P.D. Mulye, J.
1. The Income-tax Appellate Tribunal, Indore Bench, Indore, at the instance of the Commissioner of Income-tax, Bhopal, has made this reference under Section 256(1) of the Income-tax Act, 1961, for the opinion of this court on the following questions of law :
' (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law holding that the expenditure incurred by the assessee on serving meals, tea, coffee and light refreshments to its trade clients was an allowable business expenditure and that such expenses are not hit by the provisions of Section 37(2B) of the Income-tax Act, 1961
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the disallowance of Rs. 6,03,410 out of the expenditure of Rs. 14,35,224 claimed by the assessee under Section 35D(1) of the Income-tax Act, 1961 ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that for the purpose of relief under Section 80J of the Income-tax Act, 1961, borrowed capital should also be taken into account in order to arrive at the capital employed in the industrial undertaking '
2. So far question No. (3) is concerned, learned counsel for the parties submitted that in view of the decision of the Supreme Court relating to Section 80J of the Income-tax Act, 1961, in Lohia Machines Ltd. v. Union of India : [1985]152ITR308(SC) this question had to be decided in favour of the Department and against the assessee. Accordingly, this question is answered in favour of the Department and against the assessee.
3. Facts giving rise to this reference as per the statement of the case received may be stated, in brief, thus : The assessee is a public limited company carrying on business in the manufacture of nylon-6 filament yarn. In respect of the assessment year 1974-75 relevant to the accounting period ending Jane 30, 1973, the assessee claimed Rs. 1,39,163 under the head ' Miscellaneous expenses '. The Income-tax Officer required the assessee to file the details of these expenses. The assessee furnished details for only Rs. 66,577. The rest of the amount was stated to be less than Rs. 1,000 per item and hence no details were furnished. The Income-tax Officer considered that large amounts were incurred by the officers of the company and were in the nature of entertainment, Accordingly, he disallowed 50% of the total expenditure by treating it as entertainment under Section 37(2B) of the Act. Thus a sum of Rs. 69,581 was disallowed by him.
4. On appeal before the Appellate Assistant Commissioner, the assessee submitted that most of the expenses were incurred on serving meals, light refreshments, etc., to the employees, workmen and the customers and hence no part of the expenditure claimed should have been disallowed. The Appellate Assistant Commissioner did not agree with the contention of the assessee and following the decision in CIT v. Gheru Lal Bal Chand [1978] 111 ITR 134 upheld the disallowance of Rs. 69,581 made by the Income-tax Officer. On further appeal, the Tribunal, on a perusal of the list of expenses filed by the assessee, found that there were a number of expenses such as donations, expenses incurred in posh hotels and restaurants, which were certainly not allowable and considering the extent of the expenses and the turnover of the company, thought it reasonable to restrict the dis-allowance of such expenses to the extent of Rs. 10,000 as against Rs. 69,581, disallowed by the Income-tax Officer and upheld by the Appellate Assistant Commissioner.
5. Similarly, the assessee-company claimed the total expenditure of Rs. 14,35,224 on the issue of its shares. The break-up of these expenses is as follows :
Rs.
(1) Preliminaryexpenditure incurred after March, 1970
4,399
(2) Underwritingcommission
4,81,250
(3) Brokerage
1,59,045
(4) Advertisement,drafting, typing, printing of prospectus
1,10,173
(5) Other issueexpenditure for public subscription
3,22,558
(6) Expenditure withregard to issue due to over subscriptions
3,57,799
Total14,35,224
6. The assessee's contention was that since the aforesaid amount was less than the amount calculated at 21/2 per cent. of the capital employed, it was entitled to deduct from its profits 1/10th of the entire amount as laid down under Section 35D(1) of the Act. The Income-tax Officer examined the assessee's claim and accepted the same in respect of items Nos. (1) to (4). As regards the amount of Rs. 3,22,558 included in item No. (5), the Income-tax Officer found on a scrutiny of the details that it included a sum of Rs. 76,947 incurred on advertising, printing, etc., of the prospectus. He, therefore, admitted the assessee's claim to this sum of Rs. 76,947 also. As regards the remaining amount of Rs. 2,45,611 (Rs. 3,22,558 minus Rs. 76,947), included in item No. (5) and a sum of Rs. 3,57,799 included in item No. (6), the In come-tax; Officer found that these expenses were incurred in connection with the refund of Rs. 18'82 crores which was the amount over-subscribed. According to the Income-tax Officer, the above expenditure of Rs. 6,03,410 did not fall within the provisions of Section 35D(2)(c)(iv) of the Act. He, therefore, restricted the assessee's claim under Section 35D(1) of the Act to the extent of Rs. 8,31,814 and disallowed the balance claim to the extent of Rs. 6,03,410.
