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1997 Supreme(SC) 369
1997(2) Supreme 728
SUPREME COURT OF INDIA
S.C. Agrawal and G.B. Pattanaik, JJ.
Brooke Bond India Limited -Appellant
versus
Commissioner of Income Tax, West Bengal-III, Calcutta -Respondents
Civil Appeal No. 5771 (NT) of 1983
Decided on 27-2-1997
IMPORTANT POINT
Expenses incurred in connection with the issue of fresh lot of shares is a capital expenditure and not the revenue expenditure.
Headnote:Income Tax Act, 1961-Capital Expenditure-Expenses incurred in connection with issue of fresh lot of shares-It is capital expenditure-Tribunal rightly held assessee not entitled to disallowance of such expenses.
Held : It is no doubt true that before the Appellate Assistant Commissioner as well as before the Tribunal it was submitted on behalf of the assessee that increase in the capital was to meet the need for working funds for the assessee-company. But the statement of case sent by the Tribunal does not indicate that a finding was recorded to the effect that the expansion of the capital was undertaken by the assessee in order to meet the need for more working funds for the assessee. We, therefore, cannot proceed on the basis that the expansion of the capital was undertaken by the assessee for the purpose of meeting the need for working funds for the assessee to carry on its business. In any event, the abovequoted observations of this Court in M/s. Punjab State Industrial Development Corporation Ltd., Chandigarh (supra) clearly indicate that though the increase in the capital results in expansion of the capital base of the company and incidentally that would held in the business of the company and may also help in the profit making, the expenses incurred in that connection still retain the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company. (Para 5)
JUDGMENT
In this appeal, by certificate granted by the High Court under Section 261 of the Income Tax Act, 1961 (hereinafter referred to as the Act ), the following question referred to the Calcutta High Court by the Income Tax Tribunal (hereinafter referred to as the Tribunal ) was answered in favour of the Revenue and against the assessee :
"Whether on the facts and in the circumstances of the case, the Tribunal was right in sustaining the disallowance of Rs. 13,9..,305/- being expenses incurred in connection with the issue of fresh lot of shares in 1967?"
2. The question relates to the assessment year 1969-70 and the relevant account year ended on June 30, 1968. The assessee is a public limited company. It issued ordinary shares of Rs. 16,75,000/- of Rs. 10/- each at a premium with a view to increase its share capital and, in that connection, it incurred an expenditure of Rs. 13,99,305/- which amount was claimed by it as deductible expenses. The said deduction was disallowed by the Income Tax Officer on the view that the expenditure incurred by the assessee was on the capital account. The said view of the Income Tax officer was affirmed by the Appellate Assistant Commissioner and the Tribunal. The High Court, while upholding the view of the Tribunal, has held that the expenditure incurred by the assessee in issuing shares with a view to increase its capital could not amount to revenue expenditure and would fall under capital expenditure. The High Court has placed reliance on the observations of this Court in India Cements Ltd. v. Commissioner of Income Tax, Madras1, and it did not agree with the view taken by the Madras High Court in Commissioner of Income Tax, Tamil Nadu-I v. Kisenchand Chellaram (India) P. Ltd.2.
3. Dr. Debi Pal, the learned senior counsel appearing for the appellant-ass1essee, has submitted that the High Court was in error in holding that the expenses incurred by the assessee in issuing the shares with a view to increase its capital did not constitute revenue expenditure. According to the learned counsel, the said view of the High Court is not in consonance with the law laid by this Court in Empire Jute Company Ltd. v. Commissioner of Income Tax3; Commissioner of Income Tax, Bombay-II v. Associated Cements Co. Ltd.4 and Alembic Chemical Works Co. Ltd. v. Commissioner of Income Tax, Gujarat5. The learned counsel has also invited out attention to the decisions of the High Courts of Andhra Pradesh, Kerala and Karnataka which have taken the same view as that taken by the Madras High Court in Kisenchand Chellaram (India) P. Ltd. (supra). (See : Warner Hindustan Ltd. v. Commissioner of Income Tax (A.P.)6; Hindustan Machine Tools Ltd. (No. 3) v. Commissioner of Income Tax, Karnataka-II7, and Federal Bank Ltd. v. Commissioner of Income Tax, Kerala8.
4. We find that this matter has come up for consideration before this Court in M/s. Punjab State Industrial Development Corporation Ltd., Chandigarh v. Commissioner of Income Tax, Patiala9. In that case, the question under consideration was whether an amount of Rs. 1,50,000/- paid to the Registrar of Companies as filing fee for enhancement of capital was not revenue expenditure. The Court has taken note of the decisions of the Madras, Andhra Pradesh, Karnataka and Kerala High Courts to which reference has been made by Dr. Pal as well as the judgment under challenge in this appeal and the judgment of the High Courts taking the same views that taken in the impugned judgment. This Court has taken note of the decisions in Empire Jute Company Ltd. (supra) as well as India Cements Ltd. (supra). While holding that the amount of Rs. 1,50,000/- paid to the Registrar of Companies as filing fee for enhancement of the capital was not revenue expenditure, this Court has said :
"We do not consider it necessary to examine all the decisions in extenso because we are of the opinion that the fee paid to the Registrar for expansion of the capital base of the company was directly related to
