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Issues involved: Interpretation of revenue expenditure u/s 35D(1)(ii) of the Income-tax Act, 1961 for fees paid to Registrar of Companies for amendment of memorandum and articles of association to increase authorized capital.
Summary: The reference pertains to the Revenue's query on the allowability of Rs. 7,500 paid to the Registrar of Companies for amending the company's memorandum and articles of association to increase authorized capital as revenue expenditure for the assessment year 1974-75. The Income-tax Officer disallowed the claim, allowing only 1/10th under section 35D(1)(ii). The Commissioner of Income-tax (Appeals) disallowed the entire amount, but the Income-tax Appellate Tribunal allowed the deduction, deeming it as revenue expenditure. The Tribunal's decision was challenged by the Revenue, leading to this reference. The High Court noted that various High Courts have consistently held such expenditure as capital in nature, citing cases like Mohan Meakin Breweries Ltd., Bharat Carbon and Ribbon Manufacturing Co. Ltd., Bombay Burmah Trading Corporation Ltd., and GrozBeckert Saboo Ltd. The Tribunal relied on decisions of the Allahabad and Bombay High Courts, but the High Court distinguished those cases, emphasizing that expenses for increasing capital are of a capital nature, unlike expenses for amendments to comply with legal changes. Therefore, the High Court held that the Rs. 7,500 expenditure should be treated as capital expenditure, not revenue expenditure. In conclusion, the reference was answered in favor of the Revenue, stating that the amount paid for amending the memorandum and articles of association to increase authorized capital is not allowable as revenue expenditure. No costs were awarded in this matter.
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