Income Tax Appellate Tribunal - Mumbai
Dronagiri Infrastructure Pvt. Ltd., ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI 'D ' BENCH
MUMBAI BENCHES, MUMBAI
BEFORE SHRI G E VEERABHADRAPPA, PRESIDENT & SHRI VIJAY PAL RAO, JM
ITA No. 3369/Mum/2011
(Asst Year 2006-07)
Dronagiri Infrastructure P Ltd Vs The Dy Commr of Income Tax 6(2),
Jai Centre - 1st Floor Mumbai
34 P D Mello Road
Opp Red Gate
Mumbai
(Applicant) (Respondent)
PAN No. AACCD0613R
Assessee by Sh Yogesh A Thar
Revenue by Sh C G K Nair
Dt.of hearing 14th June 2012
Dt of pronouncement 18th, July, 2012
PER VIJAY PAL RAO, JM
This appeal by the assessee is directed against the order dated 21/0/2011 of CIT(A) for the assessment year 2006 -07.
2 The assessee has raised the following grounds in this appeal:
1. The learned Assessing Officer erred in computing the assessment at a total income of Rs. 3,93,355/- as against Loss of Rs. 46,69,139/- returned by the appellant.
2. The learned Assessing Officer erred in disallowing Rs. 49,99,000/- under section 35D of the Income Tax Act, 1961.
3. The learned Assessing Officer also erred in disallowing Rs. 63,494/- under section 14A-of the Income Tax Act, 1961.
4. The learned Assessing Officer erred in initiating penalty under Section 27 1(1) (c) of the Income Tax Act, 1961.2 ITA No. 3369/Mum/2011
Dronagiri Infrastructure P Ltd
5.On the facts and in the circumstances of the case and in law, the Assessing Officer erred in--levying interest u/s. 234B and 234C of the Act.
6. The Order passed by the learned Assessing Officer is illegal, bad in law, ultr virus and contrary-to the provisions of the law and facts and is passed without application of mind and in violation of the principles of natural justice.
7. Each one of the above grounds of appeal is independent and without prejudice to each other. .
8. The Appellant craves leave to add, to alter or to amend any of the ground of appeal mentioned hereinabove.
3 Ground number 1, 6 to 8 are general in nature and therefore, no specific finding is required.
4 At the time of hearing, the learned AR of the assessee has submitted that the assessee does not press ground number 3 and the same may be dismissed as not pressed. The learned D.R. has no objection, if the ground number 3 of the assessee's appeal is dismissed, as not pressed. Accordingly, we dismiss the ground number 3 being not pressed.
5 Ground number ground number 2 regarding disallowance of Rs. 49, 99, 000/- under section 35D the I T Act.
5.1 The assessee company was incorporated on 11th March 2004 and it's main object to carry out the business of promotion, development and operations of infrastructure facilities and services in India. During the year under consideration, the company has increased its authorised capital from Rs. 1.5 lakh to Rs. 600 crores. The assessee has debited Rs. 2,49,95,000/-as expenditure incurred on increase in share capital. The details of the expenditure incurred for increase of the capital are given by the Assessing Officer in paragraph 4 as under:
3ITA No. 3369/Mum/2011
Dronagiri Infrastructure P Ltd SlNo. Particulars Amount 1 Stamp duty for increase in authorised share capital 50,00,000 2 Fees for filing Form 5 for increase in authorised share capital 1,99,98,500 with department of ?Company Affairs Total 249,98,500 5.2 Out of this total expenditure, the assessee has claimed 1/5th amounting to Rs. 49,,99,000/- under section 35D of the I T Act. The Assessing Officer has disallowed the claim of the assessee and held that the claim of amortisation of expenditure for increase of authorised capital is not allowable.
5.3 On appeal the CIT(A) confirmed the action of the Assessing Officer .
5.3 Before us, the learned A.R. of the assessee has submitted that section 35D is an enabling provisions which enables the assessee to obtain amortisation of certain expenditure which is otherwise capital in nature and not allowable deduction. He has further submitted that the expenditure is otherwise admissible as revenue deduction under the provisions of section 37, the assessee has an option to claim revenue deduction for such expenditure under the existing provisions or alternatively to claim amortisation thereof under the provisions of section 35D. He has referred section 35D and submitted that the word "such other item of expenditure" is wide enough to cover a case of payment of fee to registrar for raising capital of the assessee company. He has relied upon the decision of honourable Rajasthan High Court in case of Commissioner of Income-tax v. Multi Metals Ltd. reported in 188 ITR 151 and submitted that the honourable High Court has decided that the expenditure for the purpose of increase in authorised share capital is deductible under section 35D (2) (c) (iv) of the I T Act. The learned AR has referred the decision of honourable Rajasthan High Court and submitted that the honourable High Court has observed that the language of sub section 2 ( c) (iv) of section 35D is wide in 4 ITA No. 3369/Mum/2011 Dronagiri Infrastructure P Ltd nature and would include the deductibility of fee paid by the assessee to registrar for enhancement of capital. It is settled principle that the provisions of law capable of two interpretations should be interpreted in manner so as to give the benefit to the assessee. The ld AR of the assessee has then referred schedule X of Companies Act and submitted that the Companies Act requires the fee to be paid even by a existing company to the ROC and therefore, the fee paid to the ROC for increase in authorised capital falls under section 35D (2)(iii).
