Employee-director disallowance and share issue expenses were both allowed as deductions under Income-tax principles.

For employee-directors, disallowable expenditure had to be computed by applying section 40(c) of the Income-tax Act, 1961, following binding precedent of the same High Court, and the assessee's treatment was upheld. Share issue expenses were also allowable under section 37(1) because they formed part of the same revenue outlay incurred for a share issue undertaken in the preceding year pursuant to governmental requirements for dilution of foreign shareholding; part of that expenditure had already been allowed, and the remaining claim was treated as deductible revenue expenditure. Both referred questions were answered in favour of the assessee.

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Issues: (i) Whether, in computing the disallowable expenditure in respect of employee-directors, the limits under section 40(c) of the Income-tax Act, 1961 applied instead of section 40A(5); (ii) Whether share issue expenses of Rs. 29,021 were deductible as expenditure under section 37(1) of the Income-tax Act, 1961.

Issue (i): Whether, in computing the disallowable expenditure in respect of employee-directors, the limits under section 40(c) of the Income-tax Act, 1961 applied instead of section 40A(5).

Analysis: The question was covered by binding precedent of the same court holding that, for employee-directors, the disallowance had to be computed with reference to section 40(c).

Conclusion: The answer was in the affirmative and in favour of the assessee.

Issue (ii): Whether share issue expenses of Rs. 29,021 were deductible as expenditure under section 37(1) of the Income-tax Act, 1961.

Analysis: The expenditure related to the same issue of shares undertaken in the preceding assessment year pursuant to governmental requirements for dilution of foreign shareholding. A part of the same expenditure had already been allowed in that year, and the present claim formed part of the very same expenditure. The expenditure was treated as revenue in nature and allowable on that basis.

Conclusion: The answer was in the affirmative and in favour of the assessee.

Final Conclusion: Both referred questions were answered for the assessee, and the claimed deduction was sustained.

Ratio Decidendi: Where an issue is governed by existing precedent, the court will apply that rule; and expenditure forming part of the same revenue outlay connected with the same share issue may be allowed as a deduction under section 37(1).

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