Judgment:
1. This is an appeal by the Department in which the issue is with regard to disallowance of public issue expenses made with reference to the provisions of Section 143(1)(a) of the Income-tax Act deleted by the CIT(A) as not falling within the purview of prima facie adjustment.
2. Rival contentions in regard to the above have been very carefully considered. The Assessing Officer has clearly noted that Supreme Court has held that expenses relating to increase in the capital of the company would be capital in nature. However we would like the Assessing Officer to verify whether the expenses charged to public issue expenses are relating to increase in capital only or it includes other expenses as well. He would, therefore, limit the prima facie adjustment to the amount relating to increase in the capital of the company. The appeal is allowed in part.
1. I have gone through the order of the learned Senior Vice-President in the above case. As I am unable to agree with the findings of the learned Senior Vice-President, I proceed to pass my order of dissent in this case.
2. I am not in agreement with the finding arrived at. by the learned Senior Vice-President in allowing the appeal of the department in part.
The Assessing Officer by way of Section 143(1)(a) adjustment as evidenced in the explanatory sheet disallowed the claim of Rs. 6,91,125 towards public issue expenses. This being capital, by following the decisions of the Hon'ble Apex Court in the case of Punjab State Industrial Development Corporation Ltd. v. CIT and in the case of Brooke Bond India Ltd. v. CIT the Assessing Officer added the same to the income returned. The Commissioner (Appeals) was of the opinion that it will not come under prima facie adjustment as contemplated under the provisions of Section 143(1)(a). He, therefore, deleted the addition. Aggrieved on this the Revenue is in appeal before the Tribunal.
3.While deciding the issue the learned Senior Vice-President felt that the matter should be sent back to the Assessing Officer to verify whether the expenses charged to the public issue expenses are relating to increase in capital only or it includes other expenses as well. This finding is not agreeable to me. The Assessing Officer while making the prima facie adjustment, followed the decisions of the Hon'ble Supreme Court cited supra. Admittedly this is a share issue expenditure.
However, in the grounds of appeal urged before the Commissioner (Appeals) the assessee relied on the decision of the Hon'ble Madras High Court in the case of CIT v. Kisenchand Chellaram India (P.) Ltd. . The Hon'ble Supreme Court has now settled the issue by way of the aforesaid decisions that the expenditure towards public issue of shares falls under the head 'Capital expenditure'. Therefore the adjustment made by the Assessing Officer is perfectly justified and it is in accordance with law. The finding of the Commissioner (Appeals) is against the decisions of the Hon'ble Supreme Court. Hence it is a fit case that the order of the Assessing Officer should be affirmed by setting aside the order of the Commissioner (Appeals). On the above reasoning I disagree with the finding of the learned Senior Vice-President and the appeal is allowed.
The appeals, referred to below, were heard by Shri A. Kalyanasundharam, Sr. Vice President and Shri N. Vijayakumaran, Judicial Member. Shri A.Kalyanasundharam had kept the files with him for dictation of orders.
However, orders were not passed till Shri A. Kalyanasundharam was transferred and relinquished his office as Sr. Vice President, Chennai Benches, Chennai. He appears to have sent proposed orders subsequently to the learned Judicial Member for his signatures, who did not agree and has passed dissenting orders. Shri A. Kalyanasundharam is not available for stating the point or points of difference and accordingly learned Vice President, Chennai Zone has sent these files to me. In terms of Section 255(4), I frame the points of difference in the five appeals as below and appoint the Zonal Vice President as Third Member, for dealing with cases in accordance with law: Whether, on facts and in the circumstances of the case, impugned order of CIT (Appeals) on pre-operative expenses and interest is to be confirmed or appeal of the assessee is to be allowed? Whether, on facts and in the circumstances of the case, appeal of the revenue is required to be allowed in part, as held by the learned Sr. Vice President or is to be fully allowed, as held by the learned Judicial Member? Whether, on facts and in the circumstances of the case, the amount advanced to the companies in dispute is liable to be added in the wealth of the assessee on the valuation date, as held by the learned Judicial Member or its value is to be taken at zero, as held by the learned Sr. Vice President? Whether, on facts and in the circumstances of the case, the order of the Sr. Vice President is to be upheld or that of the Judicial Member, in respect of claim of (interest made by the assessee? Whether, on facts and in the circumstances of the case, order of CIT under Section 263 is required to be set aside, as held by learned Sr. Vice President or upheld as held by the learned Judicial Member? The above points of differences in 5 cases are referred to the Hon'ble Vice President, Chennai as a Third Member, for separate decision in each case, for disposal in accordance with law.
1. This appeal came before me as a Third Member to express my opinion on the following question: Whether on the facts and in the circumstances of the case, appeal of the revenue is required to be allowed in part, as held by the learned Sr. Vice President or is to be fully allowed, as held by the learned Judicial Member? 2. I have heard the rival submissions in the light of the material placed before me and the precedents relied upon. In the Intimation under Section 143(1)(a) of the Income-tax Act, 1961 the Assessing Officer added Rs. 6,91,125 under the caption 'prima facie adjustment' with the following remarks: The assessee has claimed a sum of Rs. 6,91,125 towards public issue expense. This being capital in nature as held by the Hon'ble Supreme Court, in the case of Punjab State Industrial Development Corporation Ltd. v. CIT 225 ITR 792 and in the case of Brooke Bond India Ltd. v. CIT 225 ITR 798, the same is added to the income returned.
