TMI Blog2009 (10) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Ajay Vohra with Ms. Kavita Jha and Mr. Sriram Krishna, Advocates, for the appellant. Mr. Subhash Bansal, Advocate, for the respondent. JUDGMENT The judgment of the court was delivered by A. K. SIKRI, J. - In all these appeals, common question of law which arises for consideration, which relate to interpretation of Section 35-D of the Income Tax Act, 1961 (hereinafter referred to as the "Act"). For the purpose of convenience, we are taking note of the facts of ITA No. 1261/2008. 2. The appellant is a widely held public limited company engaged in the business of construction and sale of multi storeyed residential buildings and complexes, promotion and development of residential colonies and other real estate development projects since 1983. During the assessment year 1994-95, the appellant came out with two issues of shares for public subscription to augment its working capital, namely, a right issue (48,21,300 equity shares of Rs.10/- each @ a premium of Rs.12.50/- each, aggregating to Rs.10,84,79,250/-) and a public issue (24,19,900 equity shares of Rs.10/- each @ a premium of Rs.15/- each aggregating to Rs.6,14,97,500/-). Expenditure of Rs.49,13,479.85 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, in connection with the extension of his industrial undertaking or in connection with his setting up a new industrial unit. the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the industrial undertaking is completed or the new industrial unit commences production or operation…….." 6. Circular No. 56 dated 19.7.1971 containing explanatory notes on the Taxation Laws (Amendment) Act, 1970 clarifies the Legislative intent behind insertion of Section 35D of the Act on the statute in the following terms :- "42. Sec. 8 of the Amending Act has introduced two new ss. 35D and 35E, w.e.f. 1st April, 1971. New s. 35D provides for the amortization of certain preliminary expenses i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant in these appeals and in the aforesaid background, these appeals were admitted and heard on the following common substantial questions of law :- "1. Whether on the facts and in the circumstances of the case the Tribunal erred in law in holding that the appellant is not an "industrial undertaking" and, therefore, not entitled to deduction under section 35D of the Act? 2. Whether on the facts and in the circumstances of the case the Tribunal erred in law in not appreciating the amendment to section 35D of the Act, vide Finance Act, 2008 is clarificatory in nature and, therefore, should be applicable retrospectively?" 8. We now proceed to determine these questions. 9. Re. - Question No.1 The appellant company is in the business of construction and sale of multiple storey buildings and complexes and in real estate. Whether such a company can be treated as "industrial undertaking" is the question. This term "industrial undertaking" has nowhere been defined under the Act. However, some other enactments contain the definition of this term. These, among others, are: (i) Section 2(f) of the Sick Industrial Companies (Special Provisions) Act, 1985. "(f) "industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 1986), section 3(1)(f)] Means any undertaking pertaining to a scheduled industry and includes an undertaking engaged in any other industry, or in any trade, business or service which may be regulated by Parliament by law. [Central Industrial Security Force Act, 1968 (50 of 1968) section 2(1)(b)]. Means any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including Government. [Industrial (Development and Regulation) Act, 1951 (65 of 1951), section 3(d)]." 12. Going by the dictionary meaning as well, one would find that industrial undertakings take their flavour from the manufacturing or production activities carried by factories. The expression "industrial undertaking" appears in Section 54-D of the Act as well and the Kerala High Court also had an occasion to expound this term in the case of P. Alikunju M.A. Nazeer Cashew Industries v. CIT, 166 ITR 804. That Court was also of the opinion that natural meaning to the words "industrial undertaking" should be given in the absence of any statutory definition. 13. To this extent, there is no quarrel. However, Mr. Ajay Vohra, learned counsel for the appellant s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaking belonging to the assessee which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee for the purposes of the business of the said undertaking....... " (emphasis supplied) is profitable. The word "business" has been denned in the Income-tax Act. The definition reads : " 'Business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture." 7. Construing this word "business", the Supreme Court in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax [1954] 26 ITR 765(SC) has observed that "the word "business" connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose." Endorsing this construction, the Supreme Court in a later decision in Mazagaon Dock Ltd. v. Commissioner of Income Tax (1958) 34 ITR 368 has observed (at page 376) : "The word 'business' is, as has often been said, one of wide import and in fiscal statutes it must be construed in a broad rather than a restricted sense." 8. The words "industrial undertaking" therefore, should be understood to have been us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be interpreted widely. At the same time, we have to bear in mind that the expression is to be construed in the context of Section 35-D of the Act and it is to be further discerned as to whether the business of construction activity would be treated as an "industrial undertaking" or not. 17. In P. Alikunju M.A. Nazeer Cashew Industries (supra), the Kerala High Court rightly pointed out that an „undertaking‟ must be one which partakes the character of a business. However, what we find is that though the demonstrative adjective "industrial" which qualifies the word "undertaking" was taken note of while answering the question, no significance was attached to the said expression "industrial" and the case is decided by relying upon the meaning of the expression "undertaking' alone. Interestingly, in the two judgments of the Bombay High Court, taken note of above, the Court came to the conclusion that the activities involved in those cases amounted to manufacture or production of an article or a thing. 18. Therefore, we are of the opinion that common sense approach will have to be adopted and those undertakings would qualify as "industrial undertakings" which are involve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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