1995 (9) TMI 16 - HC - Income Tax

Summary

Issues:
1. Whether expenditure incurred by a finance company for raising share capital is allowable as revenue expenditure?
2. Whether money can be considered stock-in-trade of a leasing and financing company?
3. Whether disallowance of expenditure can be restricted to the amount invested in fixed assets?

Analysis:
1. The case involved a dispute regarding the allowability of expenditure incurred by a finance company for raising share capital as revenue expenditure. The Tribunal rejected the application, stating that the findings did not give rise to any referable question of law. The expenditure in question was related to a public issue of share capital, with a portion already allowed as revenue expenditure. The argument was that the increase in share capital was essential for carrying on the business, making the expenditure revenue in nature. However, the court held that obtaining capital through share issuance results in an enduring benefit for the business, classifying it as capital expenditure. The decision was supported by precedents like India Cements Ltd. v. CIT and Bharat Carbon and Ribbon Mfg. Co. Ltd. v. CIT.

2. The second issue pertained to whether money could be considered the stock-in-trade of a leasing and financing company. The court referenced CIT v. Nainital Bank Ltd., where cash was considered the stock-in-trade of a banking business. However, the context was specific to a trading loss due to dacoity, not cash raised through share capital. The court concluded that cash raised through share capital is not stock-in-trade for such companies, supporting the Tribunal's decision.

3. The final issue questioned whether the disallowance of expenditure could be limited to the amount invested in fixed assets. The court dismissed this argument, emphasizing that any accretion to capital through share issuance benefits the business, regardless of the specific line of activity. The court also distinguished a previous case, CIT v. Kisenchand Chellaram (India) P. Ltd., where the expenditure was found to be solely for the purpose of business without a capital element. Ultimately, the court upheld the Tribunal's decision and dismissed the tax case petition, without awarding costs.