TMI Blog1988 (4) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the assessee that this question has to be answered in the negative, i.e., against the assessee and in favour of the Revenue, in the light of the decision of this court in Vazir Sultan Tobacco Co. Ltd. v. CIT [1988] 169 ITR 35, pertaining to this very assessee for a previous assessment year. We shall, therefore, state the facts only in so far as they are relevant to the first question. In the accounting year relevant to the assessment year 1976-77 concerned herein, the assessee, Vazir Sultan Tobacco Co. Ltd., raised additional capital by issuing ordinary shares. On this account, it claimed deduction in a total sum of Rs. 20,82,994 on account of underwriting commission charges, brokerage, printing charges for prospectus, application forms, etc., servicing charges paid to various banks and other miscellaneous expenses. The assessee claimed this as revenue expenditure deductible under section 37 of the Income-tax Act, which was rejected by the Income-tax Officer. Both the appellate authorities have confirmed the Income-tax Officer's order. The expenditure of Rs. 20,82,994 was incurred by the assessee in connection with, and as incidental to, the raising of additional capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said decision of the Calcutta High Court, the facts of which case are practically identical with the facts of our case. We may point out that the Gujarat High Court also has taken the same view in Shree Digvijay Cement Co. Ltd. v. CIT [1982] 138 ITR 45 (Guj). It was held that the expenditure incurred by a company in raising new shares is expenditure of a capital nature. It was observed that the shares issued by a company constitute its capital, that these shares are an integral part of the permanent structure of the company and are not in any way connected with its working capital. Mr. Y. Ratnakar, learned counsel for the assessee, however, contended that the said expenditure must be held to be deductible under section 37 of the Act, and for that purpose relied upon certain decisions with which we shall presently deal. He referred us in the first instance to Schedule VI to the Companies Act, 1956, which prescribes the form of balance-sheet which a company is obliged to prepare at the end of each financial year by section 211 of that Act. Learned counsel submitted that in this form, the share capital is shown in the column of "liabilities" and not in the column of "assets". He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... influenced by the decision of the Supreme Court in Empire jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC). The ratio of this decision cannot be extended, in our opinion, to expenses incurred directly for the purpose of, and in connection with, raising additional capital. The next decision relied upon by Mr. Ratnakar is India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC). In this case, the assessee obtained a loan of Rs. 40 lakhs from the Industrial Finance Corporation, securing it by charge on its fixed assets. In that connection, it spent a sum of Rs. 84,633 towards stamp duty, registration fee, lawyer's fee, etc., which it claimed as business expenditure. This was allowed by the Supreme Court holding that the act of borrowing money was incidental to the carrying on of the business and that the loan was not an asset or an advantage of enduring nature. It was observed that the expenditure was incurred for securing the use of money for a certain period, and that a loan obtained cannot be treated as an asset or an advantage for the enduring benefit of the business of the assessee, and hence the expenditure incurred in connection therewith cannot be treated as "capital expenditure". We are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue expenditure. In our opinion, the principle of the said decision has no application to a straight case like the one before us, where the expenditure is directly incurred for raising additional capital for the company. Strong reliance is then placed upon the decision of this court in Warner Hindustan Ltd. v. CIT [1988] 171 ITR 224. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he capital field, and was only meant to facilitate the assessee's trading operations more profitably or efficiently, it was observed, it cannot be disallowed. The main thrust of the reasoning was to emphasise that the test of enduring benefit is neither an invariable nor mechanical test. Applying the principles enunciated in this decision too, it must be held that the expenditure concerned herein is capital in nature, since it was laid out for adding to the capital structure of the assessee, besides acquiring an asset of enduring nature. The decision of the Supreme Court in State of Madras v. Coelho (G. J.) [1964] 53 ITR 186 (SC), turned upon the particular language employed in clause (e) of section 5 of the Madras Plantations Agricultural Income-tax Act, 1955. According to the said clause, expenditure "laid out or expended wholly and exclusively for the purpose of plantation" was deductible and, therefore, it was held that the interest paid on moneys borrowed for the purpose of purchasing the plantations should be deducted thereunder. The last decision cited is in CIT v. Madras Auto Service Ltd. [1985] 156 ITR 740 (Mad), a decision of the Madras High Court. In this case, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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