1. On an application under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question for the opinion of this court:

“In the interest of the circumstances of the case, was the Tribunal right in treating the increase in the production capacity from 6 lakhs head lamps per annum to 12 lakhs head lamps per annum as expansion and not extension as envisaged in Section 250 (sic) of the Income-tax Act, 1961, and consequently holding that the assessee was not entitled to deduction under Section 35D in respect of expenses as public issue.”

2. The relevant assessment years are 1987-88 and 1988-89. During the course of assessment, the Assessing Officer noticed that the assessee had raised its capital by way of public issue and in the process had incurred Rs. 6,30,177. The amount of public issue was to be used for expansion of business. He claimed it as a revenue expenditure, but the claim was rejected by the Assessing Officer holding that the expenditure is a capital expenditure.

3. In appealbefore the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) has allowed only Rs. 18,500 as revenue expenditure out of total expenditu