TMI Blog1989 (11) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... ts) Surtax Act, 1964, as business expenditure under section 37 of the Income-tax Act or alternatively as expenditure incidental to the carrying on of the business deductible under section 28 of the Income-tax Act while computing income under the head 'Business' ?" At the instance of the Department, the following questions are referred : "(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that (a) reimbursement of salaries paid to gardener, sweeper, watchman ; (b) repairs to buildings and depreciation on buildings ; (c) depreciation on furniture given to the employees ; and (d) payment of water charges, should not be taken into account in computing the addition under section 40A(5) ? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in holding that weighted deduction under section 35C is permissible on Rs. 1,26,420 and Rs. 1,16,812 representing reserve for bad debts and depreciation ?" Learned standing counsel for the Income-tax Department, Sri Suryanarayana Murthy, has submitted that all the questions stated above are covered by the judgments of this court. Learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by issuing bonus shares, the result is the same, namely, that there is increase in the capital of the company and, therefore, the said judgment of this court squarely applies. Sri Ratnakar, learned counsel for the assessee, on the other hand, contends that the said judgment of this court relates to expenditure incurred in raising of additional capital by equity shares and inasmuch as the question in this case relates to expenditure incurred in raising of additional capital by issue of bonus shares to the existing shareholders, it does not cover the question raised herein. According to learned counsel, the question is covered in favour of the assessee by the judgment of this court in Warner Hindustan Ltd. v. CIT [1988] 171 ITR 224. He says that, by issuing bonus shares, no additional amount is received by the company and, therefore, different considerations should govern. Section 37 of the Income-tax Act provides, inter alia, that any expenditure not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tible in arriving at its total income for the assessment year 1973-74 ?" These questions were answered in favour of the assessee. In that case, the assessee incurred an expenditure of Rs. 18,000 by way of legal and consultation fees in connection with the issue of bonus shares and Rs. 22,500 by way of fees to the Registrar of Companies for increasing its authorised capital and claimed deduction of the said amounts in computing its profits for the assessment year 1973-74. The Income-tax Officer disallowed the claim holding the same to be of capital nature. On appeal, this view was confirmed by the Appellate Assistant Commissioner. On further appeal to the Appellate Tribunal, the decision of the appellate authority was confirmed and, at the instance of the assessee, the questions mentioned above were referred to the High Court for opinion. While dealing with the first of the above-noted questions, the Division Bench of this court of which one of us (Jeevan Reddy J.) was a party, held (at p. 229) : "the expenditure in question was not laid out in connection with issuance of the bonus shares." It further observed (at p. 229): "It cannot be said that this expenditure was incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistrar of Companies for obtaining permission for raising the authorised capital cannot be treated as capital expenditure. At page 695 : Two questions were decided in that case. One related to the fees paid to the Registrar for obtaining permission for raising the authorised capital, which was held to be revenue expenditure. This aspect has already been dealt with by us hereinbefore. The other question decided related to the deductibility of legal and consultation fees paid in connection with the issue of bonus shares. Before issuing bonus shares, it was explained in that case, the assessee had to obtain legal and technical advice and some small expenditure was incurred in that behalf. The legal and technical opinion pertained to the question whether bonus shares should be issued or not. In that sense, the expenditure was unconnected with the bonus shares actually issued. They could as well not have been issued after obtaining the said opinion. In this case, it is not the fee paid to lawyers as in that case, but it is brokerage and other commission paid in connection with the actual issue of additional shares. We are, therefore, unable to see the relevance of the principle of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of declaring dividends, the assessee thought it fit to issue bonus shares and since the expenditure incurred in connection with the declaration of dividends was an allowable expenditure, the same would be the position in respect of expenditure incurred in connection with bonus shares. With respect, we cannot agree with this reasoning. However, to ascertain the nature of the expenses incurred, the Bombay High Court took into consideration the grounds of appeal, treated the same as an annexure to the reference and observed that the expenditure was made under the head "Printing and stationery and postage and telegrams". Observing that this expenditure cannot be said to have been incurred for purposes of raising any additional capital and that it was spent or expended in the normal course of business, it held that the said expenditure cannot be treated as being of capital nature. Reference is also made to Federal Bank Ltd. v. CIT [1989] 180 ITR 241 (Ker). In that case, a banking company, which was the assessee, incurred certain expenditure in connection with the enhancement of the authorised capital and claimed deduction of the same. The Income-tax Officer disallowed the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to ascertain on which side of the line the outlay in any particular case might reasonably be held to fall. These tests are generally efficacious and serve as useful servants ; but as masters they tend to be over-exacting. (iii) The question in each case would necessarily be whether the tests relevant and significant in one set of circumstances are relevant and significant in the case on hand also. Judicial metaphors are narrowly to be watched, for, starting as devices to liberate thought, they end often by enslaving it. The idea of 'once for all' payment and 'enduring benefit' are not to be treated as something akin to statutory conditions ; nor are the notions of 'capital' or 'revenue' a judicial fetish. What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business. The expression asset or advantage of an enduring nature' was evolved to emphasise the element of a sufficient degree of durability appropriate to the context. There is also no single definitive criterion which, by itself, is determinative whether a particular outlay is capital or revenue. The 'once for all' pay ..... 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