M/S SUBEX LTD vs. THE ASSISTANT COMMISSIONER OF INCOME TAX

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ITA/705/2017HC KarnatakaKAHC01041060201701 October 2021Bench: S.SUJATHA,RAVI V HOSMANI6 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court held that share premium cannot be part of 'Capital Employed' for Section 35D deduction, and cost of acquisition of companies is not an asset for such deduction. It also held that Section 35D was disturbed in subsequent years as per law.

What were the facts?

The assessee, M/s Subex Ltd., appealed against an ITAT order concerning assessment year 2011-12. The appeal raised multiple substantial questions of law regarding deductions under Section 35D, set-off of losses, and MAT credit.

What were the issues?

Whether share premium and cost of acquisition of companies qualify for deduction under Section 35D, and whether brought forward losses and MAT credit were correctly dismissed as premature.

Which sections of the Income-tax Act were involved?

Section 35D,Section 260-A

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 1ST DAY OF OCTOBER, 2021

PRESENT

THE HON’BLE MRS.JUSTICE S.SUJATHA

AND

THE HON’BLE MR. JUSTICE RAVI V. HOSMANI

I.T.A.No.705/2017

BETWEEN :

M/s SUBEX LTD., RMZ ECOWORLD DEVARABISANAHALLI, OUTER RING ROAD, BENGALURU-560 103 REP BY ITS DIRECTOR, SRI ASHWIN CHALAPATHY, S/O SRI NARAYANA VENKATA CHALAPATHY AGED ABOUT 45 YEARS PAN: AABCS9255R

...APPELLANT

(BY SRI CHYTHANYA K.K., ADV.)

AND :

THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(2) ROOM No.238, 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU-560 095

…RESPONDENT

(BY SRI JEEVAN J. NEERALGI, ADV. A/W SRI T.N.C.SRIDHAR, ADV. FOR SRI K.V.ARAVIND, ADV.)

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THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 12.04.2017 PASSED IN ITA NO.544/BANG/2016, FOR THE ASSESSMENT YEAR 2011-2012 PRAYING TO 1. FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED ABOVE. 2. ALLOW THE APPEAL AND SET-ASIDE THE IMPUGNED ORDER OF THE ITAT, BENGALURU 'B' BENCH IN ITA NO.544/BANG/2016, DATED 12.04.2017 FOR THE ASSESSMENT YEAR 2011-2012.

THIS APPEAL HAVING BEEN HEARD AND RESERVED, COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:

J U D G M E N T

This appeal arising against the order of the Income Tax Appellate Tribunal [ITAT] “B” Bench, Bengaluru dated 12.04.2017 passed in ITA No.544/Bang/2016 relating to the assessment year 2011-12.

2.

This appeal was admitted to consider the following substantial questions of law:

“1. Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in holding that the share premium collected on the issue of Share Capital by the appellant cannot be taken as part of the ‘Capital Employed’ for allowing deduction under Section 35D of the Income- tax Act, 1961?

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2.

Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in holding that the cost of acquisition of companies cannot be treated as asset for allowing deduction under Section 35D of the Act?

3.

Whether in the facts and in the circumstances of the case, the Tribunal is right in law in impliedly holding that the deduction under Section 35D be disturbed in the subsequent years?

4.

Whether in the facts and in the circumstances of the case, the Tribunal is right in law in dismissing the ground on set- off of brought forward losses as premature?

5.

Whether in the facts and in the circumstances of the case, the Tribunal is right in law in dismissing the ground on MAT credit as premature?”

Re. substantial question of law No.1: 3. The points raised herein are squarely covered by the judgment of the Hon'ble Apex Court in

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Berger Paints India Ltd., V/s. Commissioner of Income-tax, Delhi-V, [(2017) 79 taxmann.com 450 (SC)]. Hence, this substantial question of law is answered against the assessee and in favour of the Revenue.

Re. substantial question of law No.2: 4. This substantial question of law is squarely covered by the decision of this Court in ITA No.684/2015. The relevant paragraph is quoted hereunder: “Thus, in the light of these judgments and in terms of the Companies Act, 1956, debenture includes debenture shares and the bonds being interest bearing instruments which represent a loan, FCCB bonds are instruments issued to investors for raising funds which is repayable after certain period which is nothing but a debt instrument. This view is supported by the judgment of the High Court of Madras in case of Commissioner of Income-tax-III Chennai V/s. PVP Ventures

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Ltd., [(2012) 211 Taxman 554 (Mad.)] which has attained finality in view of the dismissal of the SLP [C] C.C.2512/2014. filed by the Revenue against the said judgment. For the aforesaid reasons, the finding of the Tribunal that the increase or decrease in liability on account of fluctuation in foreign exchange as on the date of the balance sheet would increase or decrease the liability of the assessee and therefore, the gain or loss would be on capital account and not taxable cannot be faulted with. Hence, the challenge made by the Revenue on this issue is answered against the Revenue and in favour of the assessee.”

In view of the aforesaid, this substantial question of law is answered in favour of the assessee and against the Revenue.

Re. substantial question of law No.3: 5. It is not in dispute that Section 35D has been disturbed in the subsequent years in a manner known to law. Hence, this question is answered in favour of the Revenue and against the assessee.

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Re. substantial question of law Nos.4 and 5:

6.

These substantial questions are consequential in nature and the same is to be considered by the Assessing Officer while giving effect to the orders passed in the previous years of five years block period. The Assessing Officer shall accordingly consider the issues in these questions in giving effect to the orders passed for earlier years.

Substantial question of law Nos.1 and 3 are answered against assessee and in favour of the Revenue. Substantial question of law No.2 is answered in favour of the assessee and against the Revenue.

In the result, appeal is partly allowed as indicated above.

Sd/- JUDGE

Sd/- JUDGE NC.

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