1992 (9) TMI 65 - HC - Income Tax

Court allows listing fee as revenue expenditure, not capital. Listing boosts company status, customer confidence.

Commissioner Of Income-Tax Versus Alembic Chemical Works Company Limited

Commissioner Of Income-Tax Versus Alembic Chemical Works Company Limited - [1993] 201 ITR 250, 108 CTR 335, 67 TAXMANN 275 Issues:Whether the annual listing fee paid to the stock exchange is allowable revenue expenditure of the assessee-company.Analysis:The case involved a question regarding the deductibility of annual listing fees paid to the stock exchange as revenue expenditure. The assessee, a public limited company, claimed a sum as deductible revenue expenditure for the relevant assessment year. The Income-tax Officer initially disallowed the claim, citing that the listing fee was for the purpose of capital. The Commissioner of Income-tax (Appeals) and subsequently the Tribunal considered the matter. The Tribunal opined that listing fees are an annual expense with no enduring benefit or capital augmentation for the company, thus should be treated as revenue expenditure. The Tribunal's decision was based on the fact that the company's status and reputation benefit from being listed on the stock exchange, enhancing customer confidence and employee loyalty.In a similar case, the judgment referred to a circular issued by the Central Board of Direct Taxes, which clarified that listing fees paid to a stock exchange should be considered as business expenditure under section 37(1) of the Income Tax Act. The circular emphasized that the advantages of listing shares on a stock exchange are crucial for a company's day-to-day business operations and, therefore, should be treated as revenue expenditure. The circular explicitly stated that such expenses are laid out wholly and exclusively for the business purposes, making them admissible as business expenditure.The High Court, in its judgment, concurred with the Tribunal's view and the circular issued by the Central Board of Direct Taxes. It emphasized that the listing fees paid to the stock exchange should be allowed as revenue expenditure, as they do not provide an enduring benefit or augment the company's capital structure. The Court highlighted the significance of listing shares for a public limited company in terms of status, prestige, customer confidence, and employee loyalty. Consequently, the Court held that the expenditure on listing fees should be considered as revenue expenditure, aligning with the Tribunal's decision and the circular's guidelines.In conclusion, the High Court answered the question in favor of the assessee, stating that the annual listing fee paid to the stock exchange is allowable as revenue expenditure and not as capital expenditure. The judgment emphasized the importance of listing shares on a stock exchange for a public limited company's reputation and business advantages, supporting the Tribunal's decision and the circular's directives.