Law: Income Tax Act, 1961

Section: 37

Income-tax----Capital or revenue expenditure---General principles---Company---Fees paid to Registrar of Companies for enhancement of capital---Capital expenditure---Indian Income Tax Act, 1961, S.37---[CIT v. Kisenchand Chellaram (India) (P.) Ltd. (1981) 130 ITR 385 (Mad.); Warner Hindustan Ltd. v. CIT (1988) 171 ITR 224 (AP); Hindustan Machine Tools Ltd. (No.3) v. CIT (1989) 175 ITR 220 (Kar.) and' Federal Bank Ltd. v. CIT, (1989) 180 ITR 241 (Ker.) overruled]. 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, there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. But this is not a strait-jacket formula and the question will have to be determined in the backdrop of the facts of each case. The test laid down can at best be a-guide for determining whether a particular expenditure forms part of revenue expenditure or capital expenditure. The fees paid to the Registrar of Companies for expansion of the capital base of a company is directly related to the capital expenditure incurred by the company and although incidentally that would certainly help to the business of the company and may also help in profit-making, it still retains the character of capital expenditure since the expenditure is directly related to the expansion of the capital base of the company. CIT v. Modi Spinning and Weaving Mills Co. Ltd. (1973) 89 ITR 304 (All.); Mohan Meakin Breweries Ltd. v. CIT (No.2) (1979) 117 ITR 505 (HP); Bharat Carbon and Ribbon Manufacturing Co. Ltd. v. CIT (1981) 127 ITR 239 (Delhi); Brooke Bond India Ltd. v. CIT (1983) 140 ITR 272 (Cal.); Bombay Burmah Trading Corporation Ltd. v. CIT i i984) 145 ITR 793 (Bom. ); Groz-Beckert Saboo Ltd v. CIT (198h) 160 ITR 743 (P&H); CIT v. Aditya Mills (1990) 181 ITR 195,(Raj.); CIT v. Multi Metals Ltd (1991)188 ITR 151 (Raj.); Vazir Sultan Tobacco Co. Ltd. v. CIT (1988) 174 ITR 689 (AP); Kesoram Industries and Cotton Mills Ltd. v. CIT (1992) 196 ITR 845 (Cal.); Wood Craft Products Ltd.…

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