M/S SUBEX LTD V. THE COMMISSIONER OF INCOME TAX-III,

ITA/378/2015

AI Insights

This case involves an appeal by M/s Subex Ltd. against the order of the Income Tax Appellate Tribunal, Bengaluru, which upheld the jurisdiction of the Commissioner in exercising revisionary powers under Section 263 of the Income Tax Act. The primary legal issues revolved around the interpretation and application of Section 35D of the IT Act concerning the deduction of certain expenditures related to the extension of industrial undertakings. The tribunal's decision was contested on grounds that the revisionary powers should not apply retrospectively to the assessment year 2008-09, especially when the first year of the five-year block period (2007-08) had not been disturbed. The court examined precedents and statutory interpretations to resolve these disputes.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 754404 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 01-10-2021
• Assessment Year: misc
• Other Referred Cases: Shasun Chemicals and Drugs Ltd. V/s. Commissioner of Income-tax-II, Chennai, Coffeeday Global Ltd. V/s. Additional Commissioner of Income Tax and Another, Principal Commissioner of Income-tax-1 V/s. Deep Industries Ltd., Commissioner of Income-tax-VI, New Delhi V/s. Usha International Ltd., Commissioner of Income-tax V/s. Ashok Leyland Ltd., [and vice versa]
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: JEEVAN NEERALGI; T N C SRIDHAR
• Assessee Lawyers: CHYTHANYA
• Keywords: Assessment Year; Capital Employed; Deduction; Income tax appeal; Revisionary Powers; Share premium
• Section: 143(3); 263; 35D; 260-A

Judgement Text

" IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 01ST 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.378/2015 BETWEEN : M/s SUBEX LTD., RMZ ECOWORLD DEVARABISANAHALLI, OUTER RING ROAD, BENGALURU-560 037 REP BY ITS MANAGING DIRECTOR, SRI SURJEET SINGH, S/O SRI THAKUR SINGH AGED ABOUT 47 YEARS ...APPELLANT (BY SRI CHYTHANYA K.K., ADV.) AND : THE COMMISSIONER OF INCOME TAX-III, C.R.BUILDING, 1ST FLOOR, QUEEN’S ROAD, BENGALURU-560 001 …RESPONDENT (BY SRI JEEVAN J. NEERALGI, ADV. A/W SRI T.N.C.SRIDHAR, ADV. FOR SRI K.V.ARAVIND, ADV.) THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 19.06.2015 PASSED IN ITA NO.689/BANG/2014, FOR THE ASSESSMENT YEAR 2008-2009 PRAYING TO 1. FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED ABOVE. 2. ALLOW THE APPEAL AND SET-ASIDE THE - 2 - IMPUGNED ORDER OF THE ITAT, BENGALURU 'C' BENCH IN ITA NO.689/BANG/2014, DATED 19.06.2015 IN SO FAR AS IT PREJUDICIAL TO THE INTEREST OF THE APPELLANT. 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 is filed by the assessee assailing the order of the Income Tax Appellate Tribunal “C” Bench, Bengaluru [‘Tribunal’ for short] dated 19.06.2015 passed in ITA No.689/Bang/2014 relating to the assessment year 2008-09. 2. The matter was admitted by this Court 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 upholding jurisdiction of the Learned Commissioner in exercising revisionary powers under Section 263 of the IT Act? 2. Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in holding that the - 3 - 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 IT Act? 3. 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 IT Act?” Re. Substantial Question of Law No.1: 3. Learned counsel for the assessee argued that no revision proceedings were initiated relating to the assessment year 2007-08, the first year of the five successive previous years as provided under Section 35D for amortization of certain preliminary expenses. It was submitted that as per Section 35D and the proviso thereof, the assesse shall be entitled for deduction of an amount equal to 1/5th of such expenditure each of the five successive previous years beginning with the - 4 - previous years in which the business commences or as the case may be, the previous year in which the extension of Industrial undertaking is completed or the new Industrial unit commences production or operation. The assessee’s case falling under 35D[1][ii] i.e., after the commencement of the business, in connection with the extension of its undertaking or in connection with the setting up of new Industrial unit, in terms of the said provision, the proceedings initiated under Section 263 for the subsequent years is wholly untenable. 4. Learned counsel for the assessee placing reliance on the judgment of the Hon'ble Apex Court in the case of Shasun Chemicals and Drugs Ltd., V/s. Commissioner of Income-tax-II, Chennai [(2016) 388 ITR 1 SC] submitted that once the position under Section 35D is accepted, the claim of the assessee was found to be justified and allowable under the said provisions on the basis of 1/5th expenditure, the clock had - 5 - started running in favour of the assessee, it had to complete the entire period of five years and benefit granted in the first year could not have been denied in the subsequent years as the block period was five years starting from the Assessment year 2007-08 to assessment year 2011-12. The orders passed under Section 2007-08, the first year of block period of five years having remained undisturbed, Commissioner could not have exercised the revision powers relating to the Assessment