AGROCARGO TRANSPORT LTD. VS COMMISSIONER OF INCOME-TAX, 1998 PTD-MADRAS-HIGH-COURT-INDIA 1325 (1996)

Income-tax---

----Business expenditure---Amortization of preliminary expenses---Conditions precedent for deduction under S. 35-D---Expenditure should be of kind specified in subsection (2) of S. 35-D---Assessee should furnish particulars to show that expenditure was covered by subsection (2) of S. 35-D---Indian Income Tax Act, 1961, S. 35-D.

Under the provisions of section 35-D of the Income Tax Act, 1961, where, an assessee being an Indian company or a person (other than a company which is resident in India) incurs after March 31, 1970, any expenditure as specified in subsections (2), (i) before the commencement of the business, or (ii) after the commencement of his business in connection with the extension of the industrial undertaking or in connection with his setting up of 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 1/10th of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commenced or, as the case may be, the previous year in which the extension of the industrial undertaking was completed or the new industrial unit commenced production or operation. The expenses referred to in subsection (1) are enumerated in subsection (2) of section 35-D of the Act. Unless the assessee satisfies both the conditions prescribed under section 35-D, the benefit under the said section would not be available to the assessee. The assessee should furnish particulars to show that the expenditure would fall under section 35-D (2) of the Act:

Held accordingly, that there was no material on record to show that the assessee has furnished any particulars with regard to the expenditure incurred so as to enable the assessee to say that the expenditure would fall under subsection (2) of section 35-D of the Act. Since the assessee had not satisfied the condition prescribed under subsection (2) of section 35-D the assessee would not be entitled to amortization under section 35-D of the Act even if the assessee proved that it was an industrial undertaking as contemplated under subsection (1) of section 35-D of the Act.

P.P.S. Janarthana Raja for the Assessee.

C. V. Rajan for the Commissioner.

JUDGMENT

THANIKKACHALAM, J.---At the instance of the assessee, the Tribunal referred the following question for the opinion of this Court under section 256(1) of the Income-tax Act, 1961:

"Whether, on the facts and in the circumstances of the case, the expression 'industrial undertaking' and 'industrial unit' according to section 35-D includes an undertaking set up for transportation of goods by trucks?"

The assessee is a company engaged in the business of transporting goods. In the previous year ended June 30, 1977, corresponding to the assessment year 1977-78, the assessee had increased the fleet of trucks by increasing its share capital. The assessee claimed that 1/10th of the total expenditure of Rs.72,614 incurred on the above amounting to Rs.7,261 should be allowed as a deduction under section 35-D(1)(ii) of the Act. This was disallowed by the Income-tax Officer in the view that the deduction under section 35-D was allowable only in connection with the extension of the industrial undertaking and, therefore, the deduction could not be granted to the assessee as, no new industrial unit has been set up by the assessee in this year. On appeal, the Appellate Assistant Commissioner confirmed the order passed by the Income-tax Officer.

On further appeal, the Appellate Tribunal found that section 35-D referred to the amortization of certain capital expenses in respect of extension of an industrial undertaking or in connection with the setting up of a new industrial unit. But the expressions "industrial undertaking" or "industrial unit" had not been defined. The contention of the assessee was that these expressions must be liberally construed to include industrial undertakings, since "industrial concern" in section 2(c) of the Industrial Development Bank of India Act, 1964, included transport of passengers or goods and the definition of "Industry" in the Law lexicon indicated that transportation of goods may fall within the definition of "industry" in common parlance. The contention of the Revenue was that other sections in the Act such as section 32-A (investment allowance), section 33 development rebate), section 80-HH (deduction in respect of profits and gains from newly established industrial undertakings in backward areas), section 80-J (deduction in respect of. profit and gains from newly established industrial undertakings) indicate that industrial undertakings covered by the Act do not include transport undertaking. It was also pointed out that section 2(7) of the Finance Act defined an "industrial company" as one engaged in the manufacture or processing of goods and this did not include transport of goods. The Appellate Tribunal was of the opinion that in the absence of a definition the intention of Parliament has to be ascertained as to the scope of this expression only with reference to the general scheme of this Act read with the Finance Act. Since there was no provision for granting any deduction in respect of transport undertakings, and the emphasis was on the production of the goods and not distribution of goods, it was difficult to adopt a wider meaning of "industry" which may include hospital, public utility services and even an office of the chartered accountant. For the purpose of the provisions of the Income-tax Act conferring relief from tax, the Appellate Tribunal followed a canon of construction that in respect of exemptions or deductions from liability to tax it was for the assessee to establish that the statute specifically provides for this case. Hence, the Appellate Tribunal did not allow the claim of the assessee for the assessment year 1976-77 by an order dated July 1, 1980, in Income-tax Appeals No.1674/(Mds) of 1979. For the same reasons, the claim for the subsequent year 1977-78 was rejected by order dated September 18, 1981, in Income-tax Appeals, No. 1887/(Mds) of 1980. The assessee has not asked for a reference for this assessment year 1976-1977.