3. Before the Commissioner (Appeals) the assessee took the ground that the Assessing Officer failed to note that the claim of expenditure towards issue of capital was supported by the decision of the Hon'ble Madras High Court rendered in the case of Kisenchand Chellaram (India)(P.) Ltd. (supra). In this case it was held that without capital a company cannot carry on its business and hence the expenses incurred for increasing the capital was bound up with the functioning and financing of the business. The Commissioner (Appeals) held that when the return was filed the decision of the Apex Court was not available.
The decision of the jurisdictional High Court was in favour of the assessee. Moreover, issue was the subject-matter of interpretation which was finally adjudicated by the Supreme Court. On this factual backdrop it cannot be said that the subject of adjustment could be considered under the 'prima facie' category contemplated in the provisions of Section 143(1)(a). Ex consequenti the addition was deleted.
4. Being aggrieved, the revenue preferred appeal before the Tribunal.
In the grounds of appeal it was alleged inter alia that the law declared by the Supreme Court has effect not only from the date of the decision but also from the date of inception of the statutory provision. The learned Judicial Member relying on the decision of the Apex Court held that the expenditure towards public issue of shares falls under the head 'Capital expenditure'. Therefore the adjustment made by the Assessing Officer was perfectly in order. He disagreed with the finding of the learned Senior Vice-President in the context of remitting the matter back to the Assessing Officer to verify whether the expenditure charged to public issue expenses pertained to increase in the capital only or it included other expenditure as well.
5. The learned Counsel for the assessee raised an additional issue that on the date of filing the return the assessee was not at fault. The claim was made perfectly in consonance with the order of the jurisdictional High Court and as such no additional tax should be charged. I find that this point was not adjudicated upon by the Bench.
The Third Member, to whom the case is referred on difference of opinion amongst the Members originally hearing the case, is competent to decide only the point or points on which the Members of the Bench originally hearing the case differed. As such I decline to consider the new point formulated by the learned Counsel for the assessee at the time of hearing.
6. On the principle that the Supreme Court does not make the law from the date it is pronounced but the Supreme Court declares it to be so from the very inception, Shri V.D. Gopal relied on the decision of the Hon'ble Calcutta High Court rendered in the case of CIT v. Assam Oil Co. Ltd. . In this case the Hon'ble High Court has held that human knowledge is always improving and progressing. The world was assumed to be flat until it became known that the world is round. That docs not mean that gravitation did not exist before Newton's discovery of the law of gravitation. Human knowledge is never static. Theory of evolution of Darvin does not make the previous knowledge non existent. Human knowledge is always progressing. So relativity was always there but we became aware only after Einstein.
That is the basic difference between discovery and invention. But the information about that law was not there until the Supreme Court says it so. Therefore, what the High Court held at that time was a relevant judicial interpretation as to the law and constituted valid information.
7. The learned departmental representative relied on the decision of the Hon'ble Apex Court rendered in the case of M.A. Murthy v. State of Karnataka . This judgment was delivered on 2.9.2003.
In this case the Hon'ble Supreme Court has held: "Normally, a decision of the Supreme Court enunciating a principle of law is applicable to all cases irrespective of the stage of pendency, because it is assumed that what is enunciated by the Supreme Court is, in fact, law from inception." 8. In the case of Brooke Bond India Ltd. {supra) it was held that the expenditure incurred by the assessee in issuing shares with a view to increase its share capital was directly related to the expansion of the capital base of the company and as such it was held to be capital expenditure.
9. The law declared by the Supreme Court is the law of the land and as per the mandate of Article 141 of the Constitution it is binding on all Courts and Tribunals in the country. While adjudicating the issue the Assessing Officer acted in conformity with the decision of the Apex Court. Once a matter is adjudicated by the Apex Court there can be no debate on it. As such it cannot be said that the matter was debatable at that point of time.
10. There appears to be no cleavage on the aspect of applicability of the Apex Court decision. The learned Senior Vice-President also followed the decision of the Apex Court by holding that the expenditure relating to increase in the capital of the company would be capital in nature. Further he directed the Assessing Officer to verify whether the expenses charged to public issue expenses were relatable to increase in capital only or it included other expenses as well. In my opinion such direction is not possible in the context of assessment made under Section 143(1)(a) of the Act. It is pertinent to note that law prohibits enquiry in the context of summary assessments. Therefore it is not possible on the part of the Tribunal to direct such an enquiry.
In my opinion the learned Judicial Member was correct in holding that in view of the decision of the Hon'ble Supreme Court the expenditure towards public issue of shares is to be treated as capital expenditure.
I, therefore, concur with the decision of the learned Judicial Member.
11. The matter will now go before the regular Bench for deciding the appeal in accordance with majority.
1. Since there was difference of opinion among the Members who originally heard the above appeals, the Hon'ble President has framed the point of difference as under for being dealt with by the Third Member: Whether, on the facts and in the circumstances of the case, the appeal of the Revenue is required to be allowed in part as held by the Id. Sr. Vice-President or is to be fully allowed, as held by the Id. Judicial Member? The Hon'ble Third Member, for the reasons stated in his order dated 16th March, 2006 has concurred with the view expressed by the Judicial Member that the appeal of the Revenue is to be fully allowed.
2. In view of the majority opinion, the appeal by the Revenue is allowed.