Rajasthan High Court - Jaipur
Commissioner Of Income-Tax vs Aditya Mills on 17 October, 1989
Equivalent citations: [1990]181ITR990(RAJ)
Author: S.C. Agrawal
Bench: S.C. Agrawal
JUDGMENT S.C. Agrawal, J.
1. This reference has been made at the instance of the Revenue under Section 156 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), wherein the following question has been referred for consideration of this court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 7,500 paid as fees to the Registrar of Companies, Jaipur, for bringing about change in the memorandum and articles of association of the company in relation to increase in its authorised capital is allowable as a revenue expenditure ?"
2. This reference relates to the assessment year 1974-75. The authorised capital of the assessee was Rs. 100 lakhs which was increased to Rs. 150 lakhs and, for that purpose, the assessee had to get the memorandum and articles of association amended and a sum of Rs. 7,500 was paid by the assessee to the Registrar of Companies, Jaipur, as filing fee for the said amendment. The assessee claimed deduction of the said expenses as a revenue expenditure. The Income-tax Officer disallowed the said claim of the assessee and allowed only l/10th of the said expenditure in view of Section 35D(1)(ii) of the Act. The Commissioner of Income-tax (Appeals) held that the expenditure was not covered by Section 35D(1)(ii) of the Act and no part of this expenditure could be allowed as deduction. He disallowed the entire expenditure of Rs. 7,500. On further appeal, the Income-tax Appellate Tribunal allowed the said deduction of expenditure in the view that the said expenditure was not an expenditure which was capital in nature but was a revenue expenditure. Thereupon, the Revenue moved the Tribunal for referring the above question before this court and the Tribunal has referred the question for consideration of this court.
3. The assessee has not appeared even though he has been served. We have heard Shri V.K. Singhal