Law:

Section:

Section 35(1)(i) of the income-tax act, 1961-Scientific research expenditure - Assessee-Company, doing business in manufacture of rayon yarn, tyre cord and chemicals, proposed to set up a plant for manufacturing pulp from bamboo-Whether research expenses paid by it to a foreign company, in connection with research on bamboo pulping and conversion of such pulp into yarn, were allowable deduction under section 35(1)(i) -Held, on facts, yes Facts The assessee-company was doing business in the manufacture of rayon yarn, tyre cord and chemicals and proposed to set up a plant for manufacturing pulp from bamboo. In its return for the assessment year 1965-66, it claimed deduction of Rs. 2,55-837 as research expenses paid to a foreign company in connection with research, being carried on in foreign company's laboratory, on pulping of bamboo and conversion of such pulp into yarn. The ITO disallowed the claim, holding (i) that, even though the pulp was admittedly the principal raw material for the manufacture of viscose rayon, the bamboo pulp project contemplated by it was new and altogether different from its business during the instant year; and (ii) that the expenditure was not related to its business within the meaning of section 35(1)(i ) While the AAC confirmed the impugned disallowance, the Tribunal deleted the same, observing, inter alia, (i) that the expenditure as well as the object of the research clearly related to the assessee's business within the meaning of section 35(1)(i); and (ii) that the words used in the statutory provision are "related to" and the research undertaken for the purposes of substituting the imported raw material by a more easily and economically available material must be regarded as being related to the assessee's business. On reference: Held The phraseology of the statutory provision does not bear out the revenue's contention before the Tribunal that the research must have been carried on by the assessee-company itself Further, it was not argued before the Tribunal that the recipient foreign company had not carried on the said research for or on behalf of the assessee-company. There was also not much substance in the revenue's other…

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