TMI Blog2008 (3) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... hase the shares and would paid interest at the rare of 21 per cent from the date money was remitted into the shares of the company till date of purchase. In view of this order of the Company Law Board, the company had purchased 56,100 shares of the minority shareholders and paid additional compensation of Rs. 21,14,000 in addition to the face value of Rs. 5.61 lakhs. The company as per the direction of the Company Law Board had reduced the authorised share capital by Rs. 5.61 lakhs and the additional compensation of Rs. 21,14,000 was claimed as deduction in the profit and loss account. To the query raised by the Assessing Officer, the assessee explained that the compensation had been paid to get rid of minority shareholders who were creating obstacles in the smooth functioning of the company and the compensation paid was thus to facilitate the management and conduct of the business more efficiently and profitably and, therefore, it was allowable as deduction. The Assessing Officer was not satisfied. It was held by him that the amount paid by the assessee for purchase of its own equity shares couldn't be allowed as revenue expenditure and, accordingly, he disallowed the claim, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that by making the purchases of shares, holding of the majority group had substantially increased and, therefore, expenditure incurred was capital expenditure. The expenditure had also resulted into some enduring advantage to the company. It was also argued that the decision of the Company Law Board was not binding on the Income-tax Authorities because the said decision could not overrule the provisions of Income-tax Act. The expenditure incurred was in relation to capital structure of the company and, therefore, it was capital in nature. She placed reliance on the judgments of Hon'ble Supreme Court in case of L.H. Sugar Factory Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293 and in case of Assam Bengal Cement Co. Ltd. v. CIT [1955] 27ITR 34. 2.4 We have perused the records and considered the rival contentions carefully. The dispute raised is regarding allowability of expenditure incurred by the assessee-company towards compensation for purchase of shares held by the minority shareholders. The minority shareholders held 56,100 shares in the company with face value of Rs. 5.61 lakhs. They had also advanced certain loans to the company, which were not converted into share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier without paying interest. 2.5 The dispute is whether the sum of Rs. 21,14,000 could be allowed as revenue expenditure. The authorities below held that the expenditure was capital expenditure as the same related to the capital structure of the company. Reliance had been placed on the judgment of Hon'ble Supreme Court in case of Brooke Bond India Ltd. in which it was held that fees paid to Registrar of the Companies for expansion of capital base of the company was capital expenditure. The case of the assessee is that the payment for purchase of shares had been made to the minority shareholders to remove the obstructions/obstacles caused by them to the business and it was, therefore, allowable as revenue expenditure as the same had not resulted into creation of any assets of enduring advantage. Reliance has been placed on the judgment of Hon'ble Supreme Court in case of Bikaner Gypsums Ltd. and the judgment of Hon'ble High Court of Allahabad in case of Muir Mills Co. Ltd. 2.6 We have carefully gone through the judgments cited by the ld. AR for the assessee. In case of Bikaner Gypsum's Ltd., Hon'ble Supreme Court held that expenditure incurred for removal of any restriction/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rusal of the order of Company Law Board shows that the board in the said order had clearly observed that normally the fair market value of shares is required to be valued by a valuer but considering the peculiar facts of this case where payments had been made periodically over a period of time, the Board decided that in addition to the face value, interest at the rate of 21 per cent from the date of investment will be required to be paid towards the consideration for purchase of shares. 2.7 It is thus clear that the amount paid by the assessee though termed as compensation is in fact the price paid for purchase of shares held by the minority shareholders. Therefore, the question basically is whether the payment made for purchase of shares from the shareholders can be considered as revenue expenditure. The payment obviously is in relation to change in the capital structure of the company and this aspect has already been considered by the Hon'ble Supreme Court in case of Brooke Bond India Ltd. in which it was held t4at expenditure incurred in connection with expansion of capital base of the company was capital expenditure. If the expenditure incurred for expanding the capital base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny Law Board towards use of funds. This is an interest on money taken from the shareholders and used by the company for the purpose of business. Since the interest liability accrued only on the direction of the Company Law Board, this liability in our view, will be allowable as revenue expenditure for the relevant year. The Assessing Officer will, therefore, verify the claim and allow the interest payment relating to the loans taken by the assessee from the shareholders, on direction of the Company Law Board. The claim of the assessee is thus partly allowed. 3. The ground No. 2 is regarding addition of Rs. 3,17,724 on account of employees' contribution towards PF and not deposited in time under section 36(1)(va). The Assessing Officer had made the disallowance on the ground that the same had not been deposited within time limit prescribed under the relevant statute. CIT(A) confirmed the disallowance. 3.1 Before us, the ld. AR for the assessee pointed out that most of the payments had been made within the grace period of 5 days after the due date, which is allowable as deduction following the judgment of Hon'ble jurisdictional High Court of Delhi in case of CIT v. Modi Spg. Wv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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