Law:

Section:

Section 37 of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1987-88 - Whether expenditure incurred by a company on public issue of equity shares so as to raise funds for its increased working capital requirements is capital expenditure - Held, yes FACTS The assessee, a public limited company being in need of funds for its increased working capital requirements, made a public issue of its equity shares for raising working capital. In that connection, it incurred certain expenditure which was claimed by it as revenue expenditure as it was incurred for the purpose of its business. The Assessing Officer disallowed said expenditure, holding the same to be capital expenditure. On appeal, the Commissioner (Appeals) held that expenditure so incurred was revenue expenditure and, therefore, addition made by the Assessing Officer was deleted. On appeal by the revenue, the Tribunal again held that expenditure was capital in nature. On appeal: HELD As regards expenditure for issue of shares to increase the capital, it has been decided in the cases of Punjab State Industrial Development Corpn. Ltd. v. CIT [1997] 225 ITR 792 / 93 Taxman 5 (SC) and Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798 / 91 Taxman 26 (SC) that the same is capital expenditure and is not allowable. [Para 11] Though the increase in capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and may also help in profit making, still the expenses incurred in that connection will retain the character of capital expenditure since the expenditure is directly related to expenses on the expansion of capital base of the company. In view of such clear finding, it was clear that the question did not remain open any further for consideration as to whether expenditure on expansion of capital had to be considered on the basis as to whether the capital is needed as working capital or not. In such circumstances, the instant appeal was to be dismissed. [Para 12] CASES REFERRED TO Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 /3 Taxman 69 (SC) [Para 6], Punjab State Industrial Development Corpn. Ltd. v. CIT[1997]…

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