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TMI Blog2009 (10) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... y, a right issue (48,21,300 equity shares of Rs.10/- each @ a premium of Rs.12.50/- each, aggregating to Rs.10,84,79,250/-) and a public issue (24,19,900 equity shares of Rs.10/- each @ a premium of Rs.15/- each aggregating to Rs.6,14,97,500/-). Expenditure of Rs.49,13,479.85 was incurred towards the right issue and Rs.75,06,601.80 towards the public issue. 3. For the previous year relevant to the assessment year 1998-99, the appellant company filed its return of income on 30.11.1998 disclosing total income of Rs.6,57,26,910/-. 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. 4. Being aggrieved by the aforesaid order, the appellant filed an appeal before the Commissioner of Income Tax (Appeal). The CIT(A), vide order dated 7.8.2003, confirmed the action of the AO. The appellant preferred the appeal before the Income Tax Appellate Tribunal (for short, the "Tribunal"). The Tribunal vide order dated 11.4.2008 held that the appellant is not an "industrial undertaking" and, therefore, not entitled to deduction under Section 35-D of the Act. Still dissa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt behind insertion of Section 35D of the Act on the statute in the following terms :- "42. Sec. 8 of the Amending Act has introduced two new ss. 35D and 35E, w.e.f. 1st April, 1971. New s. 35D provides for the amortization of certain preliminary expenses incurred by an Indian company or a resident assessee other than a company before the commencement of business or in connection with the extension of an industrial undertaking or the setting up of a new industrial unit. The amortization will be allowed against the profits of the company or other taxpayer in 10 equal instalments over a period of 10 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 industrial undertaking is completed or the new industrial unit commences production or operation. Such amortization will be allowed only in respect of expenditure incurred after 31st March, 1970 under specified heads. The heads of qualifying expenditure specified for this purpose are the following: xxx & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable retrospectively?" 8. We now proceed to determine these questions. 9. Re. - Question No.1 The appellant company is in the business of construction and sale of multiple storey buildings and complexes and in real estate. Whether such a company can be treated as "industrial undertaking" is the question. This term "industrial undertaking" has nowhere been defined under the Act. However, some other enactments contain the definition of this term. These, among others, are: (i) Section 2(f) of the Sick Industrial Companies (Special Provisions) Act, 1985. "(f) "industrial undertakings" means any undertaking pertaining to a scheduled industry carried on in one or more factories by any company but does not include- (i) an ancillary industrial undertaking as defined in clause (aa) of section 3 of the Industries (Development and Regulation) Act, 1951 (65 of 1951); and (ii) a small scale industrial undertaking as defined in clause (j) of the aforesaid section 3;" (ii) Section 2(d) of the Industries Development and Regulation Act. (iii) The Industrial Disputes Act, 1947 also contains the definition of "industry" in Section 2(j) as well as "industrial undertaking" in Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flavour from the manufacturing or production activities carried by factories. The expression "industrial undertaking" appears in Section 54-D of the Act as well and the Kerala High Court also had an occasion to expound this term in the case of P. Alikunju M.A. Nazeer Cashew Industries v. CIT, 166 ITR 804. That Court was also of the opinion that natural meaning to the words "industrial undertaking" should be given in the absence of any statutory definition. 13. To this extent, there is no quarrel. However, Mr. Ajay Vohra, learned counsel for the appellant submitted that wide meaning should be given to the expression "industrial undertaking" as was done by the Kerala High Court, which is clear from the following discussion contained in the said judgment :- "5. What then is an "industrial undertaking"? The Income-tax Act does not define what is "an undertaking" or what is an "industrial undertaking". It has, therefore, become necessary to construe these words. Words used in a statute dealing with matters relating to the general public are presumed to have been used in their popular rather than their narrow, legal or technical sense. Loquitur ut vulgus, that is, according to the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that "the word "business" connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose." Endorsing this construction, the Supreme Court in a later decision in Mazagaon Dock Ltd. v. Commissioner of Income Tax (1958) 34 ITR 368 has observed (at page 376) : "The word 'business' is, as has often been said, one of wide import and in fiscal statutes it must be construed in a broad rather than a restricted sense." 8. The words "industrial undertaking" therefore, should be understood to have been used in Section 54D in a wide sense, taking in its fold any project or business a person may undertake. The "running of a lodge", by the assessee, therefore, can be said to be an "industrial undertaking" within the meaning of Section 54D of the Income-tax Act." 14. Mr. Vohra also referred to the judgment of the Bombay High Court in Ship Scrap Traders v. Commissioner of Income Tax, 251 ITR 806. This case concerns with the deductions under Section 80HHA and 80IA of the Act, which are available to an "industrial undertaking" engaged in manufacture or production of an article or a thing. While holding that the assessee would be entitled to deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the said expression "industrial" and the case is decided by relying upon the meaning of the expression "undertaking' alone. Interestingly, in the two judgments of the Bombay High Court, taken note of above, the Court came to the conclusion that the activities involved in those cases amounted to manufacture or production of an article or a thing. 18. Therefore, we are of the opinion that common sense approach will have to be adopted and those undertakings would qualify as "industrial undertakings" which are involved in "manufacturing activity". 19. 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. Law in this behalf stands settled by the judgment of the Supreme Court in the case of Commissioner of Income Tax, Orissa & Ors. v. M/s. N.C. Budharaja & Company & Ors., 204 ITR 412. Following this judgment, the Supreme Court in S.A. Builders Ltd. v. Commissioner of Income Tax (Appeals), Chandigarh & Anr., 289 ITR 26, held that the business of civil construction would not amount to carrying on any manufacturing activity. Even this Court in Ansal Housing & Est ..... X X X X Extracts X X X X X X X X Extracts X X X X
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