JUDGMENT
D. Manmohan, Judicial Member
1. This appeal by the Revenue is directed against the Order of the CIT(Appeals)-XXI, Bombay and it pertains to the assessment year 1989-90. The grounds raised before us are interconnected which are extracted below for the sake of convenience :–
“G. 1 : On the facts and circumstances of the case and in law, the learned CIT(A) erred in directing to allow an amount of Rs. 22,140 as revenue expenditure made towards stamp duty by assessee without appreciating the facts on which the findings of Assessing Officer in the assessment order was based, treating the said expenses as preliminary expenses and restricted the deduction at 1/10th under Section 35D of the Income-lax Act, 1961.
G.2 : On the facts and in the circumstances of the case and in law the learned CIT(A) erred in directing to allow balance 9/10th of expenditure amounting to RS. 53.29 lakhs as revenue expenditure incurred for raising loans through the convertible debenture issues without appreciating the facts on which the Assessing Officer in the assessment order was based, treating the said expenses as Preliminary expenses and restricted the deduction 1/10th of Rs. 59.21 lakhs under Sections 35D of the Income-tax Act, 1961 and the learned CIT(A) failed to take into account the decision of the Bombay High Court in the case of Bombay Burmah Trading Corporation 145 ITR 793, Karnataka High Court in the case of Motor Industries Ltd. 173 ITR 374 and Andhra Pradesh High Court in the case of Vazir Sultan Ltd. 174 ITR 689.”
2. In respect of the transitional previous year consisting of 18 months, the assessee filed a return declaring income of Rs. 1.47 crore, which was revised to Rs. 1.51 crores whereas the assessment was completed on a total income of Rs. 1.55 crores. The assessee issued debentures and incurred expenditure of Rs. 22,100 towards Stamp Duty in respect of debenture allotment and also incurred other expenditure of Rs. 59.22 lakhs, with reference to issue of debentures. In the original return, the assessee claimed deduction of 1/10th of the total expenditure whereas in the course of assessment proceedings, the assessee claimed that the expenditure is allowable in full. However, the Assessing Officer has restricted the deduction to 1/10th of the total expenditure, presumably under Section 35D of the Income-tax Act.
3. Aggrieved, the assessee company contended before the CIT(Appeals) that the expenditure incurred on Stamps for allotment letters to its debenture holders and listing charges are allowable as Revenue expenditure and it was wrongly treated by the Assessing Officer as preliminary expenses. Similarly, it was contended that the expense incurred on raising finance/loans through debentures is fully allowable as Revenue expenditure and, therefore, the allowance should not be restricted to 1/10th of the total claim.
4. Before the CIT(Appcals), the learned counsel for the assessee submitted that the expenditure do not fall under the category of expenses falling under Section 35D of the Income-tax Act. It was further submitted that the expenses incurred for procurement of loans has to be treated as Revenue expenses in the light of the decision of the Apex Court in the case of India Cements Ltd v. CIT [1966] 60 ITR 52, the entire expenditure incurred during this year is allowable as deduction. Reliance was also placed on the decision of the Hon’ble Bombay High Court in the case of Premier Automobiles Ltd. v. CIT [1971] 80 ITR 415 and the decision of the Supreme Court in the case of Jeewanlal (1929) Lid. v. CIT [1969] 74 ITR 753.
5. In the light of the aforesaid decisions, the learned CIT(Appeals) accepted the claim of the assessee and directed the Assessing Officer to allow the balance 9/10th of the expenditure also in the year under consideration. Aggrieved, the Revenue is in appeal before us.
6. The learned Departmental Representative submitted that Section 35D(2)(c)(iv) is clearly attracted in the instant case, which reads as under :–
“35D. (1) Where an assessee, being an Indian company or a person, (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in Sub-section (2)…..,
(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 1/10th of such expenditure….
(2) The expenditure referred to in Sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely;
(c) where the assessee is a company, also expenditure–
(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.”
7. He submitted that specific provisions of the Income-tax Act shall override the general provisions/residuary provisions. In the instant case, the expenditure being allowable under Section 35D of the Act, the same cannot be considered/allowed under Section 37(1) of the Income-tax Act, 1961.
