Judgment:
Arijit Pasayat, C.J.
These two reference applications are interlinked as they relate to the same order of the Appellate Tribunal Delhi Bench-C (hereinafter referred to as Tribunal) dated 23-2-1981, in ITA No. 5039 (Del)/1979. Tribunal has referred the following questions for opinion of this Court, under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as the 'the Act)
At the instance of assessed
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the expenditure of Rs. 1,00,500 on account of fees paid by the assessed to the Registrar of Joint Stock Companies, Delhi, for increasing the authorised share capital of the company was a capital expenditure and not a revenue expenditure ?'
At the instance of revenue
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessed is entitled to amortisation of expenditure fee as a result of increase in the share capital under section 35D(2)(c)(iii) of the Income Tax Act, 1961 ?'
Dispute relates to assessment year 1975-76.
2. Factual position is almost undisputed and is as follows :
assessed is a public limited company and is a government undertaking. At the relevant point of time it derived income from manufacture and sale of insecticides. assessed increased its share capital from Rs. 1.30 crores to Rs. 8 crores during the assessment year in question. A sum of Rs. 1,00,500 was paid to the Registrar of Companies as fees for increasing the authorities capital. assessed claimed that share capital had been increased to provide additional finance for the companys activities and as such the payment of fees was incidental to the assesses business and it was revenue expenditure. The Income Tax Officer rejected this stand. He held that it was capital expenditure because it was incurred to increase the share capital. He also rejected assesses alternative claim for deduction of the amount under section 35D(2)(iv), on the ground that the expenditure was not connected with the issue of shares for public subscription Matter was carried in appeal by the assessed before the Commissioner (Appeals). In agreement with the Income Tax Officers view Commissioner (Appeals) held that assessed was not entitled to claim deduction because the same was incurred to increase the share capital and it has to be treated as capital expenditure. Alternative claim was also rejected by holding that neither section 35(2)(c)(iv) nor 35D(2)(c)(iii) had application to the facts of the case. Matter was carried in appeal before the Tribunal. Before the Tribunal, assesses stand was that the fees paid to the Registrar of companies to increase share capital was revenue expenditure and for the purpose reliance was placed on a decision of the Madras High Court in CIT v. Kishan Chand Chela Ram India (P) Ltd. (1980) Taxation 59 . On the facts it was pleaded that there was similarity with the factual position in the Madras High Court decision and, thereforee, claim should have been allowed. In the alternative, it was submitted that assessed was entitled to deduction in terms of section 35D(2)(c)(iii) and/or section 35D(2)(c)(iv). departments stand was that the fees paid to the Registrar of Companies for increasing authorised capital was capital expenditure. Tribunal held that the expenditure was of capital nature but it accepted the assesses stand that the claim was admissible under section 35D(2)(iii). Both the assessed and the revenue moved for references under section 256(1) of the Act and questions as set out above have been referred for opinion of this court.
We have heard learned counsel for revenue . There is no appearance on behalf of assessed in spite of notice.
3. So far as the question referred at the instance of assessed is concerned, matter is squarely concluded by two decisions of the Supreme Court in Punjab State Industrial Development Corpn. Ltd. v. CIT : [1997]225ITR792(SC) and Brooke Bond India Ltd. v. CIT : [1997]225ITR798(SC) . It was held in both the cases that expenditure incurred by a company in connection with issue of shares with a view to increase its share capital is directly related to the expansion of the capital base of the company and is capital expenditure even though it may incidentally help in the business of the company and in the profit-making. That being the position, the question is answered in the affirmative, in favor of revenue and against the assessed.
4. Coming to the question referred at the instance of revenue it would be necessary to quote the provision as it stood at the relevant point of time :
'35D(1) xxxxxxxxx
(2) The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses :
(a) xxxxxxxxx
(b) xxxxxxxxx
(c) where the assessed is a company, also expenditure :
(i) xxxxxxxxx
(ii) xxxxxxxxx
(iii) by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956);'
It has to be noted that Tribunal referred to Schedule X of the Companies Act, 1956 (hereinafter referred to as the Companies Act). The said schedule refers to the table of fees to be paid to the Registrar in respect of a company having a share capital. Item 1 of the schedule indicates Rs. 200 as prescribed fees payable for registration of a company whose nominal share capital does not exceed Rs. 20,000. Item-2 of the schedule indicates an additional fee for registration of a company whose nominal share capital exceeds Rs. 20,000. Tribunal was of the view that Item-3 was the relevant item. The said item reads as follows :
'(3) For filing a notice of any increase in the nominal share capital of a company the difference between the fees payable on the date of filing the notice for the registration of a company with a nominal share capital equal to the increased share capital and the fees payable, on such date, for the registration of a company with a share capital equal to the nominal share capital of the company filing the notice immediately before the increase.'
With reference to the said item Tribunal held that additional fee is registration fee on the difference in the nominal share capital and the increased share capital of the company and is covered by the said item. For coming to said conclusion Tribunal observed that it has to be kept in view that the whole amount, which becomes the authorised share capital would have attracted payment of fee at a particular figure at the point of time of original registration of the company. Merely because the share capital is increased subsequently as permissible under section 81 of the Companies Act, the fee paid on the increased capital does not cease to be registration fee. Learned counsel for revenue with reference to the various provisions of the Companies Act submitted that Item 3 of Schedule X has no application to the facts of the case. There is a conceptual difference between registration of the company and action taken for increase of the share capital. Part II of the Companies Act deals with incorporation of a company and matters incidental thereto. Section 12 deals with mode of forming an incorporated company. Sections 33 and 34 deal with registration of memorandum and articles and effects of registration, respectively. Section 97 deals with the requirement of notice of increase of the share capital or of members. Section 611 deals with the fees payable under Schedule X. Sub-section (1) of section 34 to which we have made reference earlier stipulates that on registration of the memorandum of a company, the Registrar shall certify under his hand that the company is incorporated and in the case of a limited company that the company is limited. thereforee, on the registration of the memorandum of a company the company becomes incorporated. A reading of Schedule X would go to show that items 1 and 2 deal with registration of a company depending on the nominal share capital, in respect of a company having a share capital. Item-3, on the other hand, deals with fees payable for filing a notice for increase in the nominal share capital of the company. The first two items and the third item operate in conceptually and contextually different fields. This is also clear from a reading of Item 4 which provides that for registration of any existing company, except such companies as are by the companies Act exempted from payment of fees in respect of registration under Companies Act, the same fee as is charged for registering a new company is payable. Section 35D(2)(c)(iii) deals with expenditure incurred by way of fees for registration of a company under the Act. As the analysis of the position above would go to show, fees paid under Item 3 of Schedule X cannot be stated to be fees paid for registering a company. That being the position section 35D(2)(c)(iii) has no application to the facts of the case. The question referred at the instance of revenue is, thereforee, answered in the negative, in favor of revenue and against assessed.
The references stand disposed of.