2015 (5) TMI 227 - HC - Income Tax

Court upholds revenue's decision on share issue expenses deduction under Income Tax Act

The Court ruled in favor of the revenue, dismissing the appeal and upholding the assessing officer's decision regarding the deduction of share issue ... Qualifying amount for deduction u/s.35D - whether the quantum of deduction admissible under the section for a period of ten successive years at the rate of 1/10th of the expenditure having been fixed and become final in the initial year, the amount of such deduction can be varied in any subsequent year? - Held that:- The amount deductible under sub-section 1 of Section 35D is subject to the provisions contained in Sub-section 3 of Section 35D. The provision contained in Sub-section 3 provide an outer limit. Therefore, there can be no dispute nor has Mr. Khaitan, learned Senior Advocate disputed that deduction under Section 35D cannot be in excess of the provision contained in Sub-section 3 which is 2.5% of the total capital employed. One special variety of estoppel is res judicata. This results from the rule which prevents the parties to a judicial determination from litigating the same question over again, even though the determination is demonstrably wrong. But res judicata in this branch of law is bound to yield to two fundamental principles of public law: that jurisdiction cannot be exceeded; and that statutory powers and duties cannot be fettered. The jurisdiction of the CIT (A) in its order dated 29th May, 1998 extended merely to the assessment year 1995-96. The assessment year 1996-97 is a separate unit and that assessment cannot be made otherwise than in accordance with law. - Decided in favour of the revenue Issues:1. Interpretation of Section 35D of the Income Tax Act, 1961 regarding deduction admissibility for ten successive years.Analysis:The case involved a dispute over the deduction of share issue expenses under Section 35D of the Income Tax Act, 1961 for the assessment year 1996-97. The assessee had claimed a deduction of a specific amount, which was disallowed by the assessing officer based on the provision of sub-section 3 of Section 35D, limiting the allowable deduction to 2.5% of the total capital employed. The CIT (Appeal) initially allowed the deduction, but the Tribunal reversed the decision, upholding the assessing officer's calculation. The assessee challenged this decision, questioning whether the deduction amount could be varied in subsequent years after being fixed initially. The Court clarified that the deduction under Section 35D is subject to the provisions of sub-section 3, which set an outer limit of 2.5% of the total capital employed. The Court rejected the argument of estoppel raised by the assessee's counsel, emphasizing that the jurisdiction of the CIT (A) in a previous order was limited to a specific assessment year and could not bind subsequent assessments. Therefore, the Court answered the question in the affirmative, in favor of the revenue, and dismissed the appeal.In conclusion, the judgment highlighted the importance of adhering to statutory provisions, specifically sub-section 3 of Section 35D, which imposes a limit on the deduction allowable for share issue expenses. The Court emphasized that each assessment year must be considered independently, and decisions in previous years do not necessarily bind subsequent assessments. The ruling clarified the interpretation of Section 35D and affirmed the assessing officer's calculation based on the statutory limit set by the provision.