8. On the other hand, the learned counsel for the assessee submitted that the issue is fully covered in favour of the assessee by the decision of the ITAT, ‘A’ Bench, Mumbai in the assessee’s own case for the assessment year 1992-93 (ITA No. 50/Bom/96 dated 6-5-1996). He also relied upon the decision of the Calcutta High Court in the case of CIT v. East India Hotels Ltd. [2001] 252 ITR 860, 119 Taxman 235.. He has also taken us through a Circular issued by the CBDT (Circular No. 56 dated 19-3-1971) wherein in it was stated that the provisions for amortisation is not intended to supersede any other provision in the Income-tax law under which the expenditure is allowable as a deduction against profits. Para 45 of the Circular explaining the object, scope and effect of the Taxation Laws (Amendment) Act, 1970 reads as under :–
“45. It may be noted that the provision for amortisation is not intended to supersede any other provision in the income-tax law under which the expenditure is allowable as a deduction against profits. For instance, where a company which is already in business, incurs expenditure on issue of debentures, and such expenditure is admissible as a deduction against profits of the year in which it is incurred by virtue of the decision of the Supreme Court in the case of India Cement Ltd. [1966] 60 ITR 52, Section 35D will not have the effect of bringing that expenditure within the scope of the expenditure to be amortised against profits over a ten year period. As a corollary to this, where any expenditure has been included for the purpose of amortisation under Section 35D on a claim being made by the assessee in that behalf, such expenditure will not qualify for deduction under any other provision of the Act for the same or any other assessment year vide Sub-section (6) of Section 35D.”
9. The learned counsel for the assessee submitted that the Circular was taken into consideration by the Hon’ble Calcutta High Court on identical facts. Thus, the decision of the Hon’ble Supreme Court in the case of India Cement Ltd. (supra) is applicable to the instant case in which event the entire expenditure incurred by the assessee on issue of debentures is allowable as deduction under Section 37(1) of the Act. He relied upon the decision of the Hon’ble Bombay High Court in the case of CIT v. Goodlas Nerolac Paints Ltd. [1991] 188 ITR 1 at page 5, 55 Taxman 484 in support of his contention that a subsequent Bench of the Tribunal should not take a different view on the same set of facts in the larger public interest.
10. Joining the issue, the learned Departmental Representative submitted that the decision of the ITAT (cited supra) was not rendered by taking into consideration the applicability of Section 35D of the Act through a specific ground was urged in that regard as noted in para 16.1 of the Order of the ITAT. He further submitted that the Circular issued by the CBDT cannot override the provisions of the Act and in the instant case, the Circular issued by the CBDT supports the contention of the Revenue rather than the assessee, inasmuch as, the assessee claimed in its original return that it is entitled to amortise the expenditure incurred on issue of debentures under Section 35D of the Act, and thus, the case falls under the exception mentioned in para 45 of the Circular. The learned Departmental Representative, vide letter dated 11-6-2002, brought to our notice that a Miscellaneous Application was filed against the Order of the I.T.A.T., passed for the assessment year 1992-93. Though the M.A. was filed in 1996, it was notdisposed of till date. As could be seen from the M.A. filed before the Tribunal, the Revenue contends that the Order of the Tribunal suffers from a mistake apparent from record since the decision was rendered without giving any finding on the alternative submission made by the Department on the strength of Section 35D of the Act.
11. We have enquired into the matter. It has come to our notice that the Registry could not locate the file till recently and, therefore, the M.A., could not be posted for hearing. Thus, the M.A., filed against the order of the I.T.A.T., in respect of the assessment year 1992-93 is still pending for disposal.
