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TMI Blog2012 (7) TMI 698X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 32A(6) - Decided against the assessee. Amortization of expenses - section 35D - held that:- expenditure incurred in connection with the additional issue of share and this was directly relatable to the expansion of the capital base of the company. - deduction allowed - Decided in favor of assessee. - Tax Case (Appeal) Nos.1311 and 1312 of 2005 - - - Dated:- 26-6-2012 - MRS.JUSTICE CHITRA VENKATARAMAN, MR.JUSTICE K.RAVICHANDRABAABU, JJ. For appellant : Mr.M.P.Senthil Kumar For respondent : Mr.T.R.Senthil Kumar Standing Counsel for Income Tax JUDGMENT CHITRA VENKATARAMAN, J. The assessee is on appeal as against the order of the Income Tax Appellate Tribunal in respect of the assessment year 1994-95 and 1995-96. The following are the substantial questions of law raised in the Tax Case Appeal filed by the assessee T.C.(A) No.1311 of 2005: (i) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the investment allowance cannot be carried forward? and (ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that as per the Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court referred to above, Explanation 3 to Section 43(6) has no relevance in the matter of arriving at the written down value of the assets and the assessee had properly computed the value of the assets taken over from the amalgamating company by adding the unabsorbed depreciation to the written down value of the assets. The assessee contended that Section 72A has no relevance to the case. 4. The Assessing Authority, however, rejected the plea, by holding that the decision of the Bombay High Court was rendered prior to the amendment to Explanation 2 to Section 43(6) under the Taxation Law Amendment Act, 1986, which was effective from 1.4.1988. The Assessing Officer pointed out that the new Explanation 2 clearly stated that the written down value of the stock of assets of the amalgamating company would be the actual cost of the asset minus the amount of depreciation actually allowed in relation to the preceding previous year before the date of amalgamation. Considering the difference in the provision of law, there was no scope of any adjustment to be made in the written down value as appearing in the books of accounts of the amalgamating company. In the circumstances, the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty viewed that the money realised from Euro issue was mainly utilised in increasing its investments; consequently, the expenses relating to the raising of the shares was not entitled for deduction under Section 35D. 7. The assessee went on appeal in respect of both assessment years before the Commissioner of Income Tax (Appeals). In considering the issue on the written down value, the Commissioner of Income Tax (Appeals) viewed that the decision of the Bombay High Court relied on by the assessee related to the pre-amendment provisions; consequently, the order of the Officer could not be faulted with. 8. As regards the investment allowance, which the assessee wanted to carry forward, the Commissioner rejected the contention of the assessee. So too the issue on amortization of expenses relating to the issue of Euro shares. On appeal before the Tribunal, the assessee once again failed. Hence the present appeal before this Court. 9. Learned counsel appearing for the assessee placed reliance on the decision of the Bombay High Court reported in [1991] 187 ITR 1 (Commissioner of Income-tax Vs Hindustan Petroleum Corporation Ltd. (Bom)), the decision reported in [2010] 324 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the issue of Euro share is concerned, learned counsel pointed out to the note which explained the purpose of raising the Euro shares. Considering the fact that the Euro shares were for increasing the base of the capital of the company for expansion as well as for new projects, the expenditure has to be necessarily considered in the context of the purpose for which it was done. 12. Per contra, learned Standing Counsel supported the order of the Tribunal and in turn, the order of the Assessing Officer. 13. Heard learned counsel appearing on either side and perused the material placed on record. 14. Section 43 of the Income Tax Act provides the definition of certain terms relevant to the profits and gains of business or profession. Section 43(1) provides for definition of "actual cost". Section 43(6) gives the definition of "written down value". As far as the assets which are transferred under the scheme of amalgamation or merger is concerned, Explanation 2 of sub section (6) is relevant. Explanation 2 substituted the original Explanation 2 and 2A by the Taxation laws (Amendment and Miscellaneous Provisions) Act, 1986 with effect from 1.4.1988. Explanation 2A was later ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendment and Miscellaneous Provisions) Act, 1986, with effect from 1.4.1988 and Explanation 3, which remain unchanged and hence, relevant for the present year under consideration. 