1987 (3) TMI 44 - HC - Income Tax

Summary

Issues Involved: Determination of whether certain payments constitute capital expenditure or allowable revenue deductions u/s 256(1) of the Income-tax Act, 1961.

Expenditure on Stamp Duty for Lease Agreement:
The assessee, a company, incurred Rs. 10,453 on stamp duty for a lease agreement. The Income-tax Officer disallowed this claim, considering it as connected to acquiring a capital asset, i.e., the leased premises. However, the court referred to precedents where similar lease expenses were allowed as revenue deductions, emphasizing that acquiring premises on lease does not amount to acquiring a capital asset. The court held that this expenditure is allowable as a deduction.

Payment to Estate Agents:
Another payment of Rs. 8,396 was made to estate agents as per the lease agreement. The Department argued that this payment was different from brokerage or commission paid at the time of acquiring premises. The court, however, noted that the payment was part of the lease agreement for use of the premises, akin to rent. Citing previous decisions, the court held that even if considered as commission or brokerage, this payment should be allowed as a deduction.

Expenditure on Raising Share Capital:
The assessee raised fresh share capital of Rs. 22,50,000 and incurred Rs. 2,44,888 in related expenses. The authorities disallowed this expenditure as capital in nature. The court differentiated between expenses related to issuing bonus shares and raising fresh share capital. Referring to precedents, the court held that expenditure on raising additional capital through equity shares, distinct from bonus shares, cannot be allowed as a deduction. Consequently, the court allowed deductions for items (a) and (b) but disallowed for item (c) of the expenditure.

Conclusion:
The court ruled in favor of the assessee for the expenditure on stamp duty for the lease agreement and the payment to estate agents, allowing them as deductions. However, the expenditure on raising additional share capital was not allowed as a deduction.