2012 (11) TMI 628 - HC - Income Tax

Revenue Expenditure - Expenses relating to Issue of Share Capital - held that - Order of CIT (A) wherein and whereby the Commissioner has allowed the claim of deduction, except in the case of printing expenses, lead manager fees and advertisement expenses, totalling to Rs.3,08,791/-, said expenses are capital in nature, the same has been rightly rejected by the Commissioner of Income Tax (Appeals) - Commissioner has given categorical finding in respect of other expenses that the nature of the expenses is only revenue, as those expenses are to meet out the day today transactions of the business of the assessee - Order of CIT(A) based on the report received from the Assessing Authority, which has been accepted by the Tribunal and there being no contradiction in the finding of the Tribunal, no reason to interfere with the order - In the result, appeal is dismissed and questions of law raised are answered against the Revenue.

Summary

Issues:
1. Whether expenses related to the issue of share capital are eligible for deduction as revenue expenditure?
2. Whether expenses incurred in relation to the issue of share capital, which might otherwise be allowable as regular business expenditure, can be allowed as such?

Analysis:

Issue 1:
The appellant claimed share issue expenses of Rs.15,02,119 as revenue expenditure for the assessment year 1996-97. The Assessing Officer disallowed this claim, stating the expenses were capital in nature. The appellant provided a detailed breakdown of the expenses before the first Appellate Authority, which included various categories such as despatch and out-of-pocket expenses, registration fees, printing expenses, listing fees, stationery expenses, travelling and meeting expenses, bank charges and commission, lead managers fees, advertisement expenses, and professional certificate costs. The first Appellate Authority disallowed the claim for printing expenses, lead manager fees, and advertisement expenses, considering them capital in nature. However, the Authority allowed the claim for the remaining expenses, deeming them revenue in nature. The Revenue appealed this decision before the Income Tax Appellate Tribunal.

Issue 2:
The Tribunal upheld the order of the first Appellate Authority, stating that the Commissioner of Income Tax (Appeals) had provided clear findings distinguishing between expenses incurred in the regular course of business and those in the capital field. The Tribunal noted that the Commissioner had considered a remand report from the Assessing Officer for each head of expenses claimed for deduction. The High Court found justification in accepting the Commissioner's decision to allow deductions for expenses, except for printing expenses, lead manager fees, and advertisement expenses, which were rightly considered capital in nature. The Court agreed with the categorization of expenses as either revenue or capital based on their nature and purpose in the business transactions of the assessee.

In conclusion, the High Court dismissed the appeal, upholding the decision of the Commissioner of Income Tax (Appeals) and the Tribunal. The Court found no reason to interfere with the factual findings and categorization of expenses as revenue or capital, as determined by the authorities. The questions of law raised were answered against the Revenue, and no costs were awarded in the case.