year 2008-09. It was argued that in view of the Scrutiny order passed under Section 143[3] of the Act not being revised in the first year of the five years period, revisional power exercised by the Commissioner for the remaining block period of five years is wholly unjustifiable. Admitting that for the Assessment year 2007-08, though proceedings were initiated under Section 154 of the Act an order was passed by the Assessing Officer, confirmed by the Commissioner of Income Tax [Appeals], on further - 6 - appeal before the Tribunal on an alternative relief of tax holiday, the assessee was given relief. Hence, validity of order passed under Section 154 of the Act was not examined by the Tribunal. Be that as it may, it was vehemently argued that post action of the Assessing Officer cannot validate the order of CIT under Section 263 of the Act. 5. Referring to Section 35D [ii], it was contended that cost of project of the assessee could be acquired by two methods. Firstly, by acquiring the assets individually; secondly, acquiring 100% subsidiary shares. Acquiring of 100% subsidiary shares is an extension of undertaking. It was argued that the assessee – company is entitled to deduction of an amount equal to 1/5th of expenditure for each of the five successive previous years beginning with the previous years in which the business commences, or as the case - 7 - may be, the previous year in which the extension of the industrial undertaking is completed. 6. On the contrary, learned counsel for the Revenue, argued that the Commissioner exercised the revisonal powers under Section 263 of the Act to revise the order of the Assessing Officer relating to the Assessment year 2008-09 since Section 154 proceedings were initiated for the first year of the five years block period, i.e., 2007-08, which has culminated in the order of the Tribunal allowing the alternative benefits. Since the assessment order relating to the assessment year 2007-08 was disturbed as per the order passed under Section 154 of the Act, the assessee cannot contend, initiation of revisional proceedings under Section 263 of the Act for the assessment year 2008-09 sans disturbing the assessment order relating to the assessment year 2007-08 is bad in law. Section 35D of the Act deals with the extension of the - 8 - undertaking, not expansion. Thus, it was argued that there is vast difference between expansion and extension. Expansion would relate to another business whereas extension is continuing the same line of business. Acquisition of 100% subsidiary shares of another company is an expansion of business, not extension. Company is different from shareholders; shareholders are not the owners of the fixed receipts of the company albeit shareholders can participate in the management of the company. In this context, the judgment of the Co-ordinate Bench of this Court in the case of Coffeeday Global Ltd., V/s. Additional Commissioner of Income Tax and Another [ITA No.315/2018 & Connected Matters, D.D. 12.03.2021], was referred to. 7. We have considered the submissions of the learned counsel for the parties and perused the material on record. - 9 - 8. Section 263 of the Act during the relevant period reads thus: “Revision of orders prejudicial to revenue. 263. (1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— - 10 - (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include— (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; (b) \"record\" shall include and shall be deemed always to have included all records relating to any proceeding under this Act - 11 - available at the time of examination by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— - 12 - (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. (2) No order shall be made under sub- section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in - 13 - consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.—In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.” 9. Section 35D[2] during the relevant period reads thus: “Amortisation of certain preliminary expenses. 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),— - 14 - (i) before the commencement of his business, or (ii) after the commencement of his business, in connection with the extension of his undertaking or in connection with his setting up a new unit, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the undertaking is completed or the new unit commences production or operation : Provided that where an assessee incurs after the 31st day of March, 1998, any expenditure specified in sub-section (2), the provisions of this sub-section shall have effect as if for the words \"an amount equal to one- tenth of such expenditure for each of the ten - 15 - successive previous years\", the words \"an amount equal to one-fifth of such expenditure for each of the five successive previous years\" had been substituted. (2) The expenditure referred to in sub- section (1) shall be the expenditure specified in any one or more of the following clauses, namely :— (a) expenditure in connection with— (i) xxxxx (ii) xxxxx (iii) xxxxx (iv) xxxxx (b) xxxxx (c) xxxxx (d) xxxxxx (3) Where the aggregate amount of the expenditure referred to in sub-section (2) - 16 - exceeds an amount calculated at two and one-half per cent— (a) of the cost of the project, or (b) where the assessee is an Indian company, at the option of the company, of the capital employed in the business of the company, the excess shall be ignored for the purpose of computing the deduction allowable under sub-section (1) : Provided that where the aggregate amount of expenditure referred to in sub- section (2) is incurred after the 31st day of March, 1998, the provisions of this sub- section shall have effect as if for the words \"two and one-half per cent\", the words \"five per cent\" had been substituted.” 10. In Shasun Chemicals & Drugs Ltd., supra, the Hon'ble Apex Court while considering Section 35D of the Act has held thus: - 17 - “13. In the Income Tax Return which was filed for the Assessment Year 1995-96 the assessee had claimed that it had incurred a sum of Rs.45,51,890/- towards the share issue expenses and had claimed 1/10th of the aforesaid share issue expenses under Section 35D of the Act from the Assessment Years 1995-96 to 2004-05. This claim of the assessee was found to be justified and allowable under the aforesaid provisions and on that basis 1/10th share issue expenses was allowed under Section 35D of the Act. When it was again claimed for the Assessment Year 1996-97, though it was disallowed and on directions of the Appellate Authority, the Assessing Officer made physical verification of the factory premises. He was satisfied that there was expansion of the facilities to the industrial undertaking of the assesseee. It is on this satisfaction that for the Assessment Year 1996-97 also the expenses were allowed. Once, this position is accepted and the clock had started running in favour of the assessee, it had to complete the entire period of 10 years and benefit granted - 18 - in first two years could not have been denied in the subsequent years as the block period was 10 years starting from the Assessment Year 1995-96 to Assessment Year 2004-05. The High Court, however, disallowed the same following the judgment of this Court in the case of Brook Bond India Ltd (supra). In the said case it was held that the expenditure incurred on public issue for the purpose of expansion of the company is a capital expenditure. However, in spite of the argument raised to the effect that the aforesaid judgment was rendered when Section 35D was not on the statute book and this provision had altered the legal position, the High Court still chose to follow the said judgment. It is here where the High Court went wrong as the instant case is to be decided keeping in view the provisions of Section 35D of the Act. In any case, it warrants repetition that in the instant case under the very same provisions benefit is allowed for the first two Assessment Years and, therefore, it could not have been denied in the subsequent block period. We, thus, - 19 - answer question No. 1 in favour of the assessee holding that the assessee was entitled to the benefit of Section 35D for the Assessments Years in question.” 11. In the case of Principal Commissioner of Income-tax-1 V/s. Deep Industries Ltd., [(2016) 67 taxmann.com 6 (Gujarat)], the High Court of Gujarat, while considering the correctness of the order of the Commissioner of Income tax under Section 263 of the Act read with Section 35D of the Act relating to the assessment year 2007-08 observed that, the Tribunal, has recorded that the first year of the claim under Section 35D of the Act was for the assessment year 2007-08 and in that year, the claim of the assessee had been accepted under Section 143[1] and no action under Section 147 or 263 of the Act had been taken in relation to the said assessment year. The benefit claimed relating to the assessment year 2007-08 which was allowed was not disturbed. Subsequently in the - 20 - year 2009-10, the Commissioner of Income Tax has taken the matter in revision under Section 35D, referring to the case of Dy. CIT V/s. Gujarat Narmada Valley Fertilizers Co. Ltd., [(2013) 356 ITR 460], wherein the Hon’ble High Court of Gujarat had recorded that it was an admitted position that the claim under Section 35D of the Act did not arise for consideration for the first time and that since the last several years, the Assessing Officer had allowed such a claim. The Hon’ble Court was of the view that the Tribunal, therefore, correctly held that such claim could not have been suddenly disallowed. The High Court of Gujarat in Deep Industries Ltd., supra has recorded the submissions advanced by the learned counsel for the respective parties. It is observed that the Commissioner of Income Tax has invoked Section 263 of the Act on the ground that the assessee had wrongly claimed the deduction under Section 35D of the Act as it was not an industrial undertaking within the meaning of such - 21 - expression as envisaged under Section 35D of the Act. Considering the fact that in respect of financial year 2006-07 relatable to assessment year 2007-08 the assessee had been granted the benefit of amortization under Section 35D[1] of the Act and no action under Section 147 or 263 of the Act had been taken in relation to the said assessment year. Thus, it has been held that once the claim has been granted by the assessing officer in respect of previous years, such claim cannot be disallowed subsequently without disturbing the decision in the initial year. In that context, it was held that the view adopted by the assessing officer is not a plausible view, it is now well settled that if two views are possible and the assessing officer has adopted one view, the same would not warrant exercise of the powers under Section 263 of the Act. 12. No doubt, in the present case, it is not in dispute that during the first year relating to the - 22 - assessment year 2007-08, Section 154 proceedings were initiated, subsequent to initiation of revisional proceedings under Section 263, the same would not pass the test of law as enunciated by the Hon'ble Apex Court in Shasun Chemicals and Drugs Ltd., supra, since the same being post revision proceedings and has resulted in giving relief to the assessee on some other ground. Even in terms of Gujarat Narmada Valley Fertilizers Co. Ltd., supra, the claim which has been granted by the Assessing Officer could not be disallowed subsequently, without disturbing the decision in the initial year. Post action of the Assessing Officer in modifying the original order would not cure the flaw pointed out in Shasun Chemicals and Drugs Ltd., supra. We answer this issue in favour of the assessee and against the Revenue. Re. Substantial Question of Law No.2: 13. Learned counsel for both sides submit ad idem that this question of law has been considered by - 23 - the Hon'ble Apex Court and answered in favour of the Revenue in Berger Paints India Ltd., V/s. Commissioner of Income-tax, Delhi-V, [(2017) 79 taxmann.com 450 (SC)]. Accordingly, this substantial question of law is answered in favour of the Revenue and against the Assessee. Re. Substantial Question of Law No.3: 14. Section 35D[3] provides that where the aggregate amount of the expenditure referred to in sub- section [2] exceeds an amount calculated at two and one- half per cent of the cost of the project, the excess shall be ignored for the purpose of computing the deduction allowable under Sub-section[1] which is relevant herein. As per the explanation to Section 35D[3], – “(a) “cost of the project” means— (i) in a case referred to in clause (i) of sub-section (1), the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and - 24 - railway sidings (including expenditure on development of land and buildings), which are shown in the books of the assessee as on the last day of the previous year in which the business of the assessee commences; (ii) in a case referred to in clause (ii) of sub-section (1), the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings), which are shown in the books of the assessee as on the last day of the previous year in which the extension of the undertaking is completed or, as the case may be, the new unit commences production or operation, in so far as such fixed assets have been acquired or developed in connection with the extension of the undertaking or the setting up of the new unit of the assessee;” “(b) Capital employed in the business of the company” means – - 25 - (i) in a case referred to in clause (i) of sub-section (1), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the previous year in which the business of the company commences; (ii) in a case referred to in clause (ii) of sub-section (1), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the previous year in which the extension of the undertaking is completed or, as the case may be, the new unit commences production or operation, in so far as such capital, debentures and long-term borrowings have been issued or obtained in connection with the extension of the undertaking or the setting up of the new unit of the company;” “(c) long-term borrowings” means – “(i) any moneys borrowed by the company from Government or the Industrial Finance Corporation of India or the Industrial Credit and Investment Corporation of India or - 26 - any other financial institution 98[which is eligible for deduction under clause (viii) of sub-section (1) of section 36] or any banking institution (not being a financial institution referred to above), or (ii) any moneys borrowed or debt incurred by it in a foreign country in respect of the purchase outside India of capital plant and machinery, where the terms under which such moneys are borrowed or the debt is incurred provide for the repayment thereof during a period of not less than seven years.” 15. A conjoint reading of these provisions would indicate that the phrase “being” employed in explaining the cost of project plays a significant role in answering this question. In the case of CIT V/s. Shree Synthetics Ltd., [(1986) 162 ITR 819 (MP)], the Hon’ble Madhya Pradesh High Court has held thus: “It was not disputed before us that there are the following stages in connection with the issue of shares for public subscription : (1) issue of prospectus and - 27 - invitation to the public to subscribe, (2) making of calls, that is, entertainment of applications by subscribers, (3) acceptance by the company represented by allotment of shares, (4) actual issue of share scrip and entering the names of the shareholders in the register of members ; and (5) expenses incurred after issue, i.e., payment of brokerage and underwriting