SABYASACHI MUKHARJI, J.

( 1 ) IN this reference under Section 256 (2) of the I. T. Act, 1961, as directed by this court, the following question has been referred to this court :" Whether, on the facts and in the circumstances of the case, the Tribunal was right in sustaining the disallowance of Rs. 13,99,305 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 accounting year ended on 30th June, 1968. The assessee issued 16,75,000 ordinary shares of Rs. 10 each at a premium and on that account incurred an expenditure of Rs. 13,99,305 and claimed the same as deductible expenses. The ITO disallowed the claim for deduction of Rs. 13,99,305 as he was of the view that the expenditure incurred by the assessee was on capital account.

( 3 ) BEING aggrieved by the aforesaid order of the ITO, the assessee went up in appeal before the AAC. The AAC referred to the order of the ITO and observed that the assessee had submitted that the expenditure was in respect of business already being carried on by the assessee-company whose profits had been subject to assessment for tax purposes and, therefore, the expenditure incurred long after the incorporation of the company was in no way an expenditure for the formation of the company and as such was an allowable deduction. The AAC was unable to accept this view and he had accordingly upheld the order of the ITO.

( 4 ) BEING aggrieved, the assessee went up in further appeal before the Tribunal, The Tribunal referred to the relevant contentions and referred to the relevant authorities upon which reliance was placed before the Tribunal. Thereupon, the Tribunal went on to observe as follows :" Expenditure incurred in connection with the increase in or addition to the existing share capital definitely affects the profit-making apparatus of the company and adds to the capital cost of the company. Any alteration in or addition to the capital structure of the company essentially involved capital expenditure. In fact, the assessee itself has stated in the grounds of appeal that by this expenditure the capital base of the company was reinforced on a permanent basis. This admission by itself would spell out an advantage of an enduring nature. The purpose for which the share capital was raised is not material and would not assist the assessee at all. Whether the expenditure was incurred for buying capital assets or for meeting day-to-day requirements of the company is beside the point. Any expenditure incurred in connection with the alteration of or addition to the existing share capital of the company must be treated as on capital account not only in the light of the settled principle of law but also of the well-known principles of accountancy. It has been held by the Supreme Court in the case of Coal Shipments P. Ltd. , that an item of disbursement can be regarded as capital expenditure when it is referable to fixed capital and that it would be on revenue account when it can be attributed to circulating capital. It has been held therein that the words ' permanent and enduring' are only relative terms and are not synonymous with 'perpetual' or 'ever lasting'. Similar observations have been made by the Supreme Court in the case of Ashok Leyland Ltd. to the effect that an expenditure made with a view to bringing into existence an asset or advantage for the enduring benefit of a trade can be treated as expenditure properly attributable not to revenue but to capital. It is true that the concept regarding capital and revenue expenditure has undergone a metamorphosis. However, there is no authority till to-day warranting allowance of any expenditure relating to the raising of or addition to the share capital of a company. The decision of the Supreme Court in the case of Gotan Lime Syndicate is entirely distinguishable and is not applicable to the facts before us. "

( 5 ) IN the premises, after the initial

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