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TMI Blog1990 (11) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... 40 towards stamp papers, should not be termed as capital in nature and that they should be allowed as revenue expenditure ? (2) Whether, on the facts and in the circumstances of the case, it has been rightly held that the assessee would be entitled to the claim under section 80J for the assessment year, even though the factory commenced production only in the middle of the accounting year ? " The assessee is a private limited company. In the course of the assessment proceedings for the assessment year 1973-74 (accounting period ending December 31, 1972), the assessee claimed that an expenditure of Rs. 24,384 should be allowed as revenue expenditure falling under section 37(1) of the Act, though such expenses were incurred for increasin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from January 1, 1972, which was the first day of the computation period and, therefore, the claim for deduction, as made by the assessee, under section 80J of the Act, read with rule 19A of the Income-tax Rules, 1962, was not quite in order. Eventually, the appeal was allowed partially. On further appeals by the Revenue as well as the assessee before the Tribunal, it held that the expenditure of Rs. 24,384 incurred by the assessee cannot be considered as capital, but one incurred in connection with, and incidental to, the carrying on of the business of the company and the expenditure was rightly treated to be not of a capital nature. Adverting to the claim made by the assessee under section 80J of the Act in its appeal, the Tribunal proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s right in the view it took. That the assessee had incurred the expenditure for the purposes mentioned by it had not been disputed. It may be that the expenditure incurred by the assessee ultimately resulted in the securing of an alteration of the memorandum of articles by the assessee leading to an increase in the capital of the assessee-company, but the expenditure incurred in that manner cannot be considered as capital expenditure, or, as the Income-tax Officer treated it, as an expenditure for increasing capital, which would be capital expenditure. According to the provisions of the Companies Act, various particulars have to be furnished and notices issued and fees paid under several heads and if as an entity under the Companies Act, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure, since it had not resulted in any advantage of enduring benefit and as the amount was wholly and exclusively used for purposes of the business, the expenditure deserved to be allowed as a deduction under section 37(1) of the Act. In upholding the correctness of the conclusion so arrived at by the Tribunal, it was pointed out by this court that, without capital, a company could not have carried on the business and, therefore, the expenses incurred to increase the capital of the company are inextricably bound up with the functioning and financing of the business and further that it is in the nature and character of expenditure that determines its allowability. It was also pointed out that the fact that the expenditure contributed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t later. CIT v. Simpson and Co. [1980] 122 ITR 283 (Mad) dealt with the scope of the relief given under section 84 of the Act to newly established undertakings which provided that income-tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial undertaking or business of a hotel or from any ship, to which this section applied, as does not exceed six per cent. per annum on the capital employed in such undertaking or business or ship, computed in the prescribed manner. The computation of, capital even for purposes of section 84 of the Act was governed by rule 19 of the Income-tax Rules. The controversy that arose was whether the six per cent. per annum incentive by way of tax relief for a period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that the assessee was entitled to the full deduction and on a departmental reference, the order of the Tribunal was affirmed. While holding so, the Karnataka High Court referred to CIT v. Simpson and Co. [1988] 122 ITR 283 (Mad) and the fact that special leave petitions to appeal against that decision had also been refused by the Supreme Court in S. L. P. (Civil) Nos. 8411 and 8412 of 1980 dated December 31, 1981, and finally held that the terms "per diem", "per mensem" and "per annum" indicate the period for which the rate is prescribed and do not necessarily imply that there shall be pro-rating. It was also further pointed out that the relief at the rate of 6 per cent. or 7 1/2 per cent. per annum, as provided under section 80J of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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