5.4 On the other hand, the learned DR has relied upon the orders of the authorities below and submitted that the Assessing Officer has decided the issue by following the decision of honourable Supreme Court in case of Punjab State Industrial Development Corporation Ltd. v. Commissioner of Income-tax reported in 225 ITR 792 and in case of Brooke Bond India Ltd. v. Commissioner of Income-tax reported in 225 ITR 798 as well as the decision of honourable Delhi High Court in case of Commissioner of Income-tax v. Hindustan Insecticides Ltd. reported in 250 ITR 338 wherein it has been held that the fee paid for increase in share capital is not fee for registration of company and hence is not amortised even under section 35D (2 )( c)(iii).
6 We have considered the rival submissions as well as relevant material on record. There is no dispute on the fact that the expenditure in question was incurred in relation to the increase in authorised capital and not in relation to incorporation of the assessee company by registration with ROC. The assessee has mainly relied upon the decision of honourable Rajasthan High Court in case of multi-metal Ltd (supra) and advanced the argument that the language of section 35D(2)(c ) is wide in nature and would include the deductibility of fee paid by the assessee to ROC for enhancement of authorised capital. We note that the Assessing Officer has 5 ITA No. 3369/Mum/2011 Dronagiri Infrastructure P Ltd distinguished the decision of the honourable Rajasthan High Court and relied upon the decision of honourable Supreme Court as well as honourable Delhi High Court. The relevant part of the assessment order at page no.4 is reproduced as under:
"The submissions of the assessee is considered, but cannot be accepted due to the reasons that the expenditure allowed to be amortised of certain preliminary expenses are mentioned in the provisions of Section 35D of I.T. Act, 1961. Assessee's expenditure is incurred on none of the items mentioned in provisions of Section 35D (2) and hence does not qualify for any allowance on this account. The assessee is a private limited company and not a company in which the public is substantially interested and the expenses are not incurred for public issue. The facts of the case of the assessee is squarely covered by the decision of the Hon'ble Supreme Court in the cases of Punjab State Industrial Development Corporation Ltd Vs. CIT 225 ITR 792 and Brook Bond India Ltd vs. CIT 225 ITR 798 (SC) wherein it was held that expenses incurred on increasing the share capital and fees paid to Registrar of companies for increase in authorised capital is capital expenditure and cannot be allowed as revenue expenditure.
In the case of CIT Vs. Hindustan Insecticides Ltd 250 ITR 338, the Hon1e Delhi High Court has held that fees paid for increase in share capital is not fees for registration of the/ company and hence is not amortizable under Section 35D(2)(e)(iii) of the I..T. Act.
Regarding the contention of the assessee that this item is covered by provisions of section 35D (2)(d) of the I.T. Act, it is seen that the said clause provides that any other item as may be prescribed can be considered for amortization. However, nothing has been prescribed, so as to include the expenses as claimed by the assessee. Therefore the claim of the assessee is rejected. The assessee ha relied on the case of CIT Vs. Multi Metals Ltd 188 ITR
151. The facts of that case are totally different. In that case, the expenses were incurred for raising public issue of shares and therefore was held to be covered by Section 35D (2)(c)(iv). The assessee is not a public company and has not incurred any expenses on public issue and therefore the ratio of this decision is not applicable. The other cases relied by the assessee are also distinguishable on facts, Hence the claim of the assessee on account of amortization of expenses are disallowed in view of the above discussion."
6.1 The Assessing Officer disallowed the claim by following the decision of honourable Supreme Court in case of Punjab state industrial development Corporation and broke Brooke Bond India Ltd (supra). Further the honourable Delhi High Court in case of Hindustan Insecticides Ltd (supra) has decided an identical issue after considering and following the aforesaid decisions of honourable Supreme Court and held in para 3 and 4 as under:
6ITA No. 3369/Mum/2011
Dronagiri Infrastructure P Ltd "We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessee in spite of notice.
So far as the question referred at the instance of the assessee is concerned, the matter is squarely concluded by two decisions of the Supreme Court in Punjab State Industrial Development Corporation Limited v. CIT [1997] 225 ITR 792 and Brooke Bond India Limited v. CIT [1997] 225 ITR
798. It was held in both the cases that expenditure incurred by a company in connection with issue of shares with a view to increase its share capital is directly related to the expansion of the capital base of the company and is capital expenditure even though it may incidentally help in the business of the company and in the profit making. That being the position, the question is answered in the affirmative, in favour of the Revenue and against the assessee.