12. We have heard the rival submissions and carefully perused the record. The admitted facts are that the debentures were issued only to raise the funds required for, expansion of the project. The fact that the assessee originally claimed deduction of only 1/10th of expenditure indicates that the expenditure incurred is otherwise allowable under Section 35D of the Act only, by spreading over the expenditure to 10 years. The assessee has nowhere specified that the expenditure falls outside the purview of Section 35D. The contention of the learned counsel for the assessee is mainly based upon the Circular issued by the CBDT and, in particular, the observations in para 45 of the Circular which is already extracted by us. It may be noticed that the Circular does not say that an expenditure which is otherwise allowable under Section 35D of the Act can also be considered under Section 37(1) of the Act. The words, “For instances, where a company which is already in business, incurs expenditure on issue of debentures, and such expenditure is admissible as a deduction against the profits of the year in which it is incurred, by virtue of the decision of the Supreme Court in the case of India Cements Ltd. (supra) Section 35D will not have the effect of bringing that expenditure within the scope of expenditure to be amortised” clearly indicate that only such expenditure which falls outside the purview of Section 35D is allowable under Section 37(1) of the Act in the light of the decision of the Apex Court cited supra. If the company incurs expenditure on issue of debentures, when it is already in business, it is not covered either under Section 35D(1)(i) or (ii) of the Income-tax Act, because what is contemplated under Section 35D is an expenditure incurred before commencement of the business orafter the commencement of business but in connection with the expansion of the undertaking or in connection with setting up a new unit. On the other hand, the assessee has specifically made a claim for amortisation and, therefore, such expenditure will not qualify for deduction under any other provision of the Income-tax Act as stated in para 45 of the Circular issued by the CBDT.
13. As per the decision of the Supreme Court in the case of India Cements Ltd. (supra) the expenditure incurred on issue of debentures is allowable under Section 37(1) of the Income-tax Act. What is contemplated was that any expenditure which is not an expenditure of the nature described in Sections 30 to 36 of the Income-tax Act, can be considered for allowance under the residuary provision, i.e., Section 37(1). A plain reading of Section 37(1) shows that in order to qualify for deduction under Section 37(1), it should be an expenditure which is not of the nature described in Sections 30 to 36 of the Act. However, in the instant case, it is not in dispute that the expenditure incurred by the asscssee is of the nature described in Section 35D of the Act and, therefore, the assessee is debarred from making a claim under Section 37(1) of the Act.
14. It is well settled that when there is a specific provision dealing with a particular claim, the same has to be considered under the specific provision and not under the general/residuary provision. This aspect obviously was not considered by the ITAT, Bombay Bench in the assessee’s own case for the assessment year 1992-93 and thus, it is distinguishable on facts. The Hon’ble Calcutta High Court has decided this issue in favour of the assessee by making the following observation :–
“But how a deduction which is allowable otherwise as Revenue expenses
can be denied after the insertion of Section 35D, the learned counsel failed
to explain.”
It may be noticed that the facts in the aforesaid case do not indicate that the expenditure is specifically allowable under Section 35D of the Act, and at any rate, the issue as to whether in the face of specific section dealing with the expenditure, whether the residuary provision can be applied or not was not considered in the light of the decided case law on this issue and, thus, the case law is distinguishable. The decision in the case of Liberty Cinema v. CIT [1964] 52 ITR 153 at p. 156 (Cal.) and host of other decisions on this aspect appears to have not been brought to the notice of the Hon’ble Calcutta High Court.
15. We may reiterate that the Circular issued by the CBDT (para 45) has nowhere stated that the expenditure allowable under Section 35D should be considered under Section 37(1). On the other hand, it merely clarifies that an expenditure which is otherwise allowable under Section 37(1) should not be disallowed merely because it does not fall under Section 35D of the Act. For instance, expenditure incurred by a going company for its existing business is not deductible under Section 35D and such expenditure is allowable, even after the insertion of Section 35D, under Section 37(1) of the Act. Thus, it can be seen that the aforecited cases are distinguishable on facts.
16. Upon careful consideration of the matter, we arc of the view that the assessee is entitled to amortisation of 1/10th of the expenditure under Section 35D read with Section 35(2)(c)(iv) of the Income-tax Act to the extent of 1/10th of the total expenditure as has been claimed in the original return. Under the circumstances, we set aside the order of the CIT(Appeals) and restore the order of the Assessing Officer.
17. In the result, the appeal filed by the Revenue is allowed.