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PETITIONER: BROOKE BOND INDIA LIMITED

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX,WEST BENGAL-III, CALCUTTA

DATE OF JUDGMENT:       27/02/1997

BENCH: S.C. AGRAWAL, G.B. PATTANAIK

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T      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 by the Income Tax Tribunal (hereinafter referred to as ‘the Tribunal’) was answered in favour of the Revenue and against the assessee:-      "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  account  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 a 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 said deduction was disallowed  by the  Income Tax  Officer on the view that the expenditure  incurred by the assessee was on the capital account. The  said  view  of  the  Income  Tax  Officer  was affirmed by  the Appellate  Assistant Commissioner  and  the Tribunal. The  High Court,  while upholding  the view of the Tribunal, has held that the expenditure and would fall under capital expenditure.  The High  Court has placed reliance on the observations  of this  Court in  India Cements  Ltd.  v. Commissioner of  Income Tax,  Madras, 60  ITR 52, and it did not agree  with the  view taken  by the  Madras  High  Court Commissioner of  Income  Tax,  Tamil  Nadu-I  v.  Kisenchand Chellaram (India) P. Ltd., 130 ITR 385.      Dr. Debi  Pal, the learned senior counsel appearing for the appellant-assessee,  has submitted  that the  High Court was in  error in  holding that  the expenses incurred by the assessee In  issuing the  shares with a view to increase its capital did not constitute revenue expenditure. According to the learned  counsel, the said view of the High Court is not in consonance  with the law laid by the this Court in Empire

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Jute Company  Ltd. v. Commissioner of Income Tax, 124 ITR 1; Commissioner of  Income Tax. Bombay-II v. Associated Cements Co. Ltd., 172 ITR 257 and Alembic Chemical works Co. Ltd. v. Commissioner of  Income  Tax.  Gujarat,  177  ITR  377.  The learned counsel  has  also  invited  our  attention  to  the decisions of  the High  Courts of Andhra Pradesh, Kerala and Madras High  Court in  Kisenchand Chellaram  (India) P. Ltd. (supra). [See:  Warner Hindustan  Ltd.  v.  Commissioner  of Income Tax (A.P.), 171 ITR 224; Hindustan Machine Tools Ltd. (No. 3) v. Commissioner of Income Tax, Karnataka-II, 175 ITR 220 and  Federal Bank  Ltd. v.  Commissioner of  Income Tax, Kerala. 180 ITR 241].      We find  that this matter has come up for consideration before this Court in m/s Punjab State Industrial Development Corporation Ltd.,  Chandigarh v. Commissioner of Income Tax. Patiala. (Tax Reference No. 1 of 1990 decided on December 4, 1996). In  that case,  the question  under consideration was whether an amount of Rs. 1,50,000/- paid to the Registrar of Companies as  filing fee  for enhancement of capital was not revenue  expenditure.  The  Court  has  taken  note  of  the decisions of  the  Madras,  Andhra  Pradesh,  Karnataka  and kerala High  Courts to  which reference has been made by Dr. Pal as  well as  the judgment under challenge in this appeal and the  judgment under  challenge in  this appeal  and  the judgment of  the High  Courts taking  the same  view s  that taken in  the impugned  judgment. This  Court has also taken note of the decisions in Empire Jute Company Ltd. (supra) as well as  India Cements  Ltd. (supra). While holding that the amount of  Rs. 1,50,000/- paid to the Registrar of Companies as filing fee for enhancement of the capital was not revenue expenditure, this Court has said:-      "We do not consider it necessary to      examine  all   the   decisions   in      extenso  because   we  are  of  the      opinion  that   fee  paid   to  the      Registrar  for   expansion  of  the      capital base  of  the  company  was      directly  related  to  the  capital      incidentally that  would  certainly      help in the business of the company      and may also help in profit making,      it still retains the character of a      capital  expenditure     since  the      expenditure was directly related to      the expansion  of the  capital base      of the  company. we are, therefore,      of the  opinion that the view taken      by the  different  High  Courts  in      favour  of   the  Revenue  in  this      behalf is  the preferable  view  as      compared to  the view  based on the      decision of  the Madras  High Court      in Kisenchand Chellaram’s case."      This decision  thus covers  the question that falls for consideration in this appeal.      Dr. pal has, however, submitted that this decision does not cover a case. like the present case, where the object of enhancement of  the capital  was to  have more working funds for the  assessee to  carry on its business and to earn more profit and  that in  such a  case the  expenditure  that  is incurred in  connection with  issuing of  shares to increase the capital  has to  be treated  as revenue  expenditure. In this connection,  Dr. pal  has invited  our attention to the submissions that  were urged  by the learned counsel for the assessee before the Appellate Assistant Commissioner as well

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as before  the Tribunal  it was  submitted on  behalf of the assessee that  increase in  the capital was to meet the need for working  funds for  us   the assessee-company.   But the statement of  case sent  by the  Tribunal does  not indicate that a finding was recorded to the effect that the expansion of the  capital was  undertaken by  the assessee in order to meet the  need for  more working funds for the assessee. We, therefore, cannot proceed on the basis that the expansion of the capital  was undertaken  by the assessee for the purpose of meeting  the need  for working  funds for the assessee to carry  on  its  business,  In  any  event,  the  abovequoted observations of  this Court  in m/s  Punjab State Industrial Development  Corporation  Ltd.  Chandigarh  (supra)  clearly indicate that  though the increase in the capital results in expansion  of   the  capital   base  of   the  company   and incidentally that  would help in the business of the company and incidentally  that would  help in  the business  of  the company and may also help in the profit making, the expenses incurred in  that connection still retain the character of a capital  expenditure   since  the  expenditure  is  directly related to the expansion of the capital base of the company.      In these circumstances, we do not find any merit in the appeal and  it is   accordingly  dismissed. No  order as  to costs.