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Issues Involved:
1. Allowance of initial contribution to the Management Staff Pension Fund. 2. Allowance of expenses incurred on the issue of bonus shares. Issue-wise Detailed Analysis: 1. Allowance of Initial Contribution to the Management Staff Pension Fund The assessee, a public limited company, appealed against the CIT(A)'s decision that only 80% of the initial contribution to the Management Staff Pension Fund is allowable as a deduction, not the entire contribution. The CIT(A) relied on Section 36(1)(iv) of the IT Act, 1961, read with Rule 88 of the IT Rules, 1962, and Notification No. S.O. 3433 dated 21st October 1965. According to the CIT(A), the assessee was entitled to a deduction of 80% of the initial contribution, spread over five assessment years. The initial contribution amounted to Rs. 2,93,009, and 80% of this was Rs. 2,34,407. The CIT(A) allowed Rs. 46,881 (1/5th of Rs. 2,34,407) for the assessment year under appeal and permitted the assessee to claim similar relief for the subsequent four years. The assessee contended that the entire initial contribution should be allowable under statutory Rules 87 and 88 of the IT Rules, 1922, and Section 36(1)(iv) of the Act. They argued that the CBDT's notification was contrary to these rules and provisions. However, the Tribunal referred to the Supreme Court's decision in M/s Kanpur Vanaspathi Stores vs. Commr, ST AIR 1972 SC 2373, which held that the validity of a provision of an Act, rule, or notification could not be challenged before the authorities constituted under the Act. The Tribunal concluded that since Notification No. S.O. 3433 was issued under Section 36(1)(iv) of the Act, it could not be challenged before the Tribunal. Consequently, the CIT(A)'s decision was upheld, and the assessee's contention was rejected. 2. Allowance of Expenses Incurred on the Issue of Bonus Shares The assessee claimed expenses totaling Rs. 1,04,487 incurred in connection with the issue of bonus shares. The CIT(A) rejected the claim, reasoning that expenses related to raising capital are capital expenditures and not allowable as deductions. The expenses included costs for envelopes, postage, allotment register-cum-post journal sheets, handling charges, share certificates, and block making and numbering work. The assessee argued that these expenses were revenue in nature and incurred for the purpose of business, citing the decisions of the Madras High Court in CIT v. Kisenchand Chellaram (India) (P.) Ltd. [1981] 130 ITR 385 and the Calcutta High Court in CIT v. Asiatic Oxygen & Acetylene Co. Ltd. [1981] 132 ITR 506. They contended that the treatment of entries in the books of accounts was not conclusive for determining the nature of the expenses. The Tribunal, after considering the facts and submissions, concluded that the expenses were capital in nature. The issuance of bonus shares was a realignment of the capital structure and did not result in raising new capital. The expenses were debited to the share premium account and not shown in the profit and loss account, which indicated that they were capital expenditures. The Tribunal held that the expenses were not connected with the business operations but related to the capital structure of the company. Thus, the claim for deduction was rejected. Conclusion The appeal by the assessee was dismissed, and the decisions of the CIT(A) on both issues were upheld.
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