2012 (3) TMI 519 - HC - Income Tax

Share issue expenses attributable to acquisition of assets - Held that - In the previous Assessment Year 1983-84, the Assessee incurred an expenditure of ₹ 65.55 lacs in connection with the issue of share capital of which the Assessee claimed that the expenditure in the amount of ₹ 45.99 lacs was directly connected to the acquisition of capital assets in the nature of plant and machinery whereas the balance of ₹ 16.55 lacs was incurred on revenue account. The Tribunal by its order dated 10 March 2006 held that share issue expenses to the extent of ₹ 45.99 lacs were attributable to the acquisition of assets in the form of plant and machinery and should be capitalized under that head and the depreciation/investment allowance would have to be allowed. Assessee is entitled to the deduction in respect of enhanced liability of ₹ 612.32 lacs being payment of interest to be made under the Drug Price Control Order,1979 notwithstanding the fact that the provisions of Section 43B was not complied with Exclude expenditure incurred on Insurance Premium for Health Insurance Scheme of the employees and club membership fees for the purpose of computing disallowance u/s.40A(5) and 40(c)

Summary

Issues:
1. Share issue expenses related to acquisition of assets.
2. Deduction for enhanced liability under the Drug Price Control Order.
3. Exclusion of certain expenditures for computing disallowance under sections 40A(5) and 40(c).

Share Issue Expenses Related to Acquisition of Assets:
The appeal concerned an assessment year of 1986-87, originating from a decision of the Income Tax Appellate Tribunal. The Revenue raised a question regarding the justification of attributing share issue expenses to the acquisition of assets like Plant and Machinery, making them eligible for depreciation and investment allowance. The Tribunal noted a similar decision in favor of the Assessee for the assessment year 1984-85. The Tribunal found that a significant portion of the share issue expenses was directly connected to the acquisition of capital assets and should be capitalized, allowing for depreciation and investment allowance. The Assessee claimed that the unit became functional in the assessment year 1986-87.

Deduction for Enhanced Liability under the Drug Price Control Order:
Another issue raised was the entitlement of the Assessee to a deduction for an enhanced liability of &8377; 612.32 lacs, related to payment of interest under the Drug Price Control Order, 1979. The Revenue questioned the compliance with Section 43B in this regard. The Tribunal, however, followed its previous order for the assessment year 1984-85, which had attained finality. As the decisions for earlier assessment years had been finalized, no substantial question of law arose for the assessment year 1986-87 on this ground.

Exclusion of Certain Expenditures for Computing Disallowance:
The final issue involved the exclusion of expenditures on Insurance Premium for a Health Insurance Scheme of employees and club membership fees for computing disallowance under sections 40A(5) and 40(c). The Tribunal referred to a decision in favor of the Assessee for the assessment year 1984-85 regarding health premium. Additionally, the issue of club membership was covered by a decision of the Division Bench in favor of the Assessee. Consequently, no substantial question of law was found to arise in this context. The appeal was ultimately dismissed with no order as to costs.