Agrocargo Transport Ltd. vs Commissioner of Income Tax

Thanikkachalam, J.—At the instance of the assessee, the Tribunal referred the following question for the opinion of this court u/s 256(1) of

the Income Tax Act, 1961 :

Whether, on the facts and in the circumstances of the case, the expression ''industrial undertaking'' and ''industrial unit'' according to section 35D

includes an undertaking set up for transportation of goods by trucks ?

The assessee is a company engaged in the business of transporting goods. In the previous year ended June 30, 1977, corresponding to the

assessment year 1977-78, the assessee had increased the fleet of trucks by increasing its share capital. The assessee claimed that 1/10th of the

total expenditure of Rs. 72,614 incurred on the above amounting to Rs. 7,261 should be allowed as a deduction u/s 35D(1)(ii) of the Act. This

was disallowed by the Income Tax Officer in the view that the deduction u/s 35D was allowable only in connection with the extension of the

industrial undertaking and, therefore, the deduction could not be granted to the assessee as no new industrial unit has been set up by the assessee

in this year. On appeal, the Appellate Assistant Commissioner confirmed the order passed by the Income Tax Officer.

On further appeal, the Appellate Tribunal found that section 35D referred to the amortisation of certain capital expenses in respect of extension

of an industrial undertaking or in connection with the setting up of a new industrial unit. But the expressions ""industrial undertaking"" or ""industrial

unit"" had not been defined. The contention of the assessee was that these expressions must be liberally construed to include industrial undertakings,

since ""industrial concern"" in section 2(c) of the Industrial Development Bank of India Act, 1964, included transport of passengers or goods and the

definition of ""industry"" in the Law Lexicon indicated that transportation of goods may fall within the definition of ""industry"" in common parlance. The

contention of the Revenue was that other sections in the Act such as section 32A (investment allowance), section 33 (development rebate), section

80HH (deduction in respect of profits and gains from newly established industrial undertakings in backward areas), section 80J (deduction in

respect of profits and gains from newly established industrial undertakings) indicate that industrial undertakings covered by the Act do not include

transport undertakings. It was also pointed out that section 2(7) of the Finance Act defined an ""industrial company"" as one engaged in the

manufacture or processing of goods and this did not include transport of goods. The Appellate Tribunal was of the opinion that in the absence of a

definition the intention of Parliament has to be ascertained as to the scope of this expression only with reference to the general scheme of this Act

read with the Finance Act. Since there was no provision for granting any deduction in respect of transport undertakings, and the emphasis was on

the production of the goods and not distribution of goods, it was difficult to adopt a wider meaning of ""industry"" which may include hospitals, public

utility services and even an office of the chartered accountant. For the purpose of the provisions of the Income Tax Act conferring relief from tax,

the Appellate Tribunal followed a canon of construction that in respect of exemptions or deductions from liability to tax it was for the assessee to

establish that the statute specifically provides for this case. Hence, the Appellate Tribunal did not allow the claim of the assessee for the assessment

year 1976-77 by an order dated July 1, 1980, in I.T.A. No. 1674/(Mds) of 1979. For the same reasons, the claim for the subsequent year 1977-

78 was rejected by order dated September 18, 1981, in I.T.A. No. 1887/(Mds) of 1980. The assessee had not asked for a reference for this

assessment year 1976-77.

Before us, learned counsel appearing for the assessee submitted that the words ""industrial undertakings"" were not defined in the Act. According

to learned counsel, in section 35D what was mentioned was, any expenditure specified in sub-section (2) incurred after the commencement of the

business in connection with the extension of the industrial undertaking or in connection with the setting up of a new industrial unit, the assessee is

entitled to amortisation u/s 35D of the Act. Learned counsel submitted that in section 35D(1), clause (ii) it is not stated that industrial undertaking

means that which is manufacturing or processing any goods. According to learned counsel, the assessee is an industrial undertaking as per the

Industrial Disputes Act, as per the Law Lexicon, etc., and, therefore, the assessee should not be insisted to specify whether the assessee is an

industrial undertaking indulging in manufacturing or processing of goods. However, learned standing counsel appearing for the Department

submitted that the words ""industrial undertaking"" occurred in various provisions in the Act, whereunder it is clearly stated that ""industrial

undertaking"" means, an undertaking which manufactures or produces any article. Therefore, according to learned standing counsel, if there is no

manufacturing activity or processing, such an undertaking cannot be considered as an industrial undertaking. It was also pointed out that the

transport business was not shown as an industrial undertaking anywhere in the Act. According to learned standing counsel, in fact u/s 32A, the

transport business was specifically excluded while considering the industrial undertaking. For these reasons, learned standing counsel submitted that

since the assessee is not an industrial undertaking, it is not entitled to amortisation u/s 35D of the Act.

As per the provisions of section 35D 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 as specified in sub-section (2), (i) before the commencement of the business, or (ii) after

the commencement of his business in connection with the extension of his industrial undertaking or in connection with his setting up of 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 for each of the ten successive previous years beginning with the previous year in which the business commenced or, as

the case may be, the previous year in which the extension of the industrial undertaking is completed or the new industrial unit commences

production or operation. The expenditure referred to in sub-section (1) is enumerated in sub-section (2) of section 35D. Therefore, unless the

assessee satisfied with sub-sections (1) and (2) of section 35D amortisation as claimed by the assessee cannot be granted.

In the present case, it remains to be seen that the expenditure in connection with the extension of his industrial undertaking was incurred in the

assessment year 1976-77 and in that assessment year the assessee claimed amortisation u/s 35D which was denied by the Department. The

assessee did not challenge the Department''s action in refusing to grant amortisation u/s 35D in that assessment year. The present assessment year,

viz., 1977-78, is the second year. In this assessment year also, the Department refused to grant amortisation. The Tribunal accepted the order

passed by the authorities below since the assessee has not established that the assessee is manufacturing or processing any new article. As we have

already seen, unless the assessee satisfies both the conditions prescribed u/s 35D, the benefit under the said section would not be available to the

assessee. There is no material on record, in the present assessment year under consideration, to show that the assessee had furnished any

particulars with regard to the expenditure incurred so as to enable the assessee to say that the expenditure would fall under sub-section (2) of

section 35D. Learned counsel appearing for the assessee submitted that the Department has not considered the applicability of sub-section (2) of

section 35D. It remains to be seen that unless the assessee furnishes particulars to show that the expenditure would fall under sub-section (2) of

section 35D, it would not be possible for the Department to advert to that aspect. Since the assessee has not satisfied the condition prescribed

under sub-section (2) of section 35D, the assessee would not be entitled to amortisation u/s 35D of the Act even if the assessee proves that it is an

industrial undertaking as contemplated u/s 35D(1) of the Act.

Under such circumstances, we consider that the Tribunal was correct in holding that the assessee is not entitled to amortisation u/s 35D of the

Act. However, we consider that the question as framed and referred to us would not reflect the real issue arising in this tax case. Therefore, we

would reframe the question as under :

Whether, on the facts and circumstances of the case, the Tribunal was correct in holding that the assessee is not entitled to amortisation u/s

35D(1) of the Income Tax Act, 1961 ?

For the foregoing reasons, we answer the question in the affirmative and against the assessee. No costs.