LexM/S. SHASUN CHEMICALS AND DRUGS LTD. versus COMMISSIONER OF INCOME TAX-II, CHENNAI
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
[2016] 8 S.C.R. 73
M/S. SHASUN CHEMICALS AND DRUGS LTD.
v.
COMMISSIONER OF INCOME TAX-II, CHENNAI
(Civil Appeal No. 9611 of2016)
SEPTEMBER 16, 2016
[A.K. SIKRI AND N.V. RAMANA, JJ.]
Tax:
Income Tax Act, 1961 - ss.35D, 36, 40A(9), 43B -Amortization
of expenditure -Deduction of payment of bonus from business
income - Assessee issued public shares in order lo raise funds to
meet the capital expenditure for expansion of its existing units of
production and for research and development - Assessee claimed
amortization of expenditure incurred towards share issue expense
u/s.35D of the Act - Furthermore, assessee claimed deduction u/s.
36 of the Act, regarding bonus paid to its employees - Claim
disallowed by High Court - On appeal, held: Amortization of
expenditure u/s.35D, is allowed for period of JO years @ 1110'" of
each - On facts, benefit was allowed for first two assessment years
by assessing officer and therefore, it could not have been denied in
subsequent block period - Payment of bonus is allowable deduction
u/s.36(1){ii) and s.40A(9) has no application to it - s.43B(b) is also
not applicable as this provision does not mention about bonus -
Therefore, assessee entitled to benefit uls.35D and s.36.
Allowing the appeals, the Court
HELD:
Whether expenditure incurred on issue of shares is eligible
to be amortized under section 35D of the Act ? :
1. The Assessing Officer had allowed the claim of the
assessee in this behalf for the Assessment Years 1994-95 and
1996-97. Such expenses which are incurred and amortization
whereof is sought u/s. 35D of the Act, it is allowed for a period of
10 years @ 1/lOth each. The claim of the assessee for the year
1995-96 was found to be justified and allowable under the
provisions of the Act and on that basis I/10th share issue expenses
73
A
8
c
D
E
F
G
H
74
A
B
c
D
E
F
SUPREME COURT REPORTS
[2016) 8 S.C.R.
was allowed u/s. 35D of the Act. When it was again claimed for
the Assessment Year 1996-97, though it was disallowed and on
directions of the Appellate Authority, the Assessing Officer made
physical verification of the factory premises. On satisfaction,
expenses were allowed for the Assessment Year 1996-97 as well.
Once, this position is accepted and the clock had started running
in favour of the asscssec, it had to complete the entire period of
10 years and benefit granted in first two years could not have
been denied in the subsequent years as the block period was 10
years starting from the Assessment Year 1995-96 to Assessment
Year 2004-05. The High Court, however, disallowed the same
following the judgment of this Court in the case of Brook Bo11d
India Ltd. However, in spite of the argument raised to the effect
that the aforesaid judgment was rendered when s. 35D was not
on the statute book and this provision had altered the legal
position, the High Court still chose to follow the said judgment.
It is here where the High Court went wrong as the instant case is
to be decided keeping in view the provisions of s.35D of the Act.
Thus, the assessec was entitled to the benefit of s.35D for the
Assessments Years in question. [Paras 12, 13][78-G-H; 79-A-B,
E-F; 80-A-D]
Whether deduction on account of payment of bonus to
the employees of the asscssee is not eligible under section 36 of
the Act, as it is hit by section 40A(9) of the Act? :
2.1 Since, payment was made by assessee to its employees
from the Trust, the Assessing Officer took the view that as the
payment is not made by the asscssee to the employees directly
in cash, it is not allowable in view of the provisions of s.40A(9) of
the Act. Though this view was not accepted by the CIT(A) as
well as ITAT, the High Court has found justification in the stand
taken by the Assessing Officer. The High Court has gone wrong
in relying upon the provisions ofs.40A(9) of the Act. [Para 14)[80-
G G-H; 81-A]
2.2 Section 40A(9) deals with deductions in respect of the
amount paid by the asscssee as an employer towards the setting
up or formation of, or as contribution to, any fund, trust, company
etc. The condition is that such sum has to be paid for the purpose
H
and to the extent provided by or under clause (iv) or clause (iva)
MIS. SHASUN CHEMICALS AND DRUGS LTD. v. COMMISSIONER
75
OF INCOME TAX-II, CHENNAI
or clause (v) of Sub-s.(1) of s. 36. However, in the instant case,
A
concern is with the payment of bonus which is allowable as
deduction under cExcerpt shown. Read the full judgment & AI analysis in Lexace.