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TMI Blog2016 (10) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... e section of the public holding shares in a company would be treated as public, for the purposes mentioned in Section 67. It is also clear from Section 67, that the purposes of the Section would include rights issue of shares under Section 81 of the Companies Act also. Therefore, when the scope and purport of Section 35D(2)(c)(iv) of the Income Tax Act is examined, this Court is entitled to refer to the provisions of Section 67 of the Companies Act and if so done, the inevitable conclusion is that the term for “public subscription” employed in Section 35D(2)(c)(iv) of the Income Tax Act would include subscription by a section of the public, i.e., the existing shareholders in a Company as well. Any interpretation to the contrary would lead t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e preliminary expenses incurred for the rights issue. On the ground that only shares issued for public subscription qualified for the benefit of Section 35D(2)(c)(iv) of the Income Tax Act and that in a rights issue, shares are issued only to a section of the public, the Assessing Officer disallowed the claim. This order was confirmed by the First Appellate Authority and the Tribunal. 3. It is in this background these appeals are filed and the questions of law framed for the consideration of this Court are the following: 1. Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in holding that the expenditure incurred by the Appellant in connection with the issue of Right Shares to the public is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the undertaking is completed or the new unit commences production or operation: ............................................................................... (2) The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely:- (a) expenditure in connection with- (i)..................................... (ii)..................................... (iii).................................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch a manner as they think most beneficial to the company. 8. In compliance with Section 81 of the Companies Act, the assessee Company offered shares to its existing shareholders. Many shareholders accepted the offer and such of those shares which were declined to be accepted, were subscribed by the promoters of the Company themselves. It is because of the fact that the subscription of the shares thus issued by the Company was confined to its existing shareholders, the authorities have declined the benefit of amortization, stating that the subscribers of the shares were only a section of the public and not the public itself. 9. According to us, this interpretation adopted cannot be sustained. The term 'public' is not defined i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion would include rights issue of shares under Section 81 of the Companies Act also. Therefore, when the scope and purport of Section 35D(2)(c)(iv) of the Income Tax Act is examined, this Court is entitled to refer to the provisions of Section 67 of the Companies Act and if so done, the inevitable conclusion is that the term for public subscription employed in Section 35D(2)(c)(iv) of the Income Tax Act would include subscription by a section of the public, i.e., the existing shareholders in a Company as well. Any interpretation to the contrary would lead to a situation where the benefit of amortization would be available to public issue of shares and the same benefit would be denied when shares are issued by Companies on rights basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. those interested in commerce are not objects of general public utility, do not correctly interpret the expression objects of general public utility . The section of the community sought to be benefited must undoubtedly be sufficiently defined and identifiable by some common quality of a public or impersonal nature : where there is no common quality uniting the potential beneficiaries into a class, it may not be regarded as valid. 13. Sum and substance of the above discussions that the findings of the Assessing Officer confirmed by the First Appellate Authority and the Tribunal is unsustainable. Therefore, answering the questions of law in favour of the assessee and against the revenue, these appeals are disposed of. - - TaxT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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