7. Against the decision of the Income-tax Officer, the assessee went up in appeal and before the Appellate Assistant Commissioner, it was contended that all the above items of expenses were clearly covered by Sub-clause (iv) of Clause (c) of Sub-section (2) of Section 35D of the Income-tax Act, 1961, and hence the Income-tax Officer was not justified in disallowing the same. It was contended that the said Sub-clause (iv) covered the expenses which are incurred in connection with the issue of shares for public subscription. However; the Appellate Assistant Commissioner felt that only such expenses being in the nature of underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of prospectus are allowable as per the provisions of Section 35D of the Income-tax Act. Therefore, he upheld the disallowance of expenses to the extent of Rs. 6,03,410.
8. On further appeal being taken before the Tribunal, the Tribunal felt that on a proper construction of Sub-clause (iv) of Clause (c) of Sub-section (2) of Section 35D, it becomes quite apparent that the word ' being ' used in the Sub-clause (iv) does not limit the scope of the expenses incurred ' in connection with the issue for public subscription of shares ' only to those expenses which have been specifically enumerated, namely, (i) underwriting commission, (ii) brokerage, and (iii) charges for drafting, typing, printing and advertisement of the prospectus. The Tribunal, therefore, came to the conclusion that the assessee is entitled to the deduction of an amount equal to 1/10th of the above expenditure during the relevant assessment year and, therefore, deleted the disallowance of Rs. 6,03,410 as upheld by the Appellate Assistant Commissioner.
9. As regards question No. (1), learned counsel for the Revenue submitted that in the present case, Sub-section (2B), as it stood before April 1, 1976, as per the Finance Act, 1983, would apply and according to that section, the assessee is not entitled for the expenditure incurred by lavish entertainment in posh hotels, etc., but they are entitled to only for those expenses which are reasonably incurred for its employees, guests, customers, etc., as is customary in the custom or usage of trade and, therefore, in the absence of any convincing evidence adduced by the assessee, the Tribunal was not justified in restricting the disallowance of such expenses to the extent of Rs. 10,000 as against Rs. 69,581 disallowed by the Income-tax Officer and upheld by the Appellate Assistant Commissioner. However, in view of the decisions in CIT v. Lakhmichand Muchhal [1982] 134 ITR 234 CIT v. Navalmal Punamchand : [1982]135ITR801(MP) CIT v. Shyam Lal Ramcharan : [1984]147ITR52(MP) Central Paints Ltd. v. CIT : [1984]146ITR212(MP) and CIT v. Lalu Bhai B. Patel & Co. [1983] 139 ITR 832 which are decisions of this court, such expenses have been treated as business expenditure and not entertainment expenditure and, consequently, in our opinion, the view taken by the Tribunal appears to be correct.
10. As regards question No. (2), learned counsel for the Revenue, Shri R. C. Mukati, submitted that fiscal statutes like taxing statutes have to be interpreted according to the words mentioned therein and not beyond and, therefore, no extraneous inference can be drawn by taking resort to the general provisions of law and, in support of his submission, he placed reliance on the decisions in CIT v. Kunji Lal Dhanpat Rai : [1979]116ITR608(All) CST v. Modi Sugar Mills Ltd. : [1961]2SCR189 and on Interpretation of Statutes by Hon'ble Justice G. P. Singh (third edition) at page 533.
11. Learned counsel further submitted that the word ' being ' used in Section 35D(2)(c)(iv) is restricted to the expenses regarding underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus. He, therefore, submitted that items Nos. (5) and (6) referred to above are admittedly not covered by these expenses. He, therefore, submitted that the assessee may have spent these amounts in connection with the oversubscription of shares, etc., but these amounts are not covered by this provision and, therefore, the Tribunal was not justified in law in deleting the disallowance of Rs. 6,03,410 out of the expenditure of Rs. 14,35,244.
