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TMI Blog2012 (8) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... was framed: "Whether, the expenditure of Rs.4,12,595/- for subdivision of shares of the company is revenue expenditure and therefore allowable?" 2. The issue arises in following factual background. The assessment year concerned is 1987-88. During the period relevant to the assessment year in question, the assessee had incurred expenditure of Rs.3 lakhs by way of payment to the Registrar of Companies for raising the limit of authorized share capital of the company. The assessee had also expanded a sum of Rs.4,12,595/- for the purpose of sub-division of its shares. The assessee claimed such expenditure as revenue expenditure. The revenue authorities, however, disallowed both the expenditures holding that the same are capital in nature. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that by virtue of sub-division of the shares, what the assessee company achieved was to increase its share base. This was solely with the purpose of easy trading of the shares in the market. Such sub-division did not increase the share capital of the company and only benefited the shareholders. 5. Counsel further submitted that the decision of the Division Bench of this Court in case of Ahmedabad Manufacturing and Calico Pvt. Ltd. (supra) has been overruled by the Apex Court in case of Commissioner of Income Tax v. General Insurance Corporation, reported in (2006) 286 ITR 232. Counsel submitted that the facts of the present case are even stronger inasmuch as, in the case before this Court in Ahmedabad Manufacturing and Calico Pvt. Ltd. (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of shares resulted into any enduring benefit for the company. 8. The Division Bench of this Court in case of Ahmedabad Manufacturing and Calico Pvt. Ltd. (supra) was examining the question of expenditure incurred by the company for the purpose of issuance of bonus shares. The Division Bench opined that when bonus shares are issued, two things take place : (i) bonus is paid to the shareholders; and (ii) wholly or partly paid-up shares are issued against the bonus payable to the shareholders. Thus, the shareholders invest the bonus paid to them in the shares and that is how the bonus shares are issued to them. The Court was of the opinion that these shares are rights shares and are, therefore, integral part of the permanent structure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved the controversy holding that the issuance of bonus shares does not result in any inflow of fresh funds or increase in the capital employed. The capital employed remains the same. It was held that issuance of bonus shares by capitalization of reserves is merely a reallocation of the company's fund. In terms, the Apex Court held that the decision of the Gujarat High Court in case of Ahmedabad Manufacturing and Calico Pvt. Ltd. (supra) was contrary to the observations of the Supreme Court in the case of Dalmia Investment Co. Ltd. reported in (1964) 52 ITR 567. The Apex Court approved the decision of the Calcutta High Court in case of Wood Craft Products Ltd. reported in (1993) 204 ITR 545, making following observations : "As observed ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are erroneous and do not lay down the correct law." 10. The issue, thus, stands squarely covered by the above decision of the Apex Court. It is, of course, true that in the present case, we are concerned with a slightly different nature of expenditure undertaken by the assessee company. Before the Supreme Court, the issue involved was regarding expenditure incurred in issuing bonus shares. In the present case, the expenditure is incurred for the purpose of subdivision of the shares. However, we do not see how the observations made by the Apex Court in the ratio laid down in case of General Insurance Corporation (supra) can be distinguished in view of such difference in facts. In case of sub-division of the shares also, there is no incre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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