1990 (11) TMI 141 - HC - Income Tax

Court rules for assessee on share capital expenditure and section 80J deduction eligibility.

The court ruled in favor of the assessee on both issues. Firstly, the expenditure incurred for increasing the authorized share capital was treated as ... Benami Transactions (Prohibition) Act Issues:1. Whether certain expenses incurred by the assessee should be treated as capital or revenue expenditure.2. Whether the assessee is entitled to claim deduction under section 80J of the Income-tax Act for an assessment year where the factory commenced production only in the middle of the accounting year.Analysis:Issue 1:The assessee claimed an expenditure of Rs. 24,384 as revenue expenditure under section 37(1) of the Income-tax Act, although the expenses were for increasing the authorized share capital of the company. The Income-tax Officer disallowed the expenditure as capital in nature. However, the Appellate Assistant Commissioner and the Tribunal held that the expenditure was incurred for the purpose of the business and thus should be treated as revenue expenditure. The court agreed with the Tribunal, emphasizing that the expenditure was incurred to comply with statutory requirements for carrying on the business and did not result in any enduring benefit to the company. Citing precedent cases, the court affirmed that expenses contributing to an increase in capital should still be allowable as revenue expenditure if they were wholly and exclusively used for business purposes. Therefore, the court answered the first question in favor of the assessee.Issue 2:Regarding the claim for deduction under section 80J of the Act, the dispute arose because the biscuit plant was not operational for the entire year as it was installed only during the year 1972. The court referred to relevant cases, including CIT v. Simpson and Co. and CIT v. Mysore Petro Chemical Ltd., which supported the view that relief under section 80J should not be pro-rated based on the operational period of the business during the relevant year. The court also highlighted a circular issued by the Central Board of Direct Taxes, stating that the deduction under section 80J should not be reduced proportionately for the period the business was not operational. Relying on these precedents and the circular, the court held that the assessee was entitled to the relief under section 80J, even though the factory was operational for only part of the year. Therefore, the court answered the second question in favor of the assessee.