ITA No. 1261 of 2008, ITA No. 1278 of 2008, ITA No. 1287 of 2008, ITA No. 1402 of 2008. Case: Ansal Housing and Construction Limited Vs Commissioner of Income Tax. High Court of Delhi (India)
| Case Number | ITA No. 1261 of 2008, ITA No. 1278 of 2008, ITA No. 1287 of 2008, ITA No. 1402 of 2008 |
| Counsel | Ajay Vohra, Kavita Jha, Sriram Krishna, Subhash Bansal |
| Judges | A. K. Sikri & Valmiki J. Mehta, JJ. |
| Issue | Income-tax Act, 1961 - Sections 35-D, 54D, 143(3), 260A; Taxation Laws (Amendment) Act, 1970; Finance Act, 2008; Sick Industrial Companies (Special Provisions) Act, 1985 - Section 2(f); Industries (Development and Regulation) Act, 1951 - Sections 2(d), 3(aa), 3(d); Industrial Disputes Act, 1947; Central Industrial Security Force Act, 1968 - ... |
| Citation | (2010) 228 CTR (Del) 262, [2010] 320 ITR 420 (Delhi), [2009] 185 TAXMAN 74 (Delhi) |
| Judgement Date | October 30, 2009 |
| Court | High Court of Delhi (India) |
Judgment:
A. K. Sikri, J.
1. In all these appeals, common question of law which arises for consideration, which relate to interpretation of Section 35-D of the Income-tax Act, 1961 (hereinafter referred to as the 'Act'). For the purpose of convenience, we are taking note of the facts of ITA No. 1261/2008.
2. The appellant is a widely held public limited company engaged in the business of construction and sale of multi storeyed residential buildings and complexes, promotion and development of residential colonies and other real estate development projects since 1983. During the assessment year 1994-95, the appellant came out with two issues of shares for public subscription to augment its working capital, namely, 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 dissatisfied, present appeal is preferred under Section 260A of the Act.
5. In common parlance and as per the accounting standards, the expenditure on issue of shares is treated as capital expenditure since it affects the capital structure of the business. Therefore, such an expenditure, being of capital nature, is not admissible to deduction as business expenditure since the same is not treated as revenue deduction. However, by Taxation Laws (Amendment) Act, 1970, the Legislature introduced Section 35-D of the Act, which came into force with effect from 1.4.1971. It enables amortization of specified preliminary expenses, which are otherwise not admissible deductions. Expenditure on issue of shares of public subscription is one such expenditure. Section 35-D, however, applies in two circumstances:
(a) pre-business expenses, i.e. expenses incurred before the commencement of business, and
(b) expenses incurred in connection with the extension of industrial undertaking or in connection with setting up a new industrial unit by an establishment which is already in business.
These are the expenses which are incurred even after the commencement of business, but are admissible only to a business which is an 'industrial undertaking'. This becomes manifest from the reading of Section 35-D of the Act, which is reproduced below:-
"35D Amortisation of certain preliminary expenses -
(1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2). -
(i) before the commencement of his business, or
(ii) after the commencement of his business, in connection with the extension of his industrial undertaking or in connection with his setting up a new industrial unit.
the assessee shall, in accordance with and subject to the provisions 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 industrial undertaking is completed or the new industrial unit commences production or operation........"
6. Circular No. 56 dated 19.7.1971 containing explanatory notes on the Taxation Laws (Amendment) Act, 1970 clarifies the Legislative intent behind...
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