New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (9) TMI 1199 - SUPREME COURT OF INDIA

2016 (9) TMI 1199 - SUPREME COURT OF INDIA - [2016] 388 ITR 1 - 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, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the company is a capital expenditure. However, in spite of the 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 ver .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

36 of the Act, as it is hit by Section 40A(9) of the Act? - Held 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 computin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eave granted. 2. Matter heard finally. 3. Two issues are raised 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 ques .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

77; 30/- per share aggregating to ₹ 6,04,00,000/-. 5. The 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Expansion: The installed capacity of the Ranitidine plant at Cuddalore 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sue expenses are not eligible for deduction in view of the decision 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aking due physical verification of the factory premises and on being 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 s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eafter the Assessing Officer has taken a different stand for the 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

essee for the Assessment Year 2001-02 it was mentioned by the assessee 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

which are incurred and amortization whereof is sought under Section 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e extension of the industrial undertaking is completed or the new 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 allow .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e Act, as the said provision makes it clear that deduction in respect 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, sin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

40A(9) of the Act. 15. It is not in dispute that as per Section 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, w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the assessee by way of tax, duty, cess or fee, by whatever name 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o needs to be noted at this stage, which is reproduced herein below: 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 und .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version