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TMI Blog1989 (5) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... f enhancement of authorised capital was not an item of revenue expenditure deductible under section 37(1) of the Act?" We are concerned with the assessment year 1977-78. During the relevant previous year, the assessee incurred an expenditure of Rs. 7,500 as filing fee with the Registrar of Companies for enhancement of its authorised capital. The Income-tax Officer disallowed the deduction claimed. In appeal, the Commissioner of Income-tax (Appeals) held that the assessee (banking company) is different from other companies, that the money raised by enhancing the capital is stock-in-trade in the hands of the assessee and not for the purpose of capital expenditure. He held that by enhancement of the authorised capital, no benefit of an enduri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Ltd. v. CIT [1988] 171 ITR 224, 229, 230 and the Karnataka High Court in Hindustan Machine Tools Ltd. (No. 3) v. CIT [1989] 175 ITR 220. On the other hand, counsel for the Revenue submitted that the very fact that the expenditure has been incurred for enhancement of authorised capital shows that the purpose was to augment the capital or to broaden the base of the capital structure and so the expenditure incurred is a capital expenditure. Counsel for the Revenue, Mr. P. K. R. Menon, laid emphasis on the test laid down by Lord Cave regarding "enduring benefit" in British Insulated and Helsby Cables Ltd. v. Atherton [1926] AC 205, 213 (HL), as also the decision of the Supreme Court in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready solution to the problem ; no touchstone has been devised. Every case has to be decided on its own facts, keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. But a few tests formulated by the courts may be referred to as they might help to arrive at a correct decision of the controversy between the parties. One celebrated test is that laid down by Lord Cave L. C. in Atherton (H. M. Inspector of Taxes) v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, 192 (HL), where the learned law Lord stated : `. . . when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case . . ." Again at page 13, the court stated as follows: "When dealing with cases of this kind where the question is whether expenditure incurred by an assessee is capital or revenue expenditure, it is necessary to bear in mind what Dixon J. said in Hallstorm's Property Ltd. v. Federal Commissioner of Taxation (72 CLR 634) : 'what is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is material to consider is the nature of the advantage in a commercial or practical sense, and not to view the matter in a wooden manner. Viewed in the light of the test laid down by the Supreme Court and the approach to be made in the matter in the recent decisions in Empire jute Co. Ltd.'s case [1980] 124 ITR 1 (SC), Associated Cement Companies Ltd.'s case [1988] 172 ITR 257 (SC) and Alembic Chemical Works Co. Ltd.'s case [1989] 177 ITR 377 (SC). We are of the view that the expenditure incurred for the enhancement of authorised capital is only for the purpose of bettering or improving an established business and cannot be said to be for the purpose of a new business. Viewed in a business sense, the enhancement of the authorised capit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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