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Rajasthan High Court · body

2003 DIGILAW 997 (RAJ)

Autolite India Ltd. v. Commissioner of Income Tax

2003-07-21

SHASHI KANT SHARMA, Y.R.MEENA

body2003
Judgment 1. On an application under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question for the opinion of this court: “In the interest of the circumstances of the case, was the Tribunal right in treating the increase in the production capacity from 6 lakhs head lamps per annum to 12 lakhs head lamps per annum as expansion and not extension as envisaged in Section 250 (sic) of the Income-tax Act, 1961, and consequently holding that the assessee was not entitled to deduction under Section 35D in respect of expenses as public issue.” 2. The relevant assessment years are 1987-88 and 1988-89. During the course of assessment, the Assessing Officer noticed that the assessee had raised its capital by way of public issue and in the process had incurred Rs. 6,30,177. The amount of public issue was to be used for expansion of business. He claimed it as a revenue expenditure, but the claim was rejected by the Assessing Officer holding that the expenditure is a capital expenditure. 3. In appealbefore the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) has allowed only Rs. 18,500 as revenue expenditure out of total expenditure claimed. 4. In appeal before the Tribunal, the Tribunal has also confirmed the view taken by the Assessing Officer holding that the amount of public issue has been incurred on “expansion” of business and not on “extension” of business. Therefore, the assessee is not entitled even for the benefit under Section 35D of the Act. 5. Heard learned counsel for the parties. There is no dispute that the assessee has incurred Rs. 6,30,177 on the public issue to raise the capital for extending/expansion of its business. 6. Mr. Mathur, learned counsel for the applicant, submits that the expenditure in question is covered by Sub-clause (iv) of Clause (c) of Sub-section (2) of Section 35D. He further submits that there is no difference between “extension” and “expansion” and the Bombay High Court has read “extension” as “expansion” in the case of CIT vs. Mahindra Ugine and Steel Co. Ltd. [2001] 250 ITR 84 and allowed the benefit under Section 35D of the Act. The case before the Bombay High Court for the expenditure incurred on payment of stamp duty for debenture issue, whether the benefit under Section 35D should be allowed or not. Ltd. [2001] 250 ITR 84 and allowed the benefit under Section 35D of the Act. The case before the Bombay High Court for the expenditure incurred on payment of stamp duty for debenture issue, whether the benefit under Section 35D should be allowed or not. The Bombay High Court has allowed the claim of the assessee. 7. Mr. Singhi, learned counsel for the Revenue, submits that as the break-up has not been given of the amount of Rs. 6,30,177, therefore, the expenditure incurred only on the items referred to in Sub-clause (iv) is eligible for the benefit of Section 35D(2)(c) of the Act. Therefore, the Tribunal be directed to get the break-up of the expenditure from the assessee as the benefit of Sub-clause (iv) of Clause (c) of Sub-section (2) of Section 35D can be allowed only on those items referred to in Sub-clause (iv) after considering the break up of the amount in question. 8. The provision of Section 35D(2)(c)(iv) reads as under: “In connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus.” 9. Considering the submission even if it is not revenue expenditure and is a capital expenditure, the expenses incurred on issue of public subscription, of shares or of debentures of the company, any payment made against commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus, which are clearly referred to in Sub-clause (iv), and any expenses incurred on these items, the assessee is eligible for benefit of Section 35D. The Assessing Officer is directed to get a break-up of the amount of expenditure referred to above and if any amount out of that amount is incurred on the aforesaid items given in Sub-clause (iv), he should allow the benefit of Section 35D of the Act to the assessee. 10. In the result, we answer the question in the negative, i.e., in favour of the assessee and against the Revenue. We clariir that the expenses will be allowed only to the extent incurred on the items referred to in Sub-clause (iv) of Clause (c) of Sub-section (2) of Section 35D. 11. The reference so made stands disposed of accordingly.