ACIT Vs. NIIT Technologies Ltd. (ITAT Delhi)
The issue under consideration is whether the deduction u/s 35DD for demerger expenses is allowed to be claimed by resultant demerged company?
In the present case, 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. It was claimed that the assessee had incurred expenditure 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, 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 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 under section 35DD of the Act.
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 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. Hence the appeal filed by the assessee is dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
