By TIOL News Service

ERNAKULAM, JAN 04, 2019: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether a Bank extending financial services, would be entitled to amortisation of preliminary expenses in connection with the issue of shares for public subscription. YES IS THE VERDICT.

Facts of the case:

The assessee bank had preferred present appeal, challenging the action of ITAT in having declined amortisation of expenses incurred in connection with the issue of public subscription of shares u/s 35D for reason of the assessee being not an 'industrial undertaking'.

High Court held,

++ as far as amortization of expenses are concerned, it is noted that by Finance Act, 2008 w.e.f April 01, 2009 there was an amendment of Section 35D by Section 8 of the Finance Act. The assessee's counsel would contend that there being a substitution, the amendment would have to be deemed to be retrospective. The Revenue's counsel however, takes through the Notes on Clauses of Finance Bill, 2008 and the Memorandum Explaining the Provisions in the Finance Bill, 2008, which indicates that the proposed amendment seeks to substitute the words "industrial undertaking" with the word "undertaking" and the words "industrial unit" with the word "unit", wherever they occur in the said section. This is intended to provide benefit of amortisation of specified post commencement preliminary expenses to all sectors for the extension of an undertaking or the setting up of a new unit. In these circumstances, there cannot be any necessary intention found from the statute especially since what were covered under sub-clause (ii) of Section 35D(1) was only "industrial undertakings". This Court is of the opinion that without granting any retrospectivity to the said amendment, it has to be look at the manner in which the "industrial undertaking" has been dealt with by the various High Courts in the context of the I-T Act; to find whether the assessee, a Bank extending financial services, would be entitled to amortisation of preliminary expenses in connection with the issue of shares for public subscription;

++ in case of Alikunju, M.A.Nazeer Cashew Industries, this Court was concerned with the issue whether the construction of a lodging house would be considered as an "industrial undertaking". Therein the provision was one which granted exemption to gains arising on transfer of land and building forming part of industrial undertaking; when invested in setting up another industrial undertaking. The assessee had an ice factory; the land and buildings of which were acquired by the Government. The consideration was treated as long term capital gains as against which, the assessee claimed exemption under Section 35D on the ground that he had invested the capital gains in the construction of a lodging house. This Court found that the running of a lodge would be an industrial undertaking within the meaning of Section 35D. Similarly, in case of Computerised Accounting and Management Service Pvt. Ltd., the question came to be considered was as to whether "manufacture or production of an article or thing" would extend to a business in computerised accounting and management services. The assessee therein was engaged in preparing information, through mechanical process; with the aid of computers, to be supplied to various parties after processing the data furnished by their clients in raw form. The activity carried on by the assessee was found to come under the meaning of the term "manufacture or production" used u/s 32A of the I-T Act. Hence, respectfully following the Division Bench decisions of this Court, this Court would answer the question in favour of assessee, finding it to be eligible for the claim u/s 35D.

(See 2019-TIOL-35-HC-KERALA-IT)