Income Tax Appellate Tribunal - Chennai
Ashok Leyland Ltd. vs Asstt. Cit on 4 February, 2005
Equivalent citations: [2006]6SOT200(CHENNAI)
ORDER
M.K. Chaturvedi, VP ITA No. 888/Mad.199 :
This appeal by the assessee is directed against the order of the CIT (Appeals)-I, Chennai and relates to the assessment year 1995-96.
2. The first issue relates to the disallowance of Euro Issue expenditure. We have heard the rival submissions in the light of material placed before us and precedents relied upon. The assessee is a public limited company. It is engaged in the manufacture and sale of commercial vehicles, engines and their spare parts. During the relevant period. it claimed Rs. 14,21,52,402 as Euro Issue expenditure. These expenditures were treated by the assessee as of revenue nature. The assessing officer declined to allow deduction under section 37 of the Income Tax Act, 1961. Alternatively, claim was made under section 35D of the Act. The assessing officer held that there was no extension or setting up of new unit. As such the requirement of section 351)(1)(ii) was not satisfied.
3. Shri R. Vijayaraghavan, the learned counsel for the assessee, submitted that the case of the assessee comes within the ken of section 35D(1)(ii) of the Act. Reference was made to the Issue Document which was considered by the Commissioner (Appeals). It is stipulated in the said document that during the relevant period, the company made investment for expanding its production capacity of its vehicles at its plants at Hosur and Bhandara.
4. Section 35D deals with amortization of certain preliminary expenses. As per the mandate of section 35D, expenditure should be incurred before the commencement of business or after the commencement of business in connection with the extension of industrial undertaking or in connection with setting up an industrial unit. It was argued that the assessee incurred the expenditure in connection with the extension of its industrial undertaking. The word 'extension' is not defined in the Act. It connotes variety of meanings depending on its use. As per Oxford Advanced Learner's Dictionary, the meaning of the word 'extension' includes, inter alia, the following:
"making of something longer or larger, the thing that is made longer and larger, the act of increasing the area of activity" etc. The assessee projected its capital expenditure programme for 5 years. In the Issue document the assessee manifested its intent to finance part of this capital expenditure programme from the proceeds of the offering. The purpose was to expand the production capacity of vehicle and in due course to replace the entire Leyland range of vehicles with the Cargo range. It also planned to invest for modernization of its Ennore Plant, particularly the Paint shop. 5. It was submitted before us that the Units at Hosur I and II planned to operate to capacity expansion, so also the units at Bhandara and Ennore. It was claimed that the total issue proceeds of 430 crores was utilized for the purpose of capacity expansion at Hosur I & II Plant and at Bhandara.
The expenditures were claimed under the following heads:
Rs.
"1.
Stay, travel and food expenses 12,92,063
2. Telephone 2,46,990
3. Local Audit Fees 11,03,675
4. Gifts 4,234
5. Stay, car expenses and fees 29,46,704
6. Listing fees 1,000
7. Management fees 12,29,523
8. Out of pocket expenses 33,29,087 Claim for revenue expenditure 1,01,53,276
9. Legal fees 9,55,000
10. Fee paid to Lead Managers 13,03,39,866
11. Printing and Advertisement of offering circular/prospects etc. 7,04,762 13,19,99,628 Total expenditure claimed as Euro Issue expenditure (A) + (B) 14,21,52,904."
From the above it can be concluded that the expenditures were incurred for the extension of industrial undertaking. Once this decision is arrived at, the conclusion is irresistible that the expenditure under question comes within the ambit of section 35D.
6. The next question posed before us pertains to the allowability of expenditure within the parameters of section 35D. Our attention was adverted on the prescription of section 351)(2)(c)(iv). This reads as under:
"35D. (2) The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely:
(c) where the essesee is a company, also expenditure-
(iv) 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;"
The learned counsel for the assessee relied on the decision of the Hon'ble Madhya Pradesh High Court rendered in the case of CIT v. Shree Synthetics Ltd. (1986)162 ITR 819 (MP). In this case the Hon'ble High Court has held that the word 'being' has been used in sub-clause (iv) of section 35(2)(c) by way of illustration and does not restrict it only to the words underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus". Therefore, in the case of issue of shares for public subscription by a company, the expenditure incurred in connection with refund of the amount over-subscribed are expenses incurred in connection with the issue of shares and an asscssee will be entitled to deduction of such expenditure as provided in section 35D.
7. In the case of CIT v. Multi Metals Ltd. (1991) 188 ITR 151 (Raj.) it was held that the fees paid to Registrar of Companies for registration of amendment of Memorandum of Association is the allowable as revenue expenditure. But the expenditure is deductible over a period of ten years under section 351)(2)(c)(iv) of the Income Tax Act, 1961.
8. In the case of CIT v. Mahindra Ugine & Steel Co. Ltd. (2001) 250 ITR 84' (Bom.) the Hon'ble High Court has held that expenditure incurred on payment of stamp duty for debenture issue is allowable under section 35D.
9. We find that this issue now stands settled by the decision of the jurisdictional High Court rendered in the case of CIT v. Ennar Steel & Alloy (P.) Ltd. (2003) 261 ITR 347 (Mad.). The Hon'ble High Court has held that the preliminary expenses in respect of which benefit can be claimed under section 35D of the Income Tax Act, 1961, have been spelt out in that section. The power reserved to include other items of expenditure has not been exercised by the authority who had been conferred with the power. The Tribunal cannot proceed to exercise that power and include within section 35D, items which have not been included therein by Parliament. The deductions allowable under the Act have necessarily to be allowed in accordance with the provisions of the Act as it exists.
10. In view of the decision of the Hon'ble High Court, the scope of section 35D cannot be extended beyond its true limits. The word "being" as is used in the section is not illustrative. It connotes some meaning. Only those expenses which are specified in the statute can be allowed. Nothing further. We, therefore, direct the Assessing Office to recompute the deduction in accordance with the provisions of the Act.
11. In the result, the appeal filed by the assessee stands partly allowed.
12. ITA No. 997/Mds/199 - The solitary issue raised in the departmental appeal relates to the allowability of expenditure under section 35D of the Income Tax Act. For the reasons recorded in ITA No. 888/Mds./99,supra we decide this issue in favour of the assessee and against the revenue.
13. In the result, the appeal of the revenue stands dismissed. the result, the appeal of the revenue stands dismissed.