Coming to the question referred at the instance of the Revenue it would be necessary to quote the provision as it stood at the relevant point of time:
"35D. (1) . . .
(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) & (b)....
(b) where the assessee is a company, also expenditure
(i) and (ii).....
(iii) by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956) ;"
It has to be noted that the Tribunal referred to Schedule X to the Companies Act, 1956 (in short, "the Companies Act"). The said schedule refers to the table of fees to be paid to the Registrar in respect of a company having a share capital. Item 1 of the Schedule indicates Rs. 200 as prescribed fees payable for registration of a company whose nominal share capital does not exceed Rs. 20,000. Item 2 of the Schedule indicates an additional fee for registration of a company whose nominal share capital exceeds Rs. 20,000. The Tribunal was of the view that item 3 was the relevant item. The said item reads as follows :
"(3) For filing a notice of any increase in the nominal share capital of a company the difference between the fees payable on the date of filing the notice for the registration of a company with a nominal share capital equal to the increased share capital and the fees payable, on such date, for the registration of a company with a share capital equal 7 ITA No. 3369/Mum/2011 Dronagiri Infrastructure P Ltd to the nominal share capital of the company filing the notice immediately before the increase."
With reference to the said item, the Tribunal held that the additional fee is a registration fee on the difference in the nominal share capital and the increased share capital of the company and is covered by the said item. For coming to said conclusion the Tribunal observed that it has to be kept in view that the whole amount, which becomes the authorised share capital, would have attracted payment of fee at a particular figure at the point of time of original registration of the company. Merely because the share capital is increased subsequently as permissible under section 81 of the Companies Act, the fee paid on the increased capital does not cease to be registration fee. Learned counsel for the Revenue with reference to the various provisions of the Companies Act submitted that item 3 of Schedule X has no application to the facts of the case. There is a conceptual difference between registration of the company and action taken for increase of the share capital. Part II of the Companies Act deals with incorporation of a company and matters incidental thereto. Section 12 deals with mode of forming an incorporated Company. Sections 33 and 34 deals with registration of memorandum and articles and effect of registration respectively. Section 97 deals with the requirement of notice of increase of the share capital or of members. Section 611 deals with the fees payable under Schedule X. Sub-section (1) of section 34 to which we have made reference earlier stipulates that on the registration of the memorandum of a company, the Registrar shall certify under his hand that the company is incor- porated and, in the case of a limited company, that the company is limited. Therefore, on the registration of the memorandum of a company the company becomes incorporated. A reading of Schedule X would go to show that items 1 and 2 deal with registration of a company depending on the nominal share capital, in respect of a company having a share capital. Item 3, on the other hand, deals with fees payable for filing a notice for increase in the nominal share capital of the company. The first two items and the third item operate in conceptually and contextually different fields. This is also clear from a reading of item 4 which provides that for registration of any existing company, except such companies as are by the Companies Act exempted from payment of fees in respect of registration under the Companies Act, the same fee as is charged for registering a new company is payable. Section 35D(2)(c)(iii) deals with expenditure incurred by way of fees for registration of a company under the Act. As the analysis of the position above would go to show, fees paid under item 3 of Schedule X cannot be stated to be fees paid for registering a company. That being the position section 35D(2)(c)(iii) has no application to the facts of the case. The question referred at the instance of the Revenue is, therefore, answered in the negative, in favour of the Revenue and against the asses- see."
8ITA No. 3369/Mum/2011
Dronagiri Infrastructure P Ltd 7 It is clear from the decisions cited above that the issue is settled and covered against the assessee and in favour of the revenue. Accordingly, respectfully following the decisions of honourable Supreme Court as well as honourable Delhi High Court, we do not find any merit in the appeal of the assessee on this issue and hence we uphold the orders of the authorities below on this issue. 8 Ground number 4 is regarding initiation of penalty under section 271 (1 ((C) of the I T Act.
9 We have heard the learned not A.R as well as the learned DR and considered the relevant records. As it appears from the ground itself that this ground is premature and raised before any penalty is levied under section 270(1)( c ). Hence we dismiss ground number 4 as premature.
10 Ground number 5 regarding levy of interest under section 234B and 234C of the I T Act.
11 Levy of interest under section 234B and 234C are mandatory and consequential in nature; accordingly, the same is dismissed. 12 In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on the 18th, day of July 2012.
Sd/- Sd/-
( G E VEERABHADRAPPA ) ( VIJAY PAL RAO )
President Judicial Member
Place: Mumbai : Dated: 18th, July 2012
Raj*
9
ITA No. 3369/Mum/2011
Dronagiri Infrastructure P Ltd
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai