Expenditure incurred on legal and consultation fees for the issue of bonus shares and fees paid to the Registrar of Companies for increasing authorized capital are not capital in nature and are deductible.

( 1 ) EIGHT questions have been referred under section 256 (1) of the Income-tax, 1961, four at the instance of the assessee and four at the instance of the Department. Out of the eight questions, five questions are concluded one way or the other by the decisions of this court or the retrospective amendment of the law, as the case may be. With a view to clear the ground, we shall first refer to these questions and also point out in what manner thy are concluded. The first question is :"whether the Tribunal was right in holding that the words regular assessment occurring in section 214 refer only to the original assessment or the first assessment made by the Income-tax Officer and not to any order which may be passed pursuant to an appellate order ?"this question was referred at the instance of the assessee. But it is concluded against the assessee by the decision of this court in Nizams Religious Endowment Trust v. ITO [1981] 131 ITR 239. Following the said decision, the said question is answered in the affirmative, i. e. , against the assessee and in favour of the Revenue.

( 2 ) THE second question, also referred at the instance of the assessee, is :"whether surtax payable by the assessee for the year under the Companies (Profits) Surtax Act, 1964, is deductible or is otherwise to be reckoned in arriving at the total income of the assessee for the assessment year 1973-74 ?"this question too is concluded against the assessee by the decision of this court in Vazir Sultan Tobacco Co. Ltd. v. CIT [1988] 169 ITR 35. Following the said decision, we answer the said question in favour of the Revenue and against the assessee.

( 3 ) THE third question referred at the instance of the Revenue is :"whether the Appellate Tribunal was justified in law in holding that the technical fees paid to M/s. Warner Lambert Pharmaceutical Co. of U. S. A. for the assessment year 1973-74 was revenue expenditure ?"in CIT v. Warner Hindustan Ltd. [1986] 160 ITR 217, this court held, in the case of this vary assessee, that the technical fees so paid constitutes capital expenditure. Accordingly, we answer this question in the affirmative, i. e. against the assessee and in favour of the Revenue (sic ). It is, however, clear that whatever benefits the assessee is entitled to on the footing that the expenditure was incurred on acquisition of plant and machinery, it will certainly be entitled to and may be allowed, if not already allowed.

( 4 ) THE fourth question, referred at the instance of the Revenue, is :"whether the Tribunal was justified in law in holding that the pre-paid expenses and pre-paid insurances constituted assets for the purpose of calculating the capital under rule 19a ?"this question has to be answered in favour of the assessee, following the decision of this court in CIT v. Warner Hindustan Ltd. [1986] 160 ITR 217,228. Accordingly, this question is answered in the affirmative, i. e. , in favour of the assessee.

( 5 ) THE fifth question, referred at the instance of the Revenue, is :"whether the assessee is entitled to deprecation under section 32 (1) on scientific research assets relating to the business carried on by it the cost of which has been allowed as deduction in full under section 35 in an earlier year, in the facts and circumstances of the case ?"this question has to be answered in favour of the Revenue and against the assessee in the light of the amendment to section 35 (2) (iv) brought in with retrospective effect from 1/04/1962, by the Finance (No. 2) Act, 1980. The three questions that remain for consideration are the following :"whether, on the facts and in the circumstances of the case, the sum of Rs. 18,000 paid by way of legal and consultation fees in connection with the issue of bonus shares constituted expenditure which was deductible in computing the assessees total income for the assessment year 1973-74 ?" (referred at the instance of the assessee ). "whether, on the facts and in the circumstances of th