1979 (3) TMI 56 - HC - Income Tax

Authorised Capital Capital Expenditure Capital Or Revenue Expenditure Enduring Nature Income Tax Act

Summary

Issues:
1. Deductibility of fee paid for increase of authorized capital.
2. Allowability of tax paid under Uttar Pradesh Act as revenue expenditure.

Analysis:

Issue 1: Deductibility of fee paid for increase of authorized capital
The petitioner, a public limited company, paid Rs. 30,000 to increase its authorized capital from Rs. 1 crore to Rs. 5 crores. The company claimed this amount as revenue expenditure under s. 37(1) of the I.T. Act, 1961. However, the claim was disallowed by the ITO, AAC, and Tribunal. The court analyzed whether this expenditure was of capital or revenue nature based on the enduring benefit test. Citing Atherton v. British Insulated and Helsby Cables Ltd. and Assam Bengal Cement Co. Ltd. v. CIT, the court held that the increase in authorized capital provided an enduring advantage, making the expenditure capital in nature. The court also referenced Lord Clyde's test in Robert Addie and Sons' Collieries Ltd. v. IRC, supporting the capital nature of the expenditure. The court distinguished the case from India Cements Ltd. v. CIT, emphasizing the distinction between raising a loan and increasing share capital. Consequently, the court ruled that the Rs. 30,000 expenditure was not of revenue nature and not deductible under s. 37 of the I.T. Act, 1961.

Issue 2: Allowability of tax paid under Uttar Pradesh Act as revenue expenditure
The court addressed the second question regarding the Rs. 5,000 tax paid under the Uttar Pradesh (Nagar Kshettra) Bhumi Aur Bhawan Kar Adhiniyam, 1962. Referring to a previous judgment, the court confirmed that this tax payment was an allowable revenue expenditure under s. 37 of the I.T. Act, 1961. The court's decision was based on the nature of the tax payment and its relation to the business purpose, aligning with the criteria for revenue expenditure outlined in relevant case law.

In conclusion, the court answered both questions, ruling in favor of the revenue nature of the tax payment but against the deductibility of the fee for increasing authorized capital. The matter was remanded to the Tribunal for further proceedings, with no order as to costs.