TMI Blog1979 (3) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... ndur, as a fee for the increase of its authorized capital from rupees one crore to rupees five crores. During the assessment proceedings, the assessee-company claimed the allowance of this Rs. 30,000 as revenue expenditure incurred by it in the course of carrying on its business, under s. 37(1) of the I.T. Act, 1961. This claim of deduction was disallowed by the ITO, the AAC and then finally by the Tribunal. During the same accounting year, the assessee-company paid an amount of Rs. 5,000 as tax under the provisions of Uttar Pradesh (Nagar Kshettra) Bhumi Aur Bhawan Kar Adhiniyam, 1962, in respect of the land and buildings used for the purpose of its business. Even this amount was claimed as deduction on account of revenue expenditure, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The contention of the assessee in this connection is based on the analogy of the view taken by the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52, which was a case of an expenditure incurred in obtaining a loan. As against this, the contention of the respondent is that the decision given by the Supreme Court in India Cements Ltd. is not applicable to the facts of this case because, unlike raising of loan, the raising of share capital cannot be considered as anything pertaining to the running business of the company. It was contended that if share capital of the company is raised, it results in an advantage of enduring nature and since the expenditure in question is made once and for all, the expenditure in question must be tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred either for extension of the business or for the substantial replacement of its equipment. Such expenditure can be looked at either from the point of view of what is acquired or from the point of view of what is the source from which the expenditure is incurred. If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent one. Therefore, the increase in the limits of its authorised capital would not only increase its capital but would also result in an advantage of enduring nature. This advantage is so enduring that it will last till the company itself is alive. Similar test has been applied by Lord Clyde in Robert Addie and Sons' Collieries Ltd. v. IRC [1924] 8 TC 671. The test is : is it an expenditure laid out as part of the process of profit-earning ? or, on the other hand, is it an expenditure necessary for the acquisition of the rights of permanent character, the possession of which is a condition for carrying on its trade at all ? If it is the latter, it would be an expenditure of capital nature. Here the assessee-company wants to carry on an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Industrial Finance Corporation secured by a charge on its fixed assets. In connection with this transaction, it spent a sum of Rs. 84,633 towards stamp duty, registration fees, lawyer's fees, etc., and claimed this amount as revenue expenditure. The Supreme Court held, after reviewing some English and Indian decisions on the subject, that raising of loan cannot be construed as increasing the capital assets of the company because essentially loan was a liability and not an asset, and also because the loan was not an advantage of enduring nature inasmuch as it was required to be repaid. In its judgment, the Supreme Court referred to certain decisions including the above referred decision of the High Court of Bombay in Tata Iron and Steel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability and not an asset, and it was required to be repaid. The cases wherein share capital of a company is proposed to be increased are not the cases which would fulfil these tests, namely, the test of repayment and the test of liability. In fact, by increasing its share capital a company gets more capital to spend on its business and every increase in capital is obviously an advantage of enduring nature. Under these circumstances, we are of the opinion that the decision given by the Supreme Court in India Cements Ltd. [1966] 60 ITR 52 (SC) is not helpful in any manner to the assessee in this case. We, therefore, answer the first question referred to us by the Tribunal by stating that the expenditure of Rs. 30,000 made by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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