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Issues:
1. Deduction of expenditure incurred on the issue of prospectus for raising working capital. Analysis: The case involved a reference by an assessee-company regarding the deduction of expenditure incurred on the issue of prospectus for raising working capital. The company, engaged in textile and engineering goods manufacturing, faced disruptions due to a rift between managing agency groups, leading to a consent decree requiring the purchase of minority shares. To mitigate the adverse impact on working funds, the company decided to issue fresh equity shares. The dispute centered on whether the expenditure on the share issue was revenue or capital in nature. The assessee argued that the additional capital raised was necessary to meet the payment obligations under the consent decree and did not confer any enduring benefit. Citing precedents like Bombay Burmah Trading Corporation Ltd. and Glaxo Laboratories (India) Ltd., the assessee contended that such expenditure should be treated as revenue. On the other hand, the Revenue relied on the Tribunal's order and contended that the expenditure was capital in nature, citing the Bombay Steam Navigation Co. case and distinguishing the Glaxo Laboratories case. The Court analyzed the purpose of the share issue, which included listing on the stock exchange and financing the Reishaure Chucks Project, along with meeting the payment obligations from the consent decree. The Court referenced past judgments to distinguish cases where the expenditure was held to be revenue in nature due to a direct nexus with the business operations. Ultimately, the Court held that the expenditure in question was not of revenue nature, answering the question in the negative and in favor of the Revenue. In conclusion, the Court found that the expenditure incurred on the share issue for raising working capital was not of revenue nature but capital in nature, based on the purpose and circumstances surrounding the share issue. The Court highlighted the importance of a direct nexus between expenditure and business operations in determining its nature, as established in past judgments.
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