Chittoor. This question has not been properly dealt with in the orders of the authorities concerned. Apportionment of expenses on activi-ties of research and development to Chittoor unit merely on the presump-tion that products manufactured at Chittoor also had the benefit of the research made at Chennai by the Research and Development Department is not proper.

6. The Tribunal has also not gone into this aspect. A careful perusal of the order of the Tribunal would show that the Tribunal has not addressed itself to this aspect of the matter. Instead, there was a presumption made that any technology about new flavours and essence will automatically be utilised in Chittoor unit also without examining as to whether the research and development actually carried out at Madras was of use for the unit at Chittoor, as the assessee has other manufacturing units besides the one at Chittoor. It is only on such presumption, allocation of the research and development expenses to Chittoor unit was held by the Tribunal to be justified.

7. For the purpose of determining as to whether at all there was research and development undertaken regarding the product that is manufactured in Chittoor unit, the matter is remitted back to the Tribunal. If it did pertain to the product manufactured at Chittoor, only then the allocation of the expense to Chittoor unit would be justified.