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4. The ground Nos. 1 to 1.2 of the appeal of the assessee relate to disallowance of ₹44,00,739/-, which was claimed by the assessee as deduction under section 35DD of the Act.

ITA No. 5491 & 5491/Del/2013 & ITA Nos. 5524 & 5525/Del/2013 4.1 The facts qua the issue in dispute are that the M/s. NIIT Ltd. was demerged pursuant to a scheme of demerger approved by the Hon'ble High Court of Delhi with effect from 01/04/2003. As a result of that demerger, the units of 'NIIT Ltd.' not eligible for deduction under section 10B of the Act were vested with the assessee. It was claimed that the assessee had incurred expenditure aggregating to ₹ 2,20,03,694/- on legal and professional expense in assessment year 2004-05 for pursuing the aforesaid scheme of demerger of 'NIIT Ltd.' and claimed deduction of 1/5th of the aforesaid expenditure, amounting to ₹ 44,00,739/- for first-time in assessment year 2004-05 and subsequently 1/5th each in assessment years 2005-06; 2006-07; 2007-08 and 2008-09. According to the Assessing Officer, in view of the provisions of section 35DD of Act, the deduction of Rs.44,00,739/- for demerger expenses is to be allowed in the hands of the original company and not in the company resulted out of demerger. Accordingly, he disallowed the claim of assesse of deduction of Rs.44,00,739/- under section 35DD of the Act. The Ld. CIT(A) also sustained the disallowance. According to the Ld. CIT(A), the language of the provisions of section 35DD are clear that demerger expenses are allowable only in the hands of the parent company 'NIIT Ltd.' The Ld. CIT(A) relied on the decision of Hon'ble Supreme Court in the case of Orissa State Warehousing Corporation Vs CIT (SC) 237 ITR 589 and decision of the Hon'ble Gujarat High Court in the case of CIT Vs Gautam Sarabhai Trust (Guj.) 173 ITR 216 to support that the words of a statute are first understood in their natural, ordinary or popular sense and phrases and sentences construed according to their ITA No. 5491 & 5491/Del/2013 & ITA Nos. 5524 & 5525/Del/2013 grammatical meaning unless that leads to some absurdity. He held that in view of the clear provisions of section 35DD of the Act, the expenses claimed by the assessee are not allowable as the undertaking are not demerged from the assessee company but only vested with it.

4.2 Before us, the learned counsel of the assessee filed a paper book in two Volumes, containing pages 854 and submitted that the lower authorities have not appreciated facts and law properly. The learned counsel referred to the scheme of demerger approved by the Hon'ble Delhi High Court available on pages 14 to 16 of the paper-book and submitted that section 35DD of the Act provides for allowability of the expenditure incurred in relation to demerger. According to him, there is nothing in the law which debars the resultant company from claiming such expenditure. The learned counsel referred to the decision of the Hon'ble Supreme Court in the case of CIT vs Bombay Dyeing and Manufacturing Company Ltd., reported in 219 ITR 521, which was rendered prior to the insertion of section 35DD of the Act. The Ld. Counsel also submitted that the CBDT Circular No. 779 dated 14/09/1999 has explained the scope and legislative intent behind insertion of the aforesaid provision. According to him, in the said circular also nowhere the resultant company has been debarred from claiming such expenditure under section 35DD of the Act. The learned counsel submitted that the Assessing Officer/CIT(A) has failed to appreciate that the word "assessee" refers to either or both the companies i.e. the demerged company/resultant company, being Indian companies who incur any expenditure in relation to such merger/demerger. According ITA No. 5491 & 5491/Del/2013 & ITA Nos. 5524 & 5525/Del/2013 to him, the expression "assessees" has not been used by the legislature due to the fact that in the event of the merger, the amalgamating company gets automatically dissolved and loses its independent identity and both the amalgamated and, amalgamating companies never exist together post the merger, so as to claim 1/5th of the deduction of the demerger/merger expenses. The uses of the word "assesseees" would have resulted in ambiguity in law and therefore to avoid such confusion, the expression " assessee" has been used in the said section. 4.3 The learned counsel further submitted that the deduction should have also been allowed in the year following the rule of consistency because the department has allowed the deduction since assessment year 2004-05 onwards and in the year under consideration, for the first time, the deduction has been disallowed by the Assessing Officer/CIT(A). The learned counsel referred to pages 2, 7 and 11 of the paper-book to substantiate that said deduction under section 35DD of the Act was allowed to the assessee in assessment at 2004-05; 2005-06 and 2006-07. To support the rule of consistency, the learned counsel relied on the decision of the Hon'ble Delhi High Court in the case of CIT Vs Rajasthan Bereweries Ltd. (ITA 889/2009) .

4.4 The learned Department Representative, relied on the finding of the lower authorities and submitted that in view of the express provision of the Act, only the demerged/parent entity was entitled for the deduction and not the resultant company. 4.5 We have heard the rival submission of the parties and perused the relevant material on record. As a result of demerger of units of parent company M/s NIIT Ltd , few units were merged ITA No. 5491 & 5491/Del/2013 & ITA Nos. 5524 & 5525/Del/2013 with the assessee company. It is the claim of the assessee that legal and professional expenses towards the demerger of the units of parent company M/s NIIT Ltd has been incurred by the assessee in assessment year 2004-05 and 1/5th of said expenses has been claimed deduction under section 35DD of the Act since assessment year 2004-05 for consecutive five assessment years. According to the Revenue, the said deduction under section 35DD of the Act is allowable only to the parent demerged company and not to the resultant company i.e. the assessee company. For ready reference, the said provisions of section 35DD of the Act are reproduced as under:

(2) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) under any other provision of this Act."

4.6 In the above section the deduction has been allowed to the "assessee" for expenditure incurred wholly and exclusively for demerger of an undertaking. Since demerger of the undertaking(s) in the instant case has taken place from the parent company M/s NIIT Ltd, the word "assessee" here refers to M/s NIIT Ltd. and not the target company M/s NIIT Technologies Ltd. i.e. the Assessee, with whom the undertakings of M/s NIIT Ltd. got merged. In our opinion the language of the section is clear and there is no ITA No. 5491 & 5491/Del/2013 & ITA Nos. 5524 & 5525/Del/2013 ambiguity, as who is entitled to claim the said deduction. In case of demerger, where the undertaking(s) which get demerged, may result in new entity and in said circumstances, the resultant company cannot incur expenditure before its birth. It is the parent entity, who initiates demerger of the undertaking(s) and incur expenditure for legal and professional expenses in relation to such demerger. The resultant company, come into existence as a result of demerger only, the word "assessee" in section 35DD of the Act cannot mean to include the resultant company. The decision relied upon by the assessee in the case of CIT Vs Bombay dyeing and manufacturing company limited (supra) relates to period prior to insertion of section 35DD of the Act, wherein the expenses related to amalgamation were allowed to the assessee as incurred wholly and exclusively for the purpose of the business of the assessee.. In the said case the issue was of whether the legal and professional expenses incurred in relation to the amalgamation were revenue or capital in nature. The ratio of the said decision cannot be applicable over the facts of the instant case in view of the specific provision of section 35DD of the Act introduced.