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Issues involved: The judgment addresses the following issues: 1. Allowability of payment to Textile Commissioner as business deduction u/s 37(1) of the Income Tax Act, 1961. 2. Treatment of expenditure for acquiring tenancy rights as capital nature. 3. Classification of expenses incurred in issuing bonus shares as capital nature. 4. Determination of bank guarantee commission payment as capital expenditure.
Issue 1 - Payment to Textile Commissioner: The court held that the payment of Rs. 80,000 to the Textile Commissioner for failing to meet export obligations is allowable as a business deduction u/s 37(1). This decision was supported by previous court rulings emphasizing the business nature of the expenditure. Issue 2 - Tenancy Rights Expenditure: The court determined that the payment of Rs. 45,000 for acquiring tenancy rights in a shop was of a capital nature based on various precedents. It was established that acquiring such rights constitutes a capital asset, leading to the expenditure being classified as capital in nature. Issue 3 - Bonus Shares Expenses: The court ruled that the expenses of Rs. 2,676 incurred in issuing bonus shares are of a capital nature. Citing a previous case, it was concluded that expenses related to bonus shares contribute to the permanent structure of the company and are not deductible as revenue expenditure. Issue 4 - Bank Guarantee Commission: The court found that the payment of Rs. 70,392 as bank guarantee commission is a capital expenditure. It was determined that this expenditure was necessary for bringing capital assets into existence and forming part of the cost of acquisition, thus qualifying as a capital expenditure. The judgment concluded by disposing of the reference without costs and suggested that the Tribunal may consider granting depreciation or development rebate on the relevant amounts, if applicable, without issuing mandatory directions.
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