1996 (1) TMI 45 - HC - Income Tax

Summary

Issues:
1. Determination of whether certain expenditure incurred by the assessee-company in connection with the issue of right shares to existing shareholders is capital or revenue in nature.

The High Court of Madras was tasked with determining the nature of certain expenditure incurred by an assessee-company in connection with the issue of right shares to existing shareholders. The assessee, a public limited company engaged in manufacturing electronic instruments, claimed that the expenditure was revenue in nature, while the Income-tax Officer and the Appellate Assistant Commissioner treated it as capital expenditure. The Tribunal also upheld the capital nature of the expenditure, leading to an appeal before the High Court. The key question was whether the expenditure of Rs. 38,387 was capital or revenue in nature for the purpose of computing total income.

The assessee argued that the expenses incurred were administrative in nature and should be considered revenue expenditure. They relied on decisions from the Bombay High Court and various other cases to support their contention. On the other hand, the Department contended that the expenditure was capital in nature, citing decisions from the Allahabad High Court and other sources. The High Court considered the arguments presented by both parties and examined relevant case law to reach a conclusion.

In analyzing the issue, the High Court referred to several decisions, including CIT v. Kisenchand Chellaram (India) P. Ltd., Warner Hindustan Ltd. v. CIT, and CIT v. Aurofood Pvt. Ltd. These cases discussed the deductibility of expenses related to raising capital and issuing shares, emphasizing the distinction between capital and revenue expenditure. The court also highlighted the decision in Lucas T. V. S. Ltd. v. CIT, where fees paid to the Registrar of Companies were treated as revenue expenditure.

After considering the arguments and precedents, the High Court held that the expenditure incurred by the assessee on fees paid to share registrars and solicitors in connection with raising further capital should be treated as revenue expenditure. The court relied on previous decisions and the reasoning of the Andhra Pradesh High Court to support its conclusion. Consequently, the question referred to the High Court was answered in the negative, in favor of the assessee, allowing the deduction as revenue expenditure. No costs were awarded in this matter.