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Issues Involved:
1. Disallowance of expenditure incurred in providing perquisites to employees u/s 40(c)(iii). 2. Applicability of s. 40(c)(iii) to employees in overseas branches. 3. Allowability of fees paid to the Registrar of Companies for enhancement of capital as revenue expenditure. 4. Allowability of expenditure incurred in connection with the issue of bonus shares as revenue expenditure. 5. Allowability of legal expenses incurred in connection with the issue of bonus shares as revenue expenditure. 6. Allowability of a portion of fees paid to the Registrar of Companies related to the issue of bonus shares as revenue expenditure. Summary: Issue 1: Disallowance of expenditure incurred in providing perquisites to employees u/s 40(c)(iii) The court rejected the assessee's claim that for the purposes of s. 40(c)(iii), the value of the benefit or amenity or perquisite in the hands of the employee should be considered, not the entire expenditure incurred by the employer. The court held that the plain wording of s. 40(c)(iii) requires disallowance of any expenditure exceeding one-fifth of the salary payable to the employee, regardless of whether the benefit is convertible into money or not. The court referenced the Calcutta High Court decision in CIT v. Britannia Industries Co. Ltd. but distinguished it based on the facts of the case. Thus, Question No. 1 was answered in the affirmative and against the assessee. Issue 2: Applicability of s. 40(c)(iii) to employees in overseas branches The court followed the Madras High Court decision in Addl. CIT v. Brakes India Ltd., holding that the second proviso to s. 40(c)(iii) applies where no income of an employee is chargeable under the head "Salaries". Since the overseas employees did not have income chargeable to Indian income-tax, the provisions of s. 40(c)(iii) were not attracted. Thus, Question No. 2 was answered in the affirmative and in favour of the assessee. Issue 3: Allowability of fees paid to the Registrar of Companies for enhancement of capital as revenue expenditure The court disagreed with the Madras High Court decision in CIT v. Kisenchand Chellaram (India) P. Ltd., which treated such fees as revenue expenditure. The court referenced the Supreme Court decision in India Cements Ltd. v. CIT and other decisions, holding that expenses incurred for raising capital are capital expenditures. Thus, Question No. 3 was answered in the negative and in favour of the Revenue. Issue 4: Allowability of expenditure incurred in connection with the issue of bonus shares as revenue expenditure The court found that the expenditure of Rs. 31,899, comprising printing, stationery, postage, and telegrams, was incurred in the normal course of business and not for raising additional capital. Therefore, it was allowable as revenue expenditure. Thus, Question No. 4 was answered in the affirmative and in favour of the assessee. Issue 5: Allowability of legal expenses incurred in connection with the issue of bonus shares as revenue expenditure The court held that the legal expenses of Rs. 10,350 incurred in connection with the issue of bonus shares were allowable as revenue expenditure, following the same reasoning as in Issue 4. Thus, Question No. 5 was answered in the affirmative and in favour of the assessee. Issue 6: Allowability of a portion of fees paid to the Registrar of Companies related to the issue of bonus shares as revenue expenditure The court upheld the Tribunal's decision to allow one-tenth of the total fees of Rs. 52,500, amounting to Rs. 5,250, as revenue expenditure related to the issue of bonus shares. Thus, Question No. 6 was answered in the affirmative and in favour of the assessee. Conclusion: - Question No. 1: In the affirmative and against the assessee. - Question No. 2: In the affirmative and in favour of the assessee. - Question No. 3: In the negative and in favour of the Revenue. - Questions Nos. 4, 5, and 6: In the affirmative and in favour of the assessee. There was no order as to costs.
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