Bonus share issue costs and actuarial gratuity provisions were both disallowed as deductions under income tax principles.

Expenditure incurred for issuing bonus shares was treated as capital in nature because it related to the company's permanent structure and conferred enduring capital advantage, so it was not deductible as revenue expenditure. A provision made on actuarial basis for future gratuity was also disallowed because deduction is available only when the statutory conditions are satisfied, and those preconditions were not met. On both issues, the questions were answered against the assessee and in favour of the Revenue.

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Issues: (i) Whether expenditure incurred for the issue of bonus shares is revenue expenditure deductible in computing business income. (ii) Whether provision made on actuarial basis for gratuity payable in future is allowable as a deduction in computing profits and gains of the year.

Issue (i): Whether expenditure incurred for the issue of bonus shares is revenue expenditure deductible in computing business income.

Analysis: The expenditure on issuing bonus shares was held to be connected with the permanent structure of the company and with capital advantages of an enduring nature. Such expenditure was treated as capital in character and, therefore, not deductible as revenue expenditure.

Conclusion: The issue was answered against the assessee and in favour of the Revenue.

Issue (ii): Whether provision made on actuarial basis for gratuity payable in future is allowable as a deduction in computing profits and gains of the year.

Analysis: A provision for future gratuity payments out of the year's gross profits is not allowable unless the statutory conditions governing deduction are satisfied. As those conditions were not fulfilled, the claim could not be allowed.

Conclusion: The issue was answered against the assessee and in favour of the Revenue.

Final Conclusion: Both referred questions were answered adversely to the assessee, with the Revenue succeeding on each point.

Ratio Decidendi: Expenditure incurred for issuing bonus shares is capital expenditure of an enduring nature, and a provision for future gratuity is not deductible unless the statutory preconditions for such allowance are satisfied.

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