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Issues involved: Interpretation of whether fees paid to Registrar of Companies for raising authorized capital is allowable as revenue expenditure and whether it is covered by sub-clause (2)(c)(iv) of section 35D of the Income-tax Act, 1961.
Issue 1 - Fees as Revenue Expenditure: The case involved a limited company that paid a fee for registration to the Registrar of Companies to amend its memorandum of association for increasing authorized capital. The Income-tax Officer initially treated this fee as capital expenditure, but the Commissioner of Income-tax allowed it as revenue expenditure. The Appellate Tribunal, citing a Supreme Court decision, upheld the deduction of the registration fee as revenue expenditure. The Tribunal also considered the fee under section 35D, which allows expenditure related to public subscription of shares to be spread over ten years. The Revenue challenged this decision, leading to a reference to the High Court. Issue 2 - Application of Section 35D: The Tribunal considered whether the fee paid to the Registrar could be covered under sub-clause (2)(c)(iv) of section 35D, which pertains to expenses related to public subscription of shares. The Revenue argued against the applicability of this clause, while the assessee contended that the language of section 35D should be interpreted broadly to benefit the assessee. The Tribunal found that the fee for enhancing capital could be deductible under sub-clause (2)(c)(iv) of section 35D, as spreading the deduction over ten years aligns with the legislative intent and produces a reasonable outcome. The High Court, in its judgment, disagreed with the Revenue's position that the fee paid to the Registrar for raising authorized capital was not allowable as revenue expenditure. It held that the fee fell under sub-clause (2)(c)(iv) of section 35D of the Income-tax Act, making it deductible over a ten-year period. The Court emphasized interpreting the law to benefit the assessee and ensuring a reasonable outcome. The case was remanded to the Income-tax Appellate Tribunal with the specified answers, and no costs were awarded due to the split decision.
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