TMI Blog1981 (10) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... e manufacture and marketing of perfumery compounds, aromatic chemicals and essences. The companies wanted to amalgamate. The process of amalgamation involved W.J. Bush Products Ltd. going into liquidation with all its assets being taken over by the other company, viz., A. Boake Roberts and Company (India) Ltd., the latter emerging under a new name, M/s. Bush Boake Allen (India) Ltd., Madras, after the amalgamation. The merger of the two businesses and the amalgamation of the two companies in the manner aforesaid involved legal expenses and court expenses, amounting in all to Rs. 30,905 in the year ended December 27, 1970, relating to the assessment year 1971-72. The break-up of the expenses are set out in the assessment order as under: Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law: " Whether Rs. 28,970.50, being the expenses incurred by the assessee in connection with the amalgamation of M/s. W. J. Bush Products Ltd. with it, should be allowed as a revenue expenditure for the assessment year 1971-72 ? " Learned counsel for the department, Mr. J. Jayaraman, submitted that the nature of the legal and court expenses, which are claimed to be deductible in this case, must be considered in the light of the transaction to which that expenditure related, viz., amalgamation of two, companies and the merger of two business concerns in one. Learned counsel submitted that even as the expenditure incurred for the purchase of a business at a valuation is an item of capital outgoing, any expenditure incurred for the mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e outgoing in all these cases, must be regarded as capital outlay and not as revenue expenditure. On the other side, again as an elementary proposition, it may be said that all current or day to day or running expenses in a business must be regarded as items of revenue expenditure. The proposition advanced by Mr. Jayaraman was that the legal and court expenses should not be examined in isolation to decide whether they are capital or revenue item, but their character must be judged in relation, to the particular legal transactions or court proceedings to which those expenses relate. He seemed to suggest that if legal fees and court expenses were incurred for the purpose of aiding a taxpayer to acquire a capital asset, such as a business or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y went in for a substantial loan of Rs. 40 lakhs from a financial house for a major expansion of its undertaking. The loan was secured by a charge on the company's fixed assets. The amount was advanced by the financial house on certain terms as to interest. For putting through this transaction the company had to incur vakil's fees for drafting the mortgage bond, other legal expenses, charges for stamps, registration charges, for obtaining the certified copy of the mortgage deed charges for preparing an indemnity bond and the like. The expenses incurred for legal charges amounted to Rs. 84,633. The question in the relevant assessment of the company was whether the expenses can be allowed as revenue items. The stand taken by the I.T. dept. wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any for the allowance of legal charges representing the fees paid to the Registrar of Companies for increasing the company's capital. The argument addressed before the court on behalf of the I.T. dept. in that case was that the legal expenditure contributed to the increase in the capital of the company and, therefore, it could not be allowed as a revenue item. This court rejected that contention, following the decision of the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52. The court held that the money was spent only for the purpose of the business and there was no capital element in the expenditure. They took the view that merely because the fees paid to the Registrar of Companies related to a raising of the company's capital, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in the present case must, as rightly held by the Tribunal, be regarded as constituting (revenue/business) expenditure. Learned standing counsel for the department cited in the course of his argument, the decision of the Supreme Court in Sitalpur Sugar Works Ltd. v. CIT [1963] 49 ITR 160 (SC). That was a case where an assessee, who had a sugar factory in one place, incurred considerable expenditure in shifting the situs of the factory to another place. In claiming the expenditure as revenue expenditure the company contended that the shifting itself was for the purpose of increasing its profits in a better location, and a mere change of place did not bring about any new capital asset in existence. The Supreme Court, however, to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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