commission, as also refund of excess amount oversubscribed. The dictionary meaning of the word \" being \" is \"such as, especially, also, etc. \" Therefore, it is illustrative and must be read with reference to the context in which the words are used. In our opinion, this phrase has been used which would include the last stage in connection with the issue of shares, namely, even refund of the amount of over subscription in relation to those shares for which applications were invited. Clause (c) of Sub-section (2) of Section 35D starts with the words \" where the assessee is a company, also expenditure \", which if read with Sub-clause (iv) \" in - 28 - 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\" would indicate that the word \" being \" used here is \" illustrative and not restrictive \". On the contrary, if after the words \" also expenditure\", Sub-clause (iv) would have started with the words \" being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus, in connection with the issue, for public subscription, of shares in or debentures of the company \", the submission of learned counsel for the Revenue would have some force because this word \" being \" as it stands today in the section cannot be read backwards, but has to be read as a whole. Therefore, we are of the opinion that the word \" being \" has been used here by way of illustration and is not restricted only to the words \" underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus. Thus - 29 - questions Nos. (1) and (2) have to be answered in favour of the assessee and against the Department.” 16. In the case of Commissioner of Income-tax- VI, New Delhi V/s. Usha International Ltd., [(2012) 348 ITR 485 (Delhi) (FB)], the Full Bench of Delhi High Court has held thus: “39. In view of the above observations we must add one caveat. There may be cases where the Assessing Officer does not and may not raise any written query but still the Assessing Officer in the first round/ original proceedings may have examined the subject matter, claim etc, because the aspect or question may be too apparent and obvious. To hold that the assessing officer in the first round did not examine the question or subject matter and form an opinion, would be contrary and opposed to normal human conduct. Such cases have to be examined individually. Some matters may require examination of the assessment order or queries raised by the Assessing Officer and - 30 - answers given by the assessee but in others cases, a deeper scrutiny or examination may be necessary. The stand of the Revenue and the assessee would be relevant. Several aspects including papers filed and submitted with the return and during the original proceedings are relevant and material. Sometimes application of mind and formation of opinion can be ascertained and gathered even when no specific question or query in writing had been raised by the Assessing Officer. The aspects and questions examined during the course of assessment proceedings itself may indicate that the Assessing Officer must have applied his mind on the entry, claim or deduction etc. It may be apparent and obvious to hold that the Assessing Officer would not have gone into the said question or applied his mind. However, this would depend upon the facts and circumstances of each case.” 17. The assessee claims that it has acquired two companies viz., M/s. Azure Solutions Ltd., and M/s. Syndesis Ltd. Learned counsel referring to Circular - 31 - No.56 dated 19.03.1971 regarding the taxation laws [Amendment] Act, 1970 – Amortisation of certain preliminary expenses, submitted that the circular would indicate that “cost of project” has been defined to mean that the actual cost of the fixed assets namely, land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings [including expenditure on development of land and buildings], which are shown in the books of the assessee as on the last day of the previous year in which the business of the assessee commences. However, in the Act, phrase used is “being” instead of “namely”. Thus, in terms of the ruling of the Hon’ble High Court of Madhya Pradesh, phrase “being” is illustrative not restrictive. In the consolidation procedures as per the Accounting Standard [AS-21], in preparing consolidated financial statements, the financial statements of the parent and its subsidiaries should be combined on a line by line basis by adding - 32 - together like items of assets, liabilities, income and expenses. 18. It is profitable to quote the relevant paragraph of the ruling in Government of Kerala V/s. Mother Superior Adoration Convent [(2021) 126 taxmann.com 68 (SC)]. ““66. To sum up, we answer the reference holding as under: 66.1. Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. 66.2. When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the Revenue. - 33 - 66.3. The ratio in Sun Export case [Sun Export Corpn. v. Collector of Customs, (1997) 6 SCC 564] is not correct and all the decisions which took similar view as in Sun Export case stand overruled.” 