Law:

Section:

section 37(1) of the income-tax act, 1961-business expenditure-whether expenditure incurred for preparing prospectus and payment of underwriting commission and brokerage for issue of redeemable preference shares was decuctible as revenue expenditure-held, no, expenditure in question was capital in nature Facts The assessee-company incurred expenditure of Rs. 10,080 and Rs. 50,687 respectively for payment of solicitors' fees for preparing a prospectus for issue of redeemable preference shares and for payment of underwriting commission and brokerage for the issue of these shares and claimed deduction of the expenditure in its assessment. The ITO disallowed the claim on the ground that the expenditure was not of a revenue nature. The AAC confirmed the ITO's order. It was contended before the Tribunal that, as there was hardly any difference between redeemable preference shares and debentures and as it was held by the Supreme Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52 , that a loan was not an asset or advantage of an enduring nature and that there was no distinction between interest paid on loan and an expenditure incurred for obtaining a loan, the expenses for issue of redeemable preference shares were allowable as deduction. The Tribunal, however, held that the amounts spent were capital in nature. On reference : Held Share capital including redeemable preference share capital could not be equated with loan or debentures inasmuch as a debenture-holder could sue a company whereas the shareholder could not. The assessee-company failed to discharge its onus of proving that the expenditure incurred was not of a capital nature. Therefore, the expenditure was not allowable as deduction. Cases referred to India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC) and Isle of Thanet Ellectric Supply Co. Ltd., In re [1949] 2 All. ER 1060 (CA). JUDGMENT Dipak Kumar Sen, J.-Hindusthan Gas & Industries Ltd., the assessee, incurred expenditure of Rs. 10,080 and Rs. 50,687, respectively, for payment of professional charges to its solicitors, Messrs. Orr, Dignam & Co., for preparing a prospectus in connection with the issue of its preference shares and payment…

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