TaxTMI 
TaxTMI 
2015 (3) TMI 502
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....towards capital work-in-progress ?" 2. Facts in brief are :- The Assessment Years in question are 1980-81 and 1981-82 respectively. In the Assessment Year 1980-81, the assessee had issued 6,25,000 equity shares of Rs. 10/- each. Accordingly, a sum of Rs. 62.50 lakhs was adjusted by issue of shares and the balance application money was refunded to the subscribers. The increase in the share capital was for setting up an unit for the manufacture of computer and OEM peripheral manufacturing project. For the issue of shares, the assessee had incurred expenses of Rs. 14,21,276/- under different heads like financial consultancy, managerial fees, legal fees, underwriting commission, advertisement, issue house expenses, printing charges etc. Out of total expenditure of Rs. 14,21,276/-, the assessee capitalised a sum of Rs. 29,668/- on plant & machinery and factory equipment and Rs. 9,79,438/- on the work-in-progress. The balance sum of Rs. 4,12,170/- was treated as preliminary expenses and on these expenses had claimed relief under Section 35D of the Act in the following Assessment Year i.e. 1981-82. On the capitalised amount of Rs. 29,668/-, the assessee claimed depreciation of Rs. 4,203/....
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....ment Year 1981-82 upheld the order passed by CIT(A). The Tribunal observed thus:- "7. The third ground of appeal is that the CIT(A) erred in not allowing depreciation on the expenditure incurred on the issue of shares which was capitalised. The assessee had incurred total expenditure of Rs. 14,21,276/- on issue of shares out of which Rs. 29,668/- were capitalised to plant and machinery and factory equipment, an amount of Rs. 4,12,170/- related to preliminary expenses and the balance amount was for work-inprogress. The assessee claimed that this amount was incurred on raising finance by issue of shares for purchase of fixed assets and for working capital requirements. In support of the same, the assessee filed details of expenditure and copy of the advertisement. The assessee in this connection relied upon the decision of the Supreme Court in the case of Challapalli Sugars Ltd. Vs. CIT and decision of Madras High Court in the case of CIT Vs. Lucas V.S.lmt. (No.1) (110 ITR 338). The CIT(A) hold that the decision in the case of Challapalli Sugars Ltd. (supra) must be stretched in the manner so as to claim depreciation incurred on issue share capital. The departmental representative r....
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....ld be required to be decided taking into consideration the provisions of Section 32 and 35D of the Act as applied by the Revenue. Section 32 provides for depreciation in respect of plant and machinery or furniture owned by the assessee and used for the purpose of business or profession. In the present case, the assessee is claiming depreciation on the capitalised expenditure on issue of shares which ex facie cannot fall within the purview of Section 32. Section 35D of the Act provides for amortisation of certain preliminary expenses incurred by the assessee being an Indian company incurred after 31st day of March,1970 in respect of expenditure specified in sub-section (2) before the commencement of the business or after the commencement of the business, in connection with the extension of an industrial undertaking or in connection with his setting up a new industrial unit. It would be useful to extract Section 35D of the Act which reads thus :- "Amortisation of certain preliminary expenses 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-sect....
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....has thought it appropriate to give a special benefit to the assessee after 31 March 1970 in respect of preliminary expenditure incurred by the assessee which may be a company or a person (other than a company), in respect of expenditure specified in sub-section (2) incurred before commencement of business or after the commencement of business, in connection with the extension of industrial undertaking or in connection with setting up a new industrial unit. Sub-section (2) of Section 35D of the Act sets out the categories of expenditures relevant for the purpose of Section 35D. The relevant clause for the present reference is sub-clause (c) of sub-section (2) which concerns the expenditure by a company in connection with the issue, for public subscription, of shares or debentures, underwriting commission, brokerage and charge for drafting, typing, printing and advertisement of the prospectus. This provision, therefore, allows amortisation of the specific category of expenditures incurred by the assessee, by way of deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years as provided therein. The legislature, therefore, having specifi....
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....issued shares and incurred expenses on issuance of shares which were sought to be capitalised by the assessee cannot be said to be expenditure incurred for installation of plant and machinery so as to apply the ratio of the decision in "Chellapalli Sugars Ltd." (supra) to the facts of the present case. Moreover, as regards the category of expenditure capitalised by the assessee, the provisions of Section 35D(2)(c)(iii) of the Act were held to be attracted. We do not find that the reasoning as adopted by the Tribunal in not applying the ratio in "Chellapalli Sugars Ltd." case, is in any manner inappropriate. 11. To bolster the submission that the Revenue had appropriately applied Section 35D(2)(c)(iii) of the Act in the facts of the case, learned Counsel for the Revenue has drawn our attention to the decision of the Division Bench of this Court in the case of "Commissioner of Income Tax Vs. Mahindra Ugine and Steel Co.Ltd., (250 ITR 84)". In this case the Division Bench was concerned about the stamp duty paid on debentures issued whether was allowable as the item of deduction under Section 35D of the Act. In deciding the issue that such expenditure fell under Section 35D(2)(c) of t....
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....the present case can very well be said to fall within the provisions of Section 35D of the Act. 12. In the decision of Rajasthan High Court in the case of "Autolite India Ltd. Vs. Commissioner of Income Tax, (264 ITR 117)" following the decision of the Division Bench of this Court in "Commissioner of Income Tax Vs. Mahindra Ugine and Steel Co.Ltd." (supra), the Rajasthan High Court held that the claim of the assessee in respect of expenditure incurred on the public issue to raise capital for expansion of his business would fall under sub-clause (iv) of Section 35D(2)(c) of the Act and the assessee would be entitled for the benefit of the provisions of Section 35D of the Act. 13. A similar view was taken by the Madras High Court in the case "Commissioner of Income Tax vs. Ashok Leyland Ltd., (349 ITR 663)" and by the Madhya Pradesh High Court in the case "Shree Synthetics Ltd. Vs. Commissioner of Income Tax and Anr., (303 ITR 451)". 14. We now deal with the last limb of the applicant's submissions namely that in deciding this reference we may decide broader issues than those referred to us by the Tribunal. While making this submission, learned Counsel for the applicant does n....