HIGH COURT OF MADRAS
Commissioner of Income-tax
Ashok Leyland Ltd.
TAX CASE (APPEAL) NOS. 1253, 1254
AND 1256 OF 2005
JUNE 20, 2012
Chitra Venkataraman, J.
The Revenue has preferred in T.C.(A) No.1253 and 1254 of 2005, raising the following substantial questions of law, with regard to the assessment year 1995-96:
1. Whether, in the facts and circumstances of the case, the Tribunal was right in equating a proposal to expand the capacity of production with extension of industrial undertaking under Section 35D of the Income Tax Act?
2. Whether on the facts and circumstances of the case, the Tribunal was right in holding that the expenses related to the ‘Euro issue’ by the assessee were entitled to be amortised under Section 35D of the Income Tax Act?
2. The assessee is also on appeal before this Court in T.C.(A) Nos.1256 of 2005, raising the following substantial question of law, with regard to the assessment year 1995-96:
” Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the word “being” as used in Section 35D(2)(c)(iv) is not ‘illustrative’ but only ‘restricted’ to?
These three appeals arise out of the common order of the Tribunal in the appeals filed by the assessee as well as by the Revenue.
3. The issues raised in these appeals relate to the disallowance of Euro issue expenditure on the right of the assessee to come within the provisions of Section 35D of the Income Tax Act. On the question of the assessee’s entitlement for amortisation under Section 35-D, the Tribunal held that as the expenditure was for extension of the industrial undertaking, the same qualified for deduction in terms of Section 35D. However, on the aspect of expenditure to be considered under Section 35D, the Tribunal referred to Section 35D(2) Sub Clause (iv) and pointed out that the deduction allowable under the Act must be allowed in accordance with the provisions of the Act. The word “being” used in the Section is not restrictive and hence, the deduction could be allowed. In the circumstances, by order dated 04.02.2005, the Tribunal directed the Assessing Officer to re-compute the deduction according to the provisions of the Act. Thus the assessee’s appeal was partly allowed and the Revenue’s appeal as regards the allowability of expenditure was also considered in terms of the decision in the assessee’s appeal.
4. Consequent on the remand order of the Tribunal, it is seen that the Assessing Officer had taken up the assessment for considering what are the expenditure that qualified for deduction under Section 35D. As against the order of the Assessing Officer dated 10.05.2005, restricting the deduction to Rs. 16,60,762/- out of the total sum of Rs. 14.21 crores, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who held that the entire expenditure incurred in connection with the machinery issue, as claimed by the assessee, was allowable under Section 35D(2)(c) of the Act. The Revenue filed further appeal before the Tribunal; pointing out that there were no discussions in the Assessing Officer’s order as regards the treatment of a particular expenditure, the Tribunal set aside the order of the authorities below and once again remanded the matter back to the file of the Assessing Officer to pass fresh orders in terms of the directions of the Tribunal in its order dated 4.2.2005.
5. Thus, learned Standing Counsel appearing for the Revenue as well as the learned counsel appearing for the assessee pointed out that in I.T.A.No.1192 of 2006, under order dated 21st November 2008, the assessment was once again restored to the Officer for considering the issue of deduction under Section 35D of the Income Tax Act.
6. The present appeals arise out of the order of the Tribunal dated 04.02.2005 in the first round of litigation. It is seen from the narration of facts that the assessee derives income from the manufacture and sale of commercial vehicles, engines and parts thereof. In the return filed, the assessee claimed a sum of Rs. 14,21,52,904/- being the Euro issue expenditure as revenue expenditure. The assessee furnished the particulars in respect of its expenses, which amounted to a sum of Rs. 14,21,52,402/-. It is seen from the issue document which is extracted in the order of assessment as well as in the order of the Commissioner of Income Tax (Appeals) that the projected capital expenditure for five years ending 31st March 2000 was approximately to the tune of Rs. 8,885 million. The issue document indicated the proposal of the company to invest approximately Rs. 6,493 million for expanding this production capacity of vehicles, particularly the cargo range of vehicles, at its plants at Hosur and Bhandara. The company also planned, in due course, to replace the entire Leyland range of vehicles with the cargo range. The company was also planning to invest approximately Rs. 722 million in the modernisation of its Ennore plant, in particular, the paint shop. Apart from that, a sum of Rs. 1640 million was proposed to be invested in routine capital replacement, modernisation of other existing facilities and development. The assessee pointed out that the assessee also planned to go for capacity expansion of its Units at Hosur I and II. In the context of its proposal for expansion, the assessee claimed that it was entitled to claim deduction under Section 35D. The said claim was however rejected, taking the view that Section 35D deduction was available in respect of expenditure incurred in connection with the expansion for the purpose of setting up of a new industrial unit. Since the document did not reveal that there was any expansion or setting up of a new industrial unit, the assessee did not qualify for deduction under Section 35D of the Income Tax Act. Thus the claim was rejected. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who considered the claim and held that as per the agreement, with the Lead Managers, the GDRs would be subscribed by the Managers at a price of 12.79 USD (the issue price less a commission of 1.75% of the aggregate issue price of the shares the selling commission). It is further stated in the said agreement that the company had already agreed to pay the Manager on each closing day, management commission and underwriting commission. Thus the Appellate Commissioner came to the conclusion that the Lead Manager fees was nothing but selling commission at 1.75% and underwriting commission at 1.3%. Holding that this fell for consideration under Section 35D(2)(c), the Commissioner directed the Officer to re-do the deduction in terms of the directions contained in the Commissioner’s order. In other words, other than the listing fees of Rs. 1,000/-, management fee of Rs. 12,29,523/- and the legal fee of Rs. 9,55,000/-, the other expenses qualified for deduction under Section 35D of the Income Tax Act. The Commissioner of Income Tax (Appeals) also agreed with the assessee that it was entitled to deduction on the expansion undertaken by it. Aggrieved by this, the Revenue went on appeal before the Tribunal.
