BROOKE BOND INDIA LTD.versusCOMMISSIONER OF INCOME TAX, WEST BENGAL-III.

A                   BROOKE BOND INDIA LTD.
                              v.
          COMMISSIONER OF INCOME TAX, WEST BENGAL-III.

                              FEBRUARY 27, 1997

B               (S.C. AGRAWAL AND G.B. PATTANAIK, JJ.]

         Income Tax Act, 1961-Section 37(1)--Whether expenditure incu"ed
  for issuing shares for expanding capital base can be treated as revenue expen-
  diture and therefore allowed as a deductible expense-Held : Expenditure
C incumd for issuing shares to expand capital base with the object of having
  more working funds and eaming more profit is capital expenditure and there-
  fore not a deductive expense.

         The assessee, a public limited company, claimed deduction for the
  expenditure incurred by it for issuing shares with a view to increase its
D share capital for the assessment year 1969-70. The deduction was disal-
  lowed by the Income Tax Ollicer on the ground that the expenditure
  incurred by the assessee was on the capital account. This view was allirmed
  by the Appellate Assistant Commissioner and the Tribunal. On appeal, the
  High Court, while upholding the view of the Tribunal, held that the
E expenditure incurred by the assessee in issuing shares with a view to
  increase its capital could not amount to revenue expenditure and would
  fall under capital expenditure. Being aggrieved, the assessee-appellant
  filed the present appeal.

           Dismissing the appeal, this Court
F
        HELD : 1. Though the increase in the capital results in expansion of
  the capital base of the company and incidentally that would help in the
  business of the company and may also help in the profit-making, the
  expenses incurred in that connection still retain the character of a capital
G expenditure since the expenditure is directly related to the expansion of
  the capital base of the company. [528-B]

          Punjab State Industrial Development Corporation Ltd. v. CIT, (1997)
     10 sec 184, relied on.

H         India Cements Ltd. v. Commissioner of Income Tax Madras, (1966) 60
                                         524
                    BROOKE BOND (I) LTD. v. C.I.T.                      525

ITR 52; CIT v. Kisenchand Cha/laram India (P) Ltd., (1981) 130 ITR 385; A
Empire Jute Co. Ltd. v. CIT, (1980) 14 ITR; CJ.T, Bombay v. Associated
Cements Co. Ltd., (1988) 172 ITR 257;Alembic Chemical Works Company
Ltd. v. CIT, Gujarat, (1989) 177 ITR 377; Warner Hindustan Ltd. v. Com-
missioner of Income Tax, AP (1988) 171ITR224; Hindustan Machine Tools
Ltd. (No. 3) v. Commissioner of Income Tax, Karnataka-II, (1989) 175 ITR B
220 and Federal Bank Ltd. v. Commissioner of Income Tax, Kerala, (1989)
180 ITR 241, referred to.

      Brooke Bond India Ltd. v. CIT, (1983) 140 ITR 272 (Cal.), affirmed.

     CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5771                      C
(NT) of 1983.

     From the Judgment and Order dated 17.8.81 of the Calcutta High
Court in I.TA No. 17 of1978.

     Dr. Debi Pal, S. Ganesh, Rahul P. Dave, Ms. Shipra Ghose and              D
Hirendra Krishna Dutt for the Appellant.

     Ranbir Chandra, B. Krishna Prasad, C. Radha Krishna and N.D.B.
Raju for the Respondent.

      The Judgment of the Court was delivered:                                 E
      In this appeal, by certificate granted by the High Court under Section
261 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), the
following question referred to the Calcutta High Court by the Income Tax
Tribunal (hereinafter referred to as 'the Tribunal') was answered in favour
of the Revenue and against the assessee :                                      F
        "Whether on the facts and in the circumstances of the case, the
        Tribunal was right in sustaining the disallowance of Rs. 13,99 ,305
        being expenses incurred in connection with the issue of fresh lot
        of shares in 1967?"
                                                                               G
      The question relates to the assessment year 1969-70 and the relevant
account year ended on June 30, 1968. The assessee is a public limited
company. It issued ordinary shares of Rs. 16,75,000 of Rs. 10 each at a
premium with a view to increase its share capital and, in that connection,
it incurred an expenditure of Rs. 13,99,305 which amount was claimed by H
    526                  SUPREME COURT REPORTS                  [1997] 2 S.C.R.

A   it as deductible expenses. The said deduction was disallowed by the Income
    Tax Officer on the view that the expenditure incurred by the assessee was
    on the capital account. The ·said view. of the Income Tax Officer was
    affirmed by the Appellate Assistant Commissioner and the Tribunal. The
    High Court, while upholding the view of the Tribunal, has held that the
B   expenditure incurred by the assessee in issuing shares with a view to
    increase its capital could not amount to revenue expenditure and would
    fall under capital expenditure. The High Court has placed reliance on the
    observations of this Court in India Cements Ltd. v. Commissioner of Income
    Tax, Madras,' 60 ITR 52, and it did not agree with the view taken by the
    Madras High Court in Commissioner of Income Tax, Tamil Nadu-I v.
C   Kisenchand Chellaram (India) P. Ltd., 130 ITR 385.