Before us, learned counsel appearing for the assessee submitted that the words "industrial undertakings" were not defined in the Act. According to learned counsel, in section 35-D what was mentioned was, any expenditure specified in subsection (2) incurred after the commencement of the business in connection with the extension of the industrial undertaking or in connection with the setting up of a new industrial unit, the assessee is entitled to amortization under section 35-D of the Act. Learned counsel submitted that in section 35-D(1), clause (ii) it is not stated that industrial undertaking means that which is manufacturing or processing any goods. According to learned counsel, the assessee is an industrial undertaking as per the Industrial Disputes Act, as per the Law Lexicon, etc., and, therefore, the assessee should not be insisted to specify whether the assessee is an industrial undertaking indulging in manufacturing or processing of goods. However, learned standing counsel appearing for the Department submitted that the word "industrial undertaking" occurred in various provisions in the Act, where under it is clearly stated that "industrial undertaking" means, an undertaking which manufactures or produces any article. Therefore, according to learned standing counsel, if there is no manufacturing activity or processing, such an undertaking cannot be considered as an industrial undertaking. It was also pointed out that the transport business was not shown as an industrial undertaking anywhere in the Act. According to learned standing counsel, in fact under section 32-A, the transport business was specifically excluded while considering the industrial undertaking. For these reasons, learned standing counsel submitted that since the assessee is not an industrial undertaking, it is not entitled to amortization under section 35-D of the Act.

As per the provisions of section 35-D 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 as specified in subsection (2), (1) before the commencement of the 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 of 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 1/10th of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commenced 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. The expenditure referred to in subsection (1) is enumerated in subsection (2) of section 35-D. Therefore, unless the assessee satisfied with subsection (1) and (2) of section 35-D amortization as claimed by the assessee cannot be granted.

In the present case, it remains to be seen that the expenditure in connection with the extension of his industrial undertaking was incurred in the assessment year 1976-77 and in that assessment year the assessee claimed amortization under section 35-D, which was denied by the Department. The assessee did not challenge the Department's section in refusing to grant amortization under section 35-D in that assessment year. The present assessment year, viz., 1977-78, is the second year. In this assessment years also, the Department refused to grant amortization. The Tribunal accepted the order passed by the authorities below since the assessee has not established that the assessee is manufacturing or processing any new article. As we have already seen, unless the assessee satisfies both the conditions prescribed under section 35-D, the benefit under the said section would not be available to the assessee. There is no material on record, in the present assessment year under consideration, to show that the assessee had furnished any particulars with regard to the expenditure incurred so as to enable the assessee to say that the expenditure would fall under subsection (2) of section 35-D. Learned counsel appearing for the assessee submitted that the Department has not considered the applicability of under subsection (2) of section 35-D. It remains to be seen that unless the assessee furnishes particulars to show that the expenditure would fall. under subsection (2) of section 35-D, it would not be possible for the Department to advert to that aspect. Since the assessee has not satisfied the condition prescribed under subsection l2) of section 35-D, the assessee would not be entitled not be entitled to amortization under section 35-D of the Act even it the assessee proves that it is an industrial undertaking as contemplated under section 35-D(1) of the Act.

Under such circumstances, we consider that the Tribunal was correct in holding that the assessee is not entitled to amortization under section 35-D of the Act. However, we consider that the question as framed and referred to us would not reflect that real issue arising in this tax case. Therefore, we would reframe the question as under:

"Whether, on the facts and circumstances of the case, the Tribunal was correct in holding that the assessee is not entitled to amortization under section 35-D(1) of the Income-tax Act, 1961?"

For the foregoing reasons; we answer the question in the affirmative and against the assessee. No costs.

M.B.A./1394/FCOrder accordingly.