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M/s. SHASUN CHEMICALS AND DRUGS LTD. Versus COMMISSIONER OF INCOME TAX-II, CHENNAI

2016 (9) TMI 1199 - SUPREME COURT OF INDIA

Amortization of expenditure under Section 35D - Whether expenditure incurred on issue of shares is eligible to be amortized? - Held that:- AO was satisfied that there was expansion of the facilities to the industrial undertaking of the assesseee. It is on this satisfaction that for the Assessment Year 1996-97 also the expenses were allowed. Once, this position is accepted and the clock had started running in favour of the assessee, it had to complete the entire period of 10 years and benefit gra .....

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argument raised to the effect that the aforesaid judgment was rendered when Section 35D was not on the statute book and this provision had altered the legal position, the High Court still chose to follow the said judgment. It is here where the High Court went wrong as the instant case is to be decided keeping in view the provisions of Section 35D of the Act. In any case, it warrants repetition that in the instant case under the very same provisions benefit is allowed for the first two Assessmen .....

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that:- The amount paid by way of bonus is one such expenditure which is allowable under clause (ii) of sub-section (1) of Section 36. There is no dispute that this amount was paid by the assessee to its employees within the stipulated time. Embargo specified under Section 43B or 40A(9) of the Act does not come in the way of the assessee. Therefore, the High Court was wrong in disallowing this expenditure as deduction while computing the business income of the assessee and the decision of the IT .....

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in these appeals by the appellant/assessee, which is a public limited company engaged in the business of manufacture and sale of bulk drugs and intermediates. The first issue is regarding the amortization of expenditure under Section 35D of the Income Tax Act, 1961 (hereinafter referred to as the 'Act ). The second issue pertains to the deduction for payment of bonus by the assessee to its employees. The Assessment Years in question are 1999-2000 and 2001-02. The brief facts which are releva .....

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aforesaid issue was opened for public subscription during the financial year ending 31.03.1995 relevant to the Assessment Year 1995-96. The assessee has, in the prospectus issued, clearly stated under the column projects that the production capacity of its existing products, more particularly Ibuprofen and Ranitidine, is as follows: The Company is undertaking the following expansion projects: (1) Ibuprofen: The installed capacity of the ibuprofen plant at Pondicherry is proposed to be increased .....

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ddalore is proposed to be increased from 60 tpa to 180 tpa in two phases. In the first phase, the capacity is proposed to be increased to 120 tpa by installation of additional plant and machinery. The cost of this phase, including construction of a modern administration block at Cuddalore, is estimated at ₹ 286 lakhs. 6. The assessee incurred a sum of ₹ 45,51,890/- towards the aforesaid share issue expenses and claimed 1/10th of the aforesaid share issue expenses each year under Sect .....

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ion of this Court in the case of Brook Bond India Ltd. vs. Commissioner of Income Tax W.B(III) (1997) 10 SCC 362 = 225 ITR 798 SC, stating that the expenditure incurred is capital in nature and hence not allowable for computing the business profits. 7. Aggrieved against the aforesaid disallowance made by the Assessing Officer for the Assessment Year 1996-97, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), [herienafter referred to as CIT(A)] who vide his order direct .....

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eing satisfied with the expansion of the facilities to the industrial undertaking duly allowed the claim of share issue expenses. While doing so, the Assessing Officer, for the Assessment Year 1996-97, passed a detailed and elaborate order after scrutinizing all the materials made available to him and recorded a positive finding of fact that there was an expansion to the existing units of the industrial undertaking and after being satisfied of the same duly allowed the claim of share issue expen .....

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Assessment Years 1997-98 to 2004-05 with respect to the claim of share issue expenditure under Section 35D of the Act and has disallowed the said expenditure on the basis that the expenditure is capital in nature relying on Brook Bond India Ltd. case (supra) 10. In the aforesaid backdrop, the assessee again claimed amortization of expenditure under Section 35D of the Act for the Assessment Year 2001-02 which was disallowed for the same reason. However, the assessee's appeal before the CIT ( .....

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sessee that it had paid bonus to its employees to the tune of ₹ 96,08,002/- in the said Financial Year and, therefore, it claimed deduction under Section 35(2AB) of the Act. However, invoking the provisions of Section 40A(9) of the Act the said expenditure is disallowed on the ground that it was not paid in cash to the concerned employees. Herein again CIT(A) allowed the expenditure and the same view was taken by the ITAT but the High Court has reversed the view of ITAT on this ground also .....

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ion 35D of the Act, it is allowed for a period of 10 years @ 1/10th each. This is so provided by Section 35D of the Act as it is clear from the reading of the said Section which is reproduced hereunder: 35D. (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 (ii) after the commencement of his business, i .....

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w industrial unit commences production or operation: 13. In the Income Tax Return which was filed for the Assessment Year 1995-96 the assessee had claimed that it had incurred a sum of ₹ 45,51,890/- towards the share issue expenses and had claimed 1/10th of the aforesaid share issue expenses under Section 35D of the Act from the Assessment Years 1995-96 to 2004-05. This claim of the assessee was found to be justified and allowable under the aforesaid provisions and on that basis 1/10th sha .....

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and the clock had started running in favour of the assessee, it had to complete the entire period of 10 years and benefit granted in first two years could not have been denied in the subsequent years as the block period was 10 years starting from the Assessment Year 1995-96 to Assessment Year 2004-05. The High Court, however, disallowed the same following the judgment of this Court in the case of Brook Bond India Ltd (supra). In the said case it was held that the expenditure incurred on public i .....

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t in the instant case under the very same provisions benefit is allowed for the first two Assessment Years and, therefore, it could not have been denied in the subsequent block period. We, thus, answer question No. 1 in favour of the assessee holding that the assessee was entitled to the benefit of Section 35D for the Assessments Years in question. 14. Question No. 2: Whether deduction on account of payment of bonus to the employees of the assessee is not eligible under Section 36 of the Act, as .....

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spect of bonus would be allowed only if actual payment is made. Pertinently, the dispute could be settled with the workers well in time and for that reason payment of bonus was made to the workers on the very next day of deposit of the said amount in the Trust by the assessee. This happened before the expiry of due date by which such payment is supposed to be made in order to claim deduction under Section 36 of the Act. However, since the payment was made from the Trust, the Assessing Officer to .....

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36(1)(ii) of the Act expenditure incurred on account of payment in the form of bonus to the employees is allowable as business expenditure. This provision reads as under: 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (i) .... (ii) any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or d .....

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called, under any law for the time being in force, or] (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or] (c) any sum referred to in clause (ii) of sub- section (1) of section 36,] or] (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State financial corporation or a State industrial investment c .....

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low: 40A(9). No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under clause (iv)[or clause (iva)] or clause (v) of sub-section (1) .....

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