          Dr. Debi Pal, the learned senior counsel appearing for the appellant-
    assessee, has submitted that the High Court was in error in holding that
    the expenses incurred by the assessee in issuing the shares with a view to
D   increase its capital did not constitute revenue expenditure. According to
    the learned counsel, the said view of the High Court is not in consonance
    with the law laid by this Court in Empire Jute Company Ltd. v. Commis-
    sioner of Income Tax, 124 ITR 1; Commissioner of Income Tax, Bombay-II
    v. Associated Cements Co. Ltd., 172 ITR 257 and Alembic Chemical WorkS
    Co. Ltd. v. Commissioner of Income Tax, Gujarat, 177 ITR 377. The
E   learned counsel has also invited our attention to the decisions of the High
    Courts of Andhra Pradesh, Kerala and Karnataka which have taken the
    same view as that taken by the Madras High Court in Kisenchand Chel-
    laram (India) P. Ltd. (supra). (See : Warner Hindustan Ltd. v. Commis-
    sioner of Income Tax (A.P.), 171 ITR 224; Hindustan Machine Tools Ltd.
F   (No. 3) v. Commissioner of Income Tax, Kamataka-II, 175 ITR 220 and
    Federal Bank Ltd. v. Commissioner of Income Tax Kera/a, 180 ITR 241).

        We find that this matter has come up for consideration before this
  Court in Mis. Punjab State Industrial Development Corporation Ltd. Chan-
  digarh v. Commissioner or Income Tax, Patiala, (Tax Reference No. 1 of
G 1990 decided on December 4, 1996). In that case, the question under
  consideration was whether an amount of Rs. 1,50,000 paid to the Registrar
  of Companies as filing fee for enhancement of capital was not revenue
  expenditure. The Court has taken note of the decisions of the Madras,
  Andhra Pradesh, Karnataka and Kerala High Courts to which reference
H has been made by Dr. Pal as well as the judgment under challenge in this
                    BROOKE BOND (I) LTD. v. C.I.T.                      527

appeal and the judgment of the High Courts taking the same views that A
taken in the impugned judgment. This Court has also taken note of the
decisions in Empire Jute Company Ltd. (supra) as well as India Cements
Ltd. (supra). While holding that the amount of Rs. 1,50,000 paid to the
Registrar of Companies as filing fee for enhancement of the capital was
not revenue expenditure, this Court has said :
                                                                               B
        "We do not consider it necessary to examine all the decisions in
        extenso because we are of the opinion that the fee paid to the
        Registrar for expansion of the capital base of the company was
        directly related to the capital incidentally that would certainly help
        in the business of the company and may also help in profit making, C
        it still retains the character of a capital expenditure since the
        expenditure was directly related to the expansion of the capital
        base of the company. We are, therefore, ofthe opinion that the
        view taken by the different High Courts in favour of the Revenue
        in this behalf is the preferable view as compared to the view based D
        on the decision of the Madras High Court in Kisenchand Chellaram
        case."


      This decision thus covers the question that falls for consideration in
this appeal.
                                                                               E
       Dr. Pal has, however, submitted that this decision does not cover a
case, like the present case, where the object of enhancement of the capital
was to have more working funds for the assessee to carry on its business
and to earn more profit and that in such a case the expenditure that is
incurred in connection with issuing of shares to increase the capital has to p
be treated as revenue expenditure. In this connection, Dr. Pal has invited
our attention to the submissions that were urged by the learned counsel
for the assessee before the Appellate Assistant Commissioner as well as
before the Tribunal. It is no doubt true that before the Appellate Assistant
Commissioner as well as before the Tribunal it was submitted on behalf of
the assessee that increase in the capital was to meet the need for working G
funds for the assessee-company. But the statement of case sent by the
Tribunal does not indicate that a finding was recorded to the effect that
the expansion of the capital was undertaken by the assessee in order to
meet the need for more working funds for the assessee. We, therefore,
cannot proceed on the basis that the expansion of the capital was under- H
    528                  SUPREME COURT REPORTS                  [1997] 2 S.C.R.

A taken by the assessee for the purpose of meeting the need for working
    funds for the assessee to carry on its business. In any event, the above-
    quoted observations of this Court in M/s. Punjab State Industrial Develop-
    ment Corporation Ltd., Chandigarh (supra) clearly indicate that though the
    increase in the capital results in expansion of the capital base of the
B   company and incidentally that would help in the business of the company
    and may also help in the profit making, the expenses incurred in that
    connection still retain the character of a capital expenditure since the
    expenditure is directly related to the expansion of the capital base of the
    company.

C          In these circumstances, we do not find any merit in the appeal and
    it is accordingly dismissed. No order as to costs.

    H.K.                                                    Appeal dismissed.




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