2001 (2) TMI 865 - AT - Income Tax

Appeal allowed on bonus shares expenses disallowance for 1995-96 assessment year

Laxmi Drilling Rig Equipments (P.) Ltd. Versus Assistant Commissioner of Income-tax

The Tribunal allowed the appeal of the assessee concerning the disallowance of expenses related to issuing bonus shares for the assessment year 1995-96. ... Business expenditure Issues: Disallowance of expenses related to issue of bonus sharesAnalysis:The appeal pertains to the disallowance of Rs. 1,32,164 in expenses incurred for issuing bonus shares by the assessee for the assessment year 1995-96. The Assessing Officer disallowed the expenses on the grounds that the fee paid to the Registrar of Companies for increasing the share capital constitutes capital expenditure. The CIT(A) upheld this decision, citing Supreme Court judgments that any expenditure related to expanding a company's capital base is considered capital expenditure.The assessee argued that the Bombay High Court had distinguished between expenditure on increasing authorized share capital and expenditure on issuing bonus shares, holding that the latter qualifies as revenue expenditure. The assessee relied on the decision in the case of Bombay Burmah Trading Corpn. Ltd. v. CIT, which was affirmed by the Supreme Court in Punjab State Industrial Development Corporation Ltd. v. CIT. The assessee contended that the expenses related to issuing bonus shares should be treated as revenue expenditure and not capital expenditure.The Tribunal carefully considered the arguments presented. It noted that while the Supreme Court had ruled on the capital nature of expenses related to expanding the capital base, it had not specifically addressed expenses connected to issuing bonus shares. However, the Bombay High Court had explicitly held that the fee paid to the Registrar of Companies for issuing bonus shares qualifies as revenue expenditure. Since this decision was not overturned by the Supreme Court, the Tribunal held that the expenses in question should be treated as revenue expenditure. Consequently, the disallowance of the expenses was deleted, and the appeal of the assessee was allowed.