12. On the other hand, learned counsel for the respondent-assessee submitted that the word ' being ' is illustrative and, consequently, it cannot be read in the manner in which learned counsel for the Revenue wants us to read. In support of his submission, he placed reliance on the decision in Ambatielos v. Anton furgens Margarine Works [1923] AC 175 (HL) and also on a passage from Interpretation of Statutes by Hon'ble Justice G. P. Singh (second edition), at page 264.
13. To appreciate the rival contentions, it is necessary to reproduce the relevant extract of Section 35D which is as follows ;
' 35D. Amortisation of certain preliminary expenses.--(1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after March 31, 1970, any expenditure specified in Sub-section (2),--
(i) before the commencement of his 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 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 one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences 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 oroperation.
(2) The expenditure referred to in Sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely :--
(a) expenditure in connection with-
(i) preparation of feasibility report;
(ii) preparation of project report;
(iii) conducting market survey or any other survey necessary for the business of the assessee;
(iv) engineering services relating to the business of the assessee :
Provided that the work in connection with the preparation of the feasibility report or the project report or the conducting of market survey or of any other survey or the engineering services referred to in this clause is carried out by the assessee himself or by a concern which is for the time being approved in this behalf by the Board ;
(b) legal charges for drafting any agreement between the assessee and any other person for any purpose relating to the setting up or conduct of the business of the assessee ;
(c) where the assessee is a company, also expenditure-
(i) by way of legal charges for drafting the memorandum and articles of association of the company ;
(ii) or printing of the memorandum and articles of Association;
(iii) by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956);
(iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus;
(d) such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act) as may be prescribed.'
14. Learned counsel for the assessee submitted that the words ' in connection with the issue, for public subscription, of shares ' have been used in a much wider sense so as to include within its ambit all such expenses which are necessarily incurred in connection with the issue of shares and that the above words should not be given a narrower meaning so as to include only those items of expenses which are specifically mentioned such as underwriting commission, brokerage and charges for printing, typing, drafting and advertisement of prospectus. It was submitted that Clause (d) of Sub-section (2) of Section 35D permits such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provisions of this Act) as may be prescribed and the mere fact that no such notification has been issued by the Government does not mean that the expenses incurred in connection with the issue of share capital should only be confined to those expenses which are specifically mentioned in Sub-clause (iv) of Clause (c) of Sub-section (2) of Section 35D.
15. It was not disputed before us that there are the following stages in connection with the issue of shares for public subscription : (1) issue of prospectus and invitation to the public to subscribe, (2) making of calls, that is, entertainment of applications by subscribers, (3) acceptance by the company represented by allotment of shares, (4) actual issue of share scrip and entering the names of the shareholders in the register of members ; and (5) expenses incurred after issue, i.e., payment of brokerage and underwriting commission, as also refund of excess amount oversubscribed. The dictionary meaning of the word ' being ' is 'such as, especially, also, etc. ' Therefore, it is illustrative and must be read with reference to the context in which the words are used. In our opinion, this phrase has been used which would include the last stage in connection with the issue of shares, namely, even refund of the amount of over subscription in relation to those shares for which applications were invited.
16. Clause (c) of Sub-section (2) of Section 35D starts with the words ' where the assessee is a company, also expenditure ', which if read with Sub-clause (iv) ' in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus' would indicate that the word ' being ' used here is ' illustrative and not restrictive '. On the contrary, if after the words ' also expenditure', Sub-clause (iv) would have started with the words ' being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus, in connection with the issue, for public subscription, of shares in or debentures of the company ', the submission of learned counsel for the Revenue would have some force because this word ' being ' as it stands today in the section cannot be read backwards, but has to be read as a whole. Therefore, we are of the opinion that the word ' being ' has been used here by way of illustration and is not restricted only to the words ' underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus. Thus questions Nos. (1) and (2) have to be answered in favour of the assessee and against the Department.
17. In the result, our answer to questions Nos. (1) and (2) is in favour of the assessee and against the Department and our answer to question No. (3) is in favour of the Department and against the assessee. The reference is answered accordingly with no order as to costs.