THE COMMISSIONER OF INCOME TAX vs. M/S P.S.I DATA SYSTEM LTD.

ITR/3/2001HC KeralaKLHC01019189200126 September 2017Author: HONOURABLE MR.JUSTICE ANTONY DOMINIC4 pages
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What were the facts?

This is an Income Tax Reference filed by the Commissioner of Income-Tax, Karnataka-III, Bangalore, against M/s FSI Data Systems Ltd., Bangalore. The reference concerns two questions of law arising from an order of the Income Tax Appellate Tribunal, Cochin Bench, in ITA No.415/COCH/91. The specific assessment year(s) are not explicitly stated for both questions, but the second question refers to Assessment Year 1986-87. The dispute involves the allowability of expenditure incurred in connection with the issue of equity shares and the assessee's entitlement to deduction under Section 32AB of the Income Tax Act.

What did the High Court hold?

The High Court answered the first question against the assessee and in favour of the Revenue, citing the Apex Court's judgment in Punjab State Industrial Development Corporation Ltd. v. Commissioner of Income-Tax [225 ITR 792]. This implies that expenditure incurred in connection with the issue of equity shares is not allowable as revenue expenditure. Regarding the second question, the Court noted that the Tribunal had previously upheld a similar claim for deduction under Section 32AB for Assessment Year 1986-87 in its order in ITA No.398/1991 dated 11.04.1995. As this earlier order of the Tribunal was accepted by the Revenue and had attained finality, the High Court saw no reason to take a different view and answered the second question in favour of the assessee. The reference was disposed of by answering the questions of law as aforesaid.

What were the issues?

The Tribunal had to decide two questions of law: 1. Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the expenditure incurred in connection with the issue of equity shares is allowable as revenue expenditure? This question turns on the classification of expenditure as revenue or capital. 2. Whether, on the facts and circumstances of the case, the Tribunal was correct in law in holding that the items manufactured by the assessee did not fall within item No.22 of the Eleventh Schedule to the Income Tax Act as it stood during the relevant time, and so the assessee is entitled for deduction u/s 32AB? Contentions: Assessee: The assessee argued that the expenditure on issuing equity shares is revenue expenditure and that its manufactured items do not fall under item No.22 of the Eleventh Schedule, entitling it to deduction under Section 32AB. Revenue: The Revenue contended that the expenditure on issuing equity shares is not allowable as revenue expenditure and that the assessee's manufactured items should be considered within item No.22 of the Eleventh Schedule, disentitling it to the deduction under Section 32AB.

Which sections of the Income-tax Act were involved?

Section 32AB

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Income Tax Appellate Tribunal, COCHIN BENCH

Antony Dominic, J. 1. aHeard the learned Senior Counsel for the Revenue and the learned counsel for the respondent assessee.

2.

In this reference under the Income Tax Act, the two questions that are referred for the opinion of this Court

The order continues below.

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