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2009 (10) TMI 49 - HC - Income TaxInterpretation of section 35D - Amortisation of certain preliminary expenses Expenditure of Rs.49, 13, 479.85 was incurred towards the right issue and Rs.75, 06, 601.80 towards the public issue - The assessment was completed under Section 143(3) of the Act on 26.3.2001 wherein the Assessing Officer (AO) disallowed the expenses claimed by the appellant as revenue expenditure. held that - The activity of construction can by no stretch of imagination be treated as manufacturing activity as it does not amount to manufacture or production of an article or a thing - opined that the business of construction of building will not fall within the ambit of industrial company - Since the appellant does not qualify to be an industrial undertaking whether amendment to Section 35D of the Act is clarificatory in nature or applies retrospectively will not have any bearing. Therefore it is not necessary to decide this question in the facts of this case
Issues Involved:
1. Interpretation of Section 35-D of the Income Tax Act, 1961. 2. Whether the appellant qualifies as an "industrial undertaking" under Section 35-D. 3. Applicability of the amendment to Section 35-D by the Finance Act, 2008, retrospectively. Detailed Analysis: Issue 1: Interpretation of Section 35-D of the Income Tax Act, 1961 The core issue revolves around the interpretation of Section 35-D of the Income Tax Act, 1961, which allows amortization of specified preliminary expenses that are otherwise not admissible deductions. Section 35-D applies in two scenarios: - Pre-business expenses incurred before the commencement of business. - Expenses incurred in connection with the extension of an industrial undertaking or setting up a new industrial unit by an establishment already in business. The appellant, a public limited company engaged in real estate development, incurred significant expenses on a right issue and a public issue of shares. The Assessing Officer (AO) disallowed these expenses as revenue expenditure, a decision upheld by the Commissioner of Income Tax (Appeal) and the Income Tax Appellate Tribunal (Tribunal). The Tribunal held that the appellant is not an "industrial undertaking" and thus not entitled to deduction under Section 35-D. Issue 2: Whether the appellant qualifies as an "industrial undertaking" under Section 35-D The appellant argued that it should be considered an "industrial undertaking" and thus eligible for deductions under Section 35-D. The term "industrial undertaking" is not defined in the Income Tax Act, leading to reliance on definitions from other statutes and common parlance. Various definitions from the Sick Industrial Companies (Special Provisions) Act, the Industries Development and Regulation Act, and the Industrial Disputes Act were considered. Common elements in these definitions suggest that an "industrial undertaking" typically involves manufacturing or production activities carried out in factories. The court referred to dictionary meanings and judicial interpretations, including the Kerala High Court's decision in P. Alikunju M.A. Nazeer Cashew Industries v. CIT, which emphasized a broad interpretation of "industrial undertaking." However, the court noted that while the undertaking must partake in business activities, the adjective "industrial" implies a specific focus on manufacturing or production. The court concluded that the appellant's construction activities do not constitute manufacturing or production and thus do not qualify as an "industrial undertaking." This conclusion aligns with the Supreme Court's rulings in Commissioner of Income Tax, Orissa & Ors. v. M/s. N.C. Budharaja & Company & Ors. and S.A. Builders Ltd. v. Commissioner of Income Tax (Appeals), Chandigarh & Anr., which held that civil construction does not amount to manufacturing activity. Issue 3: Applicability of the amendment to Section 35-D by the Finance Act, 2008, retrospectively Given the conclusion that the appellant does not qualify as an industrial undertaking, the question of whether the amendment to Section 35-D by the Finance Act, 2008, is clarificatory and applies retrospectively becomes moot. Therefore, the court did not find it necessary to decide on this issue. Conclusion: The court dismissed the appeals, affirming that the appellant does not qualify as an industrial undertaking under Section 35-D of the Income Tax Act, 1961. Consequently, the appellant is not entitled to the claimed deductions. The appeals were dismissed with costs of Rs. 15,000/- in each of the four appeals.
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