2012 (7) TMI 156 - HC - Income Tax

Entitlement for amortization u/s 35-D - expenses related to the Euro issue - word being as used in Section 35D(2)(c)(iv) is not illustrative but only restricted to - Held that - Considering the eligibility of the assessee company no denial of the fact that the object of issuing shares was for raising the assessee s expansion activities, particularly in the field of capacity expansion and also proposed to invest for expansion of its plants for materials and modernisation of the existing facilities and developments. Thus all the Units of the assessee were to go for expansion programme as well as for modernisation programme, which was in the form of capital expansion - thus no denial of the fact that the expenditure incurred was not in connection with the setting up of a new industrial plant - the word expansion in relation to industrial activity gives the meaning as extension - this warrants the eligibility of the assessee to amortise certain preliminary expenses - in favour of assessee. Declared as the meaning of the phrase being no hesitation in holding that the expenditure that qualified for consideration under Section 35D is restricted by reason of use of the phrase being .Other than what is contemplated under Sub Clause D, if there are still other expenditure in connection with the commencement of business or in connection with the expansion of the industrial undertaking after the commencement of the business or in connection with the set up of a new industrial unit, the same would also qualify for amortization u/s 35D

Summary

Issues Involved:
1. Whether the Tribunal was right in equating a proposal to expand the capacity of production with the extension of an industrial undertaking under Section 35D of the Income Tax Act.
2. Whether the expenses related to the 'Euro issue' by the assessee were entitled to be amortised under Section 35D of the Income Tax Act.
3. Whether the word "being" as used in Section 35D(2)(c)(iv) is illustrative or restrictive.

Detailed Analysis:

1. Equating Production Capacity Expansion with Industrial Undertaking Extension:
The Tribunal held that the expenditure incurred for the expansion of the industrial undertaking qualified for deduction under Section 35D of the Income Tax Act. The High Court affirmed this view, stating there was no denial that the object of issuing shares was for raising funds for the assessee's expansion activities, including capacity expansion and modernisation of plants at Hosur, Bhandara, and Ennore. The court noted that the term "extension" was not defined in the Act but referred to legal lexicons to conclude that both horizontal and vertical expansions fall within the meaning of "extension." Thus, the court confirmed the Tribunal's order, rejecting the Revenue's appeal on this issue.

2. Amortisation of Euro Issue Expenses:
The Tribunal had directed the Assessing Officer to re-compute the deduction according to the provisions of the Act, considering the expenses related to the Euro issue for amortisation under Section 35D. The High Court upheld this decision, noting that the expenses were incurred for the extension of the industrial undertaking. Consequently, the Revenue's appeal on this matter was dismissed.

3. Interpretation of the Word "Being" in Section 35D(2)(c)(iv):
The Tribunal referred to the decision in CIT v. Ennar Steel and Alloy (P) Ltd., which held that the word "being" in Section 35D(2)(c)(iv) is restrictive, meaning only those expenses specified in the statute could be allowed. The High Court agreed with this interpretation, rejecting the assessee's reliance on the Madhya Pradesh High Court's decision in Commissioner of Income Tax v. Shree Synthetics Ltd., which considered "being" as illustrative. The court clarified that the expenses qualifying for deduction under Section 35D are limited to underwriting commission, brokerage, and charges for drafting, typing, printing, and advertisement of the prospectus, as specified in the statute.

Conclusion:
The High Court dismissed both the Revenue's and the assessee's appeals, affirming the Tribunal's decisions. The court directed the Assessing Officer to consider the claim of the assessee in terms of the specific expenditures mentioned in Section 35D(2)(c)(iv) for amortisation. The judgment emphasized the restrictive interpretation of the term "being" in the context of allowable expenses under Section 35D.