7. As far as the eligibility of the assessee for claiming deduction under Section 35D of the Income Tax Act was concerned, the Tribunal held that the expenditure were incurred for expansion of the industrial undertaking and hence, the same qualified for deduction. As far as the qualifying amount to be considered under Section 35D(2) was concerned, the Tribunal referred to the decision of this Court reported in  261 ITR 347 (CIT v. Ennar Steel and Alloy (P) Ltd.) (MAD), which also held that the word “being”, as is used in the said Section, is not illustrative, that only those expenses which are specified in the statute could be allowed and nothing further. In this context, the assessee’s appeal was rejected and the Revenue’s appeal as to the allowability of expenditure under Section 35D of the Income Tax Act was also considered in favour of the assessee’s company. Aggrieved by the order, the present appeals are filed.
8. As already noted, after the remand order, on appeal filed once again, we find that the Tribunal had once again set aside the orders of the authorities below and remanded the matter back to the Assessing Officer to re-compute the deduction in accordance with the provisions of the Act, in its order dated 4.2.2005.
9. Even though learned Standing Counsel appearing for the Revenue submitted initially that after the order of the Tribunal dated 21st November 2008, nothing survived in the present Tax Case for this Court to consider the question raised in the Tax Cases filed by the assessee and the Revenue, he hastened to add that considering the fact that the Tribunal had directed the Assessing Officer to pass fresh orders in terms of the directions of the Tribunal dated 04.02.2005, which is a subject matter of consideration before this Court, the merits of the question raised be decided by this Court.
10. Thus as far as the assessee’s case is concerned, the claim is for deduction of the entire amount under Section 35D, whereas the Department’s claim is that the assessee is not entitled to deduction of the entire expenditure under Section 35D, since the assessee did not qualify itself to be considered as an eligible undertaking under Section 35D of the Income Tax Act.
11. Learned counsel appearing for the assessee pointed out that the reliance placed by the Tribunal on the decision reported in  261 ITR 347 (CIT v. Ennar Steel and Alloy (P) Ltd.) (MAD), is totally misplaced. In any event, the word “being”, as used under Section 35D(2)(iv), has to be read as illustrative. In this connection, he placed reliance on the decision of the Madhya Pradesh High Court reported in  162 ITR 819 (Commissioner of Income Tax v. Shree Synthetics Ltd.), wherein the Madhya Pradesh High Court held that the word “being” as used in Section 35D(2)(iv) was only illustrative in character. At the same time, learned counsel appearing for the assessee fairly placed before this Court the decision of this Court reported in  314 ITR 38 (CIT v. Adar Tea Products Company (MAD)), wherein, the term “being” was interpreted by this Court to mean as “like” or “including”. Learned counsel submits that having regard to the legal issue raised, the question has to be considered by this Court.
12. Heard learned counsel appearing for either side and considered the material placed on record.
13. As far as the question raised by the Revenue as to the eligibility of the assessee company is concerned, there is no denial of the fact that the object of issuing shares was for raising the assessee’s expansion activities, particularly in the field of capacity expansion. The company had also proposed to invest for expansion of its plants at Hosur, Bhandara and Ennore, for materials and modernisation of the existing facilities and developments. Thus all the Units of the assessee were to go for expansion programme as well as for modernisation programme, which was in the form of capital expansion.
14. A perusal of Section 35D of the Income Tax Act shows that the amortisation relief is granted in respect of certain preliminary expenses incurred by an assessee company, being an Indian company or a person other than a company resident in India, after 31st March 1970 as specified in sub section (2). The expenditure thus incurred are (i) either before the commencement of his business, or (ii) after the commencement of his business, in connection with the extension of his industrial undertaking or in connection with his setting up of a new industrial unit.