17. Before going into the decision of the Bombay High Court, it is necessary that we extract Explanation 2A and Explanation 3 relevant to the assessment years considered in the Bombay judgment reported in [1991] 187 ITR 1 (Commissioner of Income-tax Vs Hindustan Petroleum Corporation Ltd. (Bom)): " Explanation 2A. -Where, in a scheme of amalgamation, any capital asset is transferred by the amalgamating company to the amalgamated company, and the amalgamated company is an Indian company, the written down value of the transferred capital asset to the amalgamated company shall be taken to be the same as it would have been if the amalgamated company had continued to hold the capital asset for the purposes of its business. Explanation 3. -Any allowance in respect of any depreciation carried forward under sub-section (2) of section 32 shall be deemed to be depreciation 'actually allowed'." 18. The facts were that L company was amalgamated with the assessee company in July, 1974. At the hands of the amal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rward under Section 32(2). In the context of the fact that the amalgamating company is no longer in existence, the situation necessary for the application of the fiction did not arise. Thus the High Court pointed out that the case therein had to be approached independent of Explanation 3, which had no relevance to the case. As per Section 43(6)(b), the written down value is the actual cost of the asset to the assessee, less depreciation actually allowed. The expression "actually allowed" means not including notional allowance, vide [1966] 60 ITR 165 (SC) (CIT Vs. Dharampur Leather Co. Ltd.). Read with Explanation 3, it would mean the actual cost reduced both by depreciation allowed and depreciation notionally allowed i.e., carried forward under Section 32(2). Referring to Explanation 2A, the Bombay High Court held that the written down value of the assets taken over by the amalgamated company during the previous year, would be the written down value of the amalgamating company, if it had continued to hold the assets for its business. Thus Explanation 2A created a fiction that the amalgamating company could be deemed to hold the assets and for the limited purpose of arriving at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amalgamated company. 24. Section 2(34) defines "previous year" to mean a "previous year" as defined in Section 3. Section 3 defines "previous year" as a financial year immediately preceding the assessment year. "Assessment year" is defined under Section 2(9) to mean the period of 12 months commencing on the 1st day of April every year. Thus, with "previous year" definition on hand to mean the financial year starting from 1st April to 31st March of a particular year, the phrase used in the Section, as referable to the written down value of the block of assets in the hands of the transferor amalgamating company, is the written down value of the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year. Thus the emphasis herein is the value available in the immediately preceding previous year and the depreciation actually allowed in relation to the said preceding previous year. 25. The case on hand relates to the assessment years 1994-95 and 1995-96. Taking assessment year 1994-95, the previous year for this assessment would be 1993-94 i.e., from 1.4.1993 to 31.3.1994. The term "preceding" t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Silical Metallurgic Ltd.), we agree with the assessee's contention that the written down value of the assets at the hands of the amalgamated company will be the written down value at the hands of the amalgamating company for the immediate preceding previous year arrived at after reducing the depreciation actually allowed in the said preceding previous year and Explanation 3 will have no relevance for the purpose of finding out the written down value of the amalgamating company, which, in turn, is that of the amalgamated company. In thus arriving at the value, the question of a further reduction by invoking Explanation 3 does not arise. In the light of the above discussion, one has to see the scope of Section 72A. 28. Section 72A is a specific provision to deal with cases of carry forward and set off of accumulated loss and unabsorbed depreciation allowance in cases of amalgamation or demerger. As per sub section (1), the accumulated loss and unabsorbed depreciation of the amalgamating company is deemed to be the loss or the allowance of depreciation to the amalgamated company for the previous year in which the amalgamation is effected. Unabsorbed depreciation is defined in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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