24. This being the case, it is obvious that the beneficial purpose of the exemption contained in Section 3(1)(b) must be given full effect to, the line of authority being applicable to the facts of these cases being the line of authority which deals with beneficial exemptions as opposed to exemptions generally in tax statutes. This being the case, a literal formalistic interpretation of the statute at hand is to be eschewed. We must first ask ourselves what is the object sought to be achieved by the provision, and construe the statute in accord with such object. And on the assumption that any ambiguity arises in such construction, such ambiguity must be in favour of that which is exempted. Consequently, for the reasons given by us, we agree with the conclusions reached by the - 34 - impugned judgments of the Division Bench and the Full Bench.” 19. Placing reliance on the aforesaid judgment, learned counsel for the assessee submitted that the acquisition of 100% subsidiary shares of the two companies has to be construed as cost of project. On the contrary, learned counsel for the Revenue submitted that the shareholder is not the owner of the fixed asset. The phrase “being” has to be interpreted as exhaustive i.e., which are in the nature of fixed assets namely, land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings including expenditure on development of land and buildings, which are shown in the books of the assessee as on the last day of the previous year in which the business of the assessee commences as specified in Explanation [a][ii] to Section 35D[3] of the Act. As such, no fixed assets were acquired by the assessee. 20. The phrase “being” in collinsdictionary.com reads thus: - 35 - “Being is used in non-finite clauses where you are giving the reason for something” In merriam-webster.com, it is defined as under: “Usually used with as, as how, or that; Something that actually exists.” 21. In the case of Commissioner of Income-tax V/s. Ashok Leyland Ltd., [and vice versa] [(2012) 349 ITR 663], Hon’ble Madras High Court has considered the meaning of the phrase “being” and declared that the expenditure that qualified for consideration under Section 35D is restricted by reason of use of phrase “being”. Thus, expenditure incurred in connection with issue of shares and debentures of the company to public subscription, whether qualify for consideration under Section 35D, it has been held that the rates of expenditure which would go for amortization under Section 35D, particularly with reference to clause[c] specifically mentioned therein and nothing beyond, rejecting the reliance placed on the - 36 - decision of the Hon’ble High Court of Madhya Pradesh in the case of Shree Synthetics Ltd., supra. 22. In Coffeeday Global Ltd., supra, the Co- ordinate Bench of this Court has considered the meaning of the word “expansion” and “extension” and it has been held that these words connote different meaning and legislature in its wisdom has used the terms differently under various provisions of the Act itself and therefore, the words cannot be used synonymously. With great respect, we are unable to concur with the judgment of the Hon’ble High Court of Madhya Pradesh inasmuch as the interpretation given to the phrase “being” in Explanation [a][ii] to Section 35D[3] of the Act. In our considered opinion, the word “being” gets colour from the associated words. Preceding word “fixed assets” indicated as land, buildings, leaseholds, plant machinery relates to the nature of assets mentioned therein and the same is exhaustive. Acquisition of companies by acquiring 100% subsidiary shares would not be construed as acquisition - 37 - of fixed assets that were acquired or developed in connection with the extension of industrial undertaking or setting up of new industrial unit of the assessee We concur with the ruling of the Hon’ble High Court of Madras in Ashok Leyland Ltd., supra. 23. The assessee itself stated before the revisional authority under 263 proceedings with regard to computation of cost of project it had incurred, that expenditure towards issue of Global Depository Receipt and Foreign Currency Convertible Bonds was related to extension of industrial undertaking of the assessee; there being no definition of the word “extension” under the Act, the word “expansion” has to be considered as “extension”. Thus, going by meaning assigned to the word “extension”, quite apart from the horizontal expansion in the industrial undertaking, vertical expansion also stands included within the meaning of the term “extension” of the industrial undertaking. It - 38 - was further stated that the assessee has incurred expenditure for the purpose of acquisition of Subex Americas Inc., and Subex UK Limited and the same was incurred for the purpose of expansion of the business. As aforementioned, there being vast difference between “expansion” and “extension”, the arguments of the learned counsel for the assessee, placing reliance on the consolidation procedures as per the Accounting Standard [AS-21], cannot be countenanced. Hence, the substantial question of law No.3 is answered against the assessee and in favour of the Revenue. Substantial questions of law No.1 is answered in favour of the assessee and against the Revenue. Substantial questions of law No.2 and 3 are answered against the assessee and in favour of the Revenue. - 39 - In the result, appeal is partly allowed as indicated above. Sd/- JUDGE Sd/- JUDGE NC. "