15. As far as the assessee is concerned, there is no denial of the fact that the expenditure incurred was not in connection with the setting up of a new industrial plant. On the other hand, as already seen from the purpose of the issue that it related to the extension of the industrial undertaking, there is no definition of the word “extension” under the Act. A reference to P. Ramanatha Aiyar’s Law Lexicon Second Edition shows that although the word “expansion” was considered as related to different fields, yet, the one in relation to industrial activity gives the meaning as “extension”. The passage contained in the said book is reproduced as follows:
” IN CONNECTION WITH RAILWAYS AND TRAMWAYS. When an ‘Extension’ of a Railway or Tramway is spoken of, no one supposes “that the thing meant is merely to prolong the existing line or to increase its breadth for laying down more rails. Branches are contemplated as well as the original main line when extensions are spoken of. That is certainly a common use of language; not can their lordships see that in point of etymology or philology it is incorrect.” [Shanghai Corp v. Mc Murray, 69 LJPC 20). "
Thus going by the said meaning assigned to the word "extension", quite apart from the horizontal expansion in the industrial undertaking, vertical expansion also stands included within the meaning of the term "extension" of the industrial undertaking.
16. On the objects thus indicated in the document relating to issue of shares, we have no hesitation in accepting the order of the Tribunal as to the eligibility of the assessee to amortise certain preliminary expenses. In the circumstances, we answer the first question raised by the Revenue in favour of the assessee, thereby confirm the order of the Tribunal and reject the Revenue's case.
17. As far as the second question raised by the Revenue is concerned, in view of the answer given to the first question, we have no hesitation in answering the same in favour of the assessee. Consequently, T.C.Nos.1253 and 1254 of 2005 stand rejected.
18. As far as the Revenue's case on the heads of expenditure eligible for amortisation is concerned, Section 35D(2)(c)(iv) reads as under:
" Section 35D. AMORTISATION OF CERTAIN PRELIMINARY EXPENSES.
(1) .... Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2), - (i) Before the commencement of his business, or
(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 assessee 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;"
19. The said phrase "being" came up for consideration in the decision reported in  314 ITR 38 (CIT v. Adar Tea Products Company (MAD)). The said decision related to the claim of 100% depreciation on energy saving devices being fluidised bed boilers, furnaces etc. Referring to the list of items enumerated in the Income Tax Rules Appendix I Entry III(8)(ix), this Court referred to a number of decisions of the Apex Court arising under various statutes with reference to the phrase “being” and held that the word “being” used in the depreciation table means energy saving devices “which are” the devices mentioned therein. This Court pointed out that if the word “being” is to be treated as “like” or “including”, then there was no necessity to specifically mention those items of equipment, viz., ventilators used with anaesthesia apparatus and ventilators other than those used with anaesthesia as given in Appendix I Entry III(8)(ix) of the Income Tax Rules, 1962, carrying a particular percentage of depreciation. Thus, after referring to the deduction, this Court observed as follows:
“14. Let us see what can be used in the above extracts to substitute the word “being”. For example, in the sentence, “excise duty being a levy on the manufacture or production of the goods” can be read to mean, “excise duty which is a levy on the manufacture or production of the goods.”. Therefore, how we may understand the word “being” used in the depreciation table is, it means, energy saving devices “which are” the devices mentioned therein. Further, in the same table, the subject category in 8(ix) has the caption “specialised boilers and furnaces” and the word “drier” is not used. In the same table, the words “ventilator used with anesthesia apparatus” and the words “ventilators other than those used with anesthesia” are used with reference to “life saving … being…” If we have to treat “being as like or including, then it was not necessary to specifically mention “ventilators used with anesthesia” and “ventilators other than those used with anesthesia”. So, it does appear that the depreciation table enumerates and exhausts those equipments for which depreciation is admissible at the rates mentioned. Under the head “Renewal energy devices”, the “solar crop driers” as well as “solar water heaters” are included. So, if “driers” was meant to be included, we are sure, they would have been specifically indicated therein. “
20. In the light of the law thus declared as the meaning of the phrase “being”, we have no hesitation in holding that the expenditure that qualified for consideration under Section 35D is restricted by reason of use of the phrase “being”. Thus expenditure incurred in connection with the issue of shares and debentures of the company to public subscription, which qualify for consideration under Section 35D, are underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus and nothing more. There is a residual clause to sub clause D, which shows such other items of expenditure not being expenditure eligible for any allowance or deduction under any other provisions of the Act as may be prescribed. Thus, other than what is contemplated under Sub Clause D, if there are still other expenditure in connection with the commencement of business or in connection with the expansion of the industrial undertaking after the commencement of the business or in connection with the set up of a new industrial unit, the same would also qualify for amortisation under Section 35D. In the light of the above discussion, we hold that the rates of expenditure which would go for amortisation under Section 35D, particularly with reference to sub clause (c)(iv) of sub section (2) of Section 35D, would be only those expenditure which are specifically mentioned therein and nothing beyond. In the light of the decision of this Court referred to above, we reject the reliance placed on the decision of the Madhya Pradesh High Court by the assessee, reported in  162 ITR 819 (Commissioner of Income Tax v. Shree Synthetics Ltd.).
21. In the above circumstances, T.C.(A) No.1256 of 2005 filed by the assessee is dismissed and the Assessing Officer is directed to consider the claim of the assessee in terms of the decision as stated above.
In the result, T.C.(A) Nos.1253 and 1254 of 2005, filed by the Revenue and T.C.(A) No.1256 of 2005, filed by the assessee, stand dismissed. No costs.