Bonus Share Issuance Costs Disallowed as Capital Expenditure

The tribunal upheld the disallowance of legal and professional charges as capital expenditure, citing that expenses incurred for issuing bonus shares aimed at obtaining an enduring benefit in the capital field. The appeal against the Commissioner (Appeals) decision to disallow a sum of Rs. 6,000 was dismissed.

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Issues:
1. Disallowance of legal and professional charges as capital expenditure.

The judgment pertains to an appeal filed by the assessee against the order of the Commissioner (Appeals) regarding the disallowance of a sum of Rs. 6,000 as part of legal and professional charges incurred during the assessment year 1977-78. The disallowed amount comprised fees paid to the Controller of Capital issues for approval of bonus share issue and to auditors for examining the application to the Controller of Capital Issues. The Income Tax Officer (ITO) disallowed the sum, stating it was incurred on capital account. The Commissioner (Appeals) upheld this disallowance. The assessee contended that the expenses should have been allowed, citing the decision in CIT v. Kisenchand Chellaram (India) (P.) Ltd. The opposing party supported the disallowance, referencing Mohan Meakin Breweries Ltd. v. CIT and Empire Jute Co. Ltd. v. CIT. The tribunal analyzed the conflicting decisions and applied the test from Empire Jute, which states that an expenditure is capital if it provides an enduring benefit in the capital field. The tribunal concluded that the expenses incurred for issuing bonus shares aimed at obtaining an enduring benefit in the capital field, thus upholding the disallowance as capital expenditure. The appeal was dismissed.

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