Income Tax Appellate Tribunal - Mumbai
P.I. Drugs & Pharmaceuticals Ltd, ... vs Assessee on 21 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "C", MUMBAI
BEFORE SHRI RAJENDRA SINGH, A.M. AND SHRI V. DURGA RAO, J.M.
ITA Nos. 1959 & 1960/Mum/2010
Assessment Year : 2004-05 & 2006-07
P.I. Drugs & Pharmaceuticals Ltd., ... Appellant
116, Vardhman Industrial Complex,
LBS Marg, Thane - 400 601
(PAN - AAACV1501G)
Vs.
Dy. Commissioner of Income-tax-3(3), ...Respondent
Mumbai.
Appellant by : Mr. Hari S. Raheja
Respondent by : Mr. M. Rajan
Date of Hearing : 21/03/2012
Date of Pronouncement : 29/03/2012
ORDER
PER V. DURGA RAO, J.M.:
Both these appeals filed by the assessee are directed against the orders of the CIT(A)-7, Mumbai for the assessment years 2004-05 & 2006-07. Since common issues are involved in these appeals, they were heard together and, therefore, a common order is passed for the sake of convenience.
2. Ground No. 1 to 3 in AY 2004-05 and Ground No. 2 to 4 in AY 2006-07 are common and the same are pertaining to disallowance of the claim of the assessee for deduction u/s 35DD of the Act.
3. To decide this ground, we refer to the facts in AY 2004-05. The assessee had claimed to have incurred total expenditure of Rs. 4,94,500/- towards increase in the authorized share capital and out of which an amount of Rs. 49,450/- being 1/10 t h of the total 2 ITA NOs. 1959 & 1960/Mum/2010 PI. Drugs & Pharmaceuticals Ltd.
expenditure had been claimed as deductible u/s 35DD of the Act. The AO, however, concluded that the preliminary expenses claimed by the assessee were not in relation to the amalgamation but were incurred for the purpose of increase in the authorized share capital of the company. Following the decision in the case of Brooke Bond India Ltd., 225 ITR 798, the AO held that the expenses incurred in connection with rising share capital would not be allowable as revenue expenditure. On appeal, the AR of the assessee submitted before the CIT(A) that there was an amalgamation of another company with the assessee company as per the scheme of amalgamation. He further submitted that as per the High Court at Mumbai the assessee company had to issue preference shares and equity shares to the shareholders of the amalgamated company. It was submitted that for issue of such shares as directed the High Court at Mumbai, the assessee had to increase its share capital and on such increase the assessee company paid stamp duty and fees of Rs. 4,94,500/- to the Registrar of Companies. Therefore, the assessee claimed Rs. 49,450/- being 1/10 t h of Rs. 4,94,500/- as expenditure in AY 2004-05 and that the AO had wrongly concluded that the said claim of preliminary expenses claimed by the assessee were capital expenditure and thus had erred in disallowing the same. The AR of the assessee submitted that the name of the parent amalgamated company was Visistha Trades & Finances Ltd. but subsequently the name of the parent company was changed to P.I. Drugs & Pharmaceuticals Ltd. as the change of the name of the company from Visistha & Finance Ltd. to P.I. Drugs & Pharmaceuticals Ltd. was allowed by the Asst. Registrar of the companies on 25/3/04. After considering the submissions of the assessee, the CIT(A) confirmed the action of the AO. Aggrieved, the assessee is in appeal before us.
4. Before us, the learned counsel for the assessee submitted that by virtue of an order of amalgamation passed by the Hon'ble Bombay high Court on 16 t h October, 2003 a company by the name of PI Drugs 3 ITA NOs. 1959 & 1960/Mum/2010 PI. Drugs & Pharmaceuticals Ltd.
and Pharmaceuticals Ltd. was permitted to be amalgamated in another company by the name of Visistha Trades and Finance Ltd. He further submitted that as per the order of amalgamation, Visistha Trades and Finance Ltd. was to issue equity and preferential shares to the shareholders of P.I. Drugs and Pharmaceuticals ltd. and as such Visistha Trades and Finance Ltd. had to increase its share capital and thus incurred an expenditure towards stamp duty on fees of the Registrar amounting to Rs. 4,94,500/- and Rs. 2.75 lakhs towards legal and professional charges. He, therefore, submitted that the assessee Visistha Trades and Finance Ltd. now called P.I. Drugs and Pharmaceuticals Ltd., claimed deduction u/s 35DD of the Act. He pointed out that the name of the Visistha Trades and Finance Ltd was changed to PI Drugs and Pharmaceuticals ltd. in the same FY on 25/03/04. The learned counsel for the assessee contended that the lower authorities were erred in disallowing the assessee's claim of deduction u/s 35DD.
5. On the other hand, the learned DR relied upon the orders of the authorities below.
6. We have heard the learned representatives of the parties and perused the record as well as gone through the orders of the authorities below. It is observed that under the scheme of amalgamation the amalgamated parent company could have claimed 1/5 t h of the amalgamation expenditure u/s 35DD even if they were of the nature of capital expenditure in the current year and in the next four following years. In the case under consideration amalgamation took place by virtue of the order passed by the Hon'ble Bombay High court between PI Drugs and Pharmaceuticals Ltd. and Visistha Trades and Finance Ltd. and the change of the name of the company from Visistha Trades & Finance ltd. to PI Drugs & Pharmaceuticals Ltd. was allowed by the Assistant Registrar of the Companies on 25/03/04. Therefore, the expenditure incurred by the assessee 4 ITA NOs. 1959 & 1960/Mum/2010 PI. Drugs & Pharmaceuticals Ltd.
company towards stamp duty fees of Rs. 4,94,500/- to the Registrar of Companies was to increase its share capital. Thus, the claim of deduction u/s 35DD on the said expenditure is proper. We, therefore, set aside the order of the CIT(A) and direct the AO to allow the assessee's claim of deduction u/s 35DD of the Act. Accordingly, the ground raised in both the years under consideration is allowed.
7. Ground No. 1 in AY 2006-07 reads as under:-
"On the f acts and in the circumstances of the case and in law the learned CIT(A) erred in excluding receipts on account of sale of advance licence of Rs. 4,62,360/- while arriving at prof it from industrial undertakings of the appellant for calculating deduction u/s 80IB of the Act on the ground that receipts on sale of advance licence are non-manuf acturing receipts."
8. During the course of assessment proceedings, the AO observed from the computation of total income that the assessee had claimed deduction u/s 80IB amounting to Rs. 1,25,27,870/-. The AO was of the view that deduction u/s 80IB is allowable only in respect of manufacturing activity done by the assessee and, therefore, only those receipts which are directly linked to the manufacturing activity of the assessee are entitled for deduction u/s 80IB. The AO after examining the issue with various case laws, disallowed the claim of the assessee on the ground that the claim of deduction u/s 80IB on receipts whose origin is out of non-manufacturing activity of the assessee. On appeal, the CIT(A) confirmed the action of the AO.
9. We have heard the learned representatives of the parties and perused the record as well as gone through the orders of the authorities below. This issue is covered by the judgment of the Hon'ble Supreme Court in the case of Liberty India ltd. Vs. CIT, [2009] 317 ITR 218 wherein the Apex Court held as under:-
"The IT Act broadly provides for two types of tax incentives, namely, investment linked incentives and prof it linked incentives. Chapter VI-A which provides for incentives in the form of tax deductions essentially belong to the category of "prof it linked 5 ITA NOs. 1959 & 1960/Mum/2010 PI. Drugs & Pharmaceuticals Ltd.
incentives". Therefore, when s. 80- IA/80-IB refers to prof its derived from eligible business, it is not the ownership of that business which attracts the incentives. What attracts the incentives under s. 80-IA/80-IB is the generation of prof its (operational prof its). It is for this reason that Parliament has conf ined deduction to prof its derived from eligible businesses mentioned in sub-ss. (3) to (11A) (as they stood at the relevant time). One more aspect needs to be highlighted. Each of the eligible businesses in sub-ss. (3) to (11A) constitutes a stand-
alone item in the matter of computation of prof its. That is the reason why the concept of "Segment Reporting" stands introduced in the Indian Accounting Standards (IAS) by the ICAI. Analysing Chapter VI-A, it is found that ss. 80-IB and 80-IA are the Code by themselves as they contain both substantive as well as procedural provisions. Therefore, the Court needs to examine what these provisions prescribe for "computation of prof its of the eligible business". It is evident that s. 80-IB provides for allowing of deduction in respect of prof its and gains derived from the eligible business. The words "derived from" are narrower in connotation as compared to the words "attributable to". In other words, by using the expression "derived from", Parliament intended to cover sources not beyond the f irst degree. On analysis of ss. 80-IA and 80- IB it becomes clear that any industrial undertaking, which becomes eligible on satisf ying sub- s. (2), would be entitled to deduction under sub-s. (1) only to the extent of prof its derived from such industrial undertaking af ter specif ied date(s). Hence, apart from eligibility, sub-s. (1) purports to restrict the quantum of deduction to a specif ied percentage of prof its. This is the importance of the words "derived from industrial undertaking" as against "prof its attributable to industrial undertaking".--CIT vs. Kirloskar Oil Engines Ltd. (1985) 44 CTR (Bom) 98 : (1986) 157 ITR 762 (Bom) approved."
10. Respectfully following the decision of the Hon'ble Supreme Court in the case of Liberty India Ltd. (supra), we hereby confirm the order of CIT(A) in upholding the action of the AO in denying the assessee's claim of deduction u/s 80IB. We, therefore, dismiss this ground of appeal of the assessee.
6 ITA NOs. 1959 & 1960/Mum/2010 PI. Drugs & Pharmaceuticals Ltd.
11. In the result, appeal for AY 2004-05 is allowed and the appeal for AY 2006-07 is partly allowed.
Pronounced in the open court on this 29 t h day of March, 2012.
Sd/- Sd/-
(RAJENDRA SINGH) (V. DURGA RAO)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 29 t h March, 2012.
kv
Copy to:-
1) The Appellant.
2) The Respondent.
3) The CIT (A) concerned.
4) The CIT concerned.
5) The Departmental Representative, "C" Bench, I.T.A.T., Mumbai.
By Order //true copy// Asst. Registrar, I.T.A.T., Mumbai.