The fee paid under the Companies Act for increasing the share capital is an expenditure of capital nature and not admissible as business expenditure.

S.P.Goyal, J.

1. The assessee, a closely held company, is engaged in the manufacture and sale of hosiery and textile needles. After obtaining approval of the Government of India in 1961, it raised a loan of Rs. 55 lakhs from Messrs. Groz-Beckert International, a Swiss Company. During the assessment year 1973-74, it paid the second instalment of the loan and claimed loss of Rs. 91,366 on its remittance because of the devaluation of the Indian currency twice, once in the year 1966 and again in the year 1971. Both these items of Rs. 76,666 and Rs. 14,700 were disallowed by the Tribunal holding it to be an expenditure of capital nature.

2. The assessee increased its share capital from Rs. 45 lakhs to Rs. 1 crore and for doing so paid a fee of Rs. 8,250 under the Companies Act. This expenditure was claimed as business expenditure by the assessee. Its claim was turned down up to the Tribunal stage. However, on application by the assessee, the following three questions were referred to this court with the statement of the case :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in disallowing the claim for loss of Rs. 76,666 on account of devaluation of the Indian currency in the assessment year 1973-74?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in disallowing the loss of Rs. 14,700 incurred at the time of remittance of the second instalment of loan obtained in foreign currency ?

3. Whether, on the facts and in the circumstances of the case, the fee of Rs. 8,250 paid to the Registrar of Companies was admissibls as a business expenditure ? "

3. So far as the law points contained in the first two questions are concerned, the learned counsel for the parties have agreed that the same course has to be adopted as was done in the earlier decision of this court between the same parties rendered on September 14, 1979, and reported as Groz-Beckert Saboo Ltd. v. CIT [1981] 127 ITR 608.

4. As regards question No. 3, the learned counsel for the assessee contended that the fee paid under the Companies Act to increase the share capital was a business expense and in support of his contention relied upon the decision of the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52 and another of the Madras High Court in CIT v. Kisenchand Chellaram (India) Pvt. Ltd. [1981] 130 ITR 385. None of the two decisions, however, supports the contention of the learned counsel as both of them are distinguishable on facts. In India Cements Ltd.s case [1966] 60 ITR 52 (SC), the finding was that the loan of Rs. 40 lakhs had been taken to be utilised as working capital. As it was held to be a regular expenditure, the amount of Rs. 84,633 spent towards stamp duty, registration fee, lawyers fee, etc., was also held to be a business expense. Similarly, in Kishan Chands case [1981] 130 ITR 385 (Mad), the assessee had taken on lease three buildings and the money spent on them for their improvements was claimed and allowed as revenue expenditure. As the assessee had not acquired any capital assets and the buildings were taken on lease for business purposes, the expenditure was rightly allowed as business expenditure. In the present case, the expenditure has been incurred on strengthening the capital structure of the company. Any amount spent on the acquisition of capital nature obviously would also be an expenditure of capital nature and not of revenue nature. Similar matter came up for consideration directly before a Division Bench of the Calcutta High Court in Brooke Bond India Ltd. v. CIT [1983] 140 ITR 272 and the expenditure incurred on raising share capital was disallowed in the following terms (at pp. 273 and 274 headnote):

" Held, that the Tribunal had found that the assessee had itself stated in the grounds of appeal before the Tribunal that by the expenditure, the capital base of the assessee company was reinforced on a permanent basis, which was the main pu