TaxTMI 
TaxTMI 
2011 (4) TMI 556
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....e expenditure incurred on issue of shares is eligible to be authorised under section 35D of the Income-tax Act ? 2. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the payment of bonus into an employees bonus trust is not hit by section 40A(1) sic., 40A(9) of the Income-tax Act ? 3. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the payment of bonus into an employees bonus trust within the due date for filing the return is sufficient compliance with the provisions of section 43B of the Income-tax Act ? 4. The facts in brief are as follows :- The assessee/respondent in both the appeals is Shasun Chemicals & Drugs Ltd., a company engaged in the manufacture and sale of bulk drugs. The assessee filed its return of income for the Assessment year 1999-2000 on 29.12.1999 admitting total income of Rs. 62,41,040. Though the assessment was completed under section 143(3) of the Income-tax Act, 1961 (in short "the Act") on 18.3.2002, subsequently, it was reopened under section 147and a notice under section 148 of the Act was issued on 26.9.2003. While computing the total income, the Assessing off....
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....gard to the claim made under section 35D, and towards payment of bonus. However, on the issue relating to section 80HHC, the Tribunal remanded the matter to the Assessing Officer to decide the issue in the light of the recent amendment to section 80HHC. Ultimately, the Tribunal dismissed the appeal filed by the Revenue and allowed the appeal filed by the assessee for statistical purposes. Aggrieved by the aforesaid order of the Tribunal, the Revenue has come with T.C.A. No. 48 of 2008. 5. Since the issues involved in these two appeals are inter-connected and one and the same, they were heard together and disposed of by this common judgment. 6. Substantial Question No. 1 in TCA. No. 48 of 2008 & the only Substantial Question raised in TCA. No. 1415 of 2007. The assessee has claimed 1/10th of Public issue expenses under section 35D of the Income-tax Act, 1961 on the ground that the expenses had occurred in connection with the expansion of the company. Section 35D of the Act is as follows :- "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....
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....e financial year 1995, nearly after two decades. To claim deduction under section 35D, the expenditure incurred should be before the commencement of the business or after the commencement of his business, in connection with the extension of his industrial undertaking or in connection with the setting up a new industrial unit. The Assessee claims under clause (ii) that the shares had been issued for the expansion of the company. One of the reasons for rejecting the claim of the assessee by the Assessing Officer is that no material has been placed to show the expenditure incurred towards the issuance of shares. From the materials on record, it is seen that it is not the case of the assessee that relevant materials like vouchers, receipts, etc., have been produced before the Assessing Officer to show the actual expenditure incurred. On the other hand, the main defence of the assessee is that the Brook Bond's case relied on by the Assessing Officer is not applicable to the present case as the expenditure is to be treated as revenue expenditure, since in the previous assessment years the deduction claimed under section 35D was allowed, the appeals have to be dismissed. 9. Whether the....
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....ent years after introduction of section 35D of the Act and, therefore, the assessee cannot state that the decision in Brook Bond's case is not applicable to the facts of the present case. The decision in Brook Bond's case was subsequently followed in Commissioner of Income-tax v. General Insurance Corporation [(2006) 8 SCC 117], wherein the Supreme Court citing various decisions had observed that the expenditure incurred for the purpose of increasing company's share capital by the issue of fresh shares would certainly be a capital expenditure as has been held by this Court in the cases cited above. 12. In the commentary on the Companies Act by A. Ramaiya, 16th Edn., 2004, which occurs in the commentary on section 81 of the Companies Act, the capital expenditure is defined as follows:- l When a company prospers and accumulates a large surplus it converts this surplus into capital and divides the capital among its members in proportion to their rights. This is done by issuing fully paid shares representing the increased capital. The shareholders to whom the shares are allotted have to pay nothing. The purpose is to capitalise the gains which may be available ....
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....er reason. In the appeals before the Commissioner of Income-tax and the Tribunal, both the authorities have not gone into the merits of the case or perused the materials to show the expenditure incurred by the assessee. On the other hand, both the authorities by simply stating that the claim of the assessee for the previous assessment years had been allowed, allowed the claim of the assessee. If the appellate authority or the Tribunal would have gone into the merits of the case and perused the materials, they would have come to a reasonable conclusion. Since both the authorities have not decided the matter on merits and, in the light of the aforesaid decisions, the finding of the Assessing Officer has to be confirmed. 16. Learned counsel for the assessee has raised an allied contention that for the assessment years 1996-97 and 2002-03, the deduction claimed by the assessee under section 35D was allowed and, since the Revenue has not preferred any appeal and such order has become final, it is not open to the Revenue to disallow the deduction claimed in the assessment year in question. 17. Learned Standing Counsel for the Department contended that when the department has not pr....
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.... 40(A)(9) as it permits payment to the extent provided by or under section 36(1)(iv) & (v). In support of such contention, the decision of the ITAT, Chennai "A" Bench in Dy. CIT v. The Sri Venkatesa Mills Ltd., Udumalpet has been relied on. It is their further case that as per section 43B of the Act, the assessee company was bound to make the payment of bonus or before filing of the return of income as the workers had raised dispute on quantum of bonus and it was forced to make the payment to the trust to comply with section 43B and since the payment in question was to comply with the provisions of section 40A(9), the payment of bonus to the specific trust should not be disallowed. 22. It is the case of the Assessing Officer that only payment for the purposes of recognised provident fund, approved superannuation fund or approved gratuity fund are exempted from disallowance and payment of bonus purposes is not exempted under section 40A(9). It is his further case that the fact that section 43B was introduced later than section 40A(9), does not make the latter inoperative and in fact is an overriding provision. According to the Department, the decision relied on by the assessee is....
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....as actually been made to the employees through an irrevocable trust as contemplated under sub-clause (v) of section 36. Learned Standing Counsel appearing for the Department resisted the aforesaid contention by stating that the exemptions provided under section 40A(9) are specific and it does not exempt payment of bonus, the assessee had not paid the sum before he had filed the returns for the relevant assessment year and that the amount paid to a trust cannot be treated as a deduction. 25. The appellate authority as well as the Tribunal have reversed the finding of the assessing officer mainly by relying upon the decision of the Income-tax Appellate Tribunal, Chennai in the case of Deputy Commissioner of Income-tax v. The Sri Venkatesa Mills Ltd., Udamalpet. The aforesaid decision was challenged by way of appeal by the Revenue before this Court and a Division Bench of this Court by judgment dated 16.3.2009, rejected the appeal filed by the Revenue confirming the decision of the Tribunal. 26. We have carefully gone through the aforesaid decision. In the aforesaid decision, the assessee is a company engaged in the business of yarn and fabrics. For the assessment year 1994-1995....
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....scribed for payment of such bonus and prior to 30.11.1994 and it is also an admitted case that payment to the Trust being irrevocable, it actually amounted to payment of bonus to the workers. What is the requirement of the provision is payment prior to the date prescribed. The second proviso to section 43B of the Income-tax Act as it stood prior to Finance Act, 1989 with effect from 1.4.1989 reads as follows: "No deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date." The assessee is entitled to the deduction made towards bonus. The assessee had made the payment prior to the date of omission of the proviso, the payment made to the Trust being irrevocable would tantamount to payment of bonus to the workers. When that being so, we do not find any error in the order passed by the Tribunal and as such, the questions of law are an....