Law: Income Tax Act, 1961

Section: 37

Income-tax---Capital or revenue expenditure---Company---Expenditure in connection with additional issue of shares---Expenditure directly related to expansion of capital base---is capital expenditure---Indian Income Tax Act, 1961, S.37. Expenditure incurred by a company in connection with issue of shares, with a view to increase its share capital, is directly related to the expansion of the capital base of the company, and is capital expenditure, even though it may incidentally help in the business of the company and in the profit-making. Punjab State Industrial Development Corporation Ltd. v. C.I.T. (1997) 225 ITR 792 (SC) fol. Brooke Bond India Ltd. v. C.I.T. (1983) 140 ITR 272 affirmed. Alembic Chemical works Co. Ltd. v. C.I.T. (1989) 177 ITR 377 '(SC); C.I.T, v. Associated Cement Cos. Ltd. (1988) 172 ITR 257 (SC); C.I.T. v. Ktshinchand Chellaram (India) (P.) Ltd. (1981) 130 1TR 385 (Mad.); Empire Jute Co. Ltd. v. C.I.T. (1980) 124 ITR 1 (SC); India Cements Ltd. v. C.I.T. (1966) 60 ITR 52 (SC); Federal Bank Ltd. v. C.I.T. (1989) 180 ITR 241 (Ker.); Hindustan Machine Tools Ltd. (No.3) v. C.I.T. (1989) 175 ITR 220 (Kar.) and Warner Hindustan Ltd. v. C.I.T. (1988) 171 ITR 224 (AP) ref. ' JUDGMENT In this appeal, by certificate granted by the High Court under section 261 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), the following question referred to the Calcutta High Court (see (1983) 140 ITR 272) by the Income-tax Tribunal (hereinafter referred to as "the Tribunal") was answered in favour of the Revenue and against the assessee (at page 275): "Whether, on the facts and in the circumstances of the case, the Tribunal was right in sustaining the disallowance of Rs.13,99,305 being expenses incurred in connection with the issue of fresh lot of shares in 1967?" The question relates to the assessment year 1969-70 and the relevant accounting year ended on June 30, 1968. The assessee is a public limited company. It issued ordinary shares of Rs.16,75,000 of Rs.10 each at the premium with a view to increase its share capital and, in that connection, it incurred an expenditure of Rs.13,99,305 which amount was claimed by it as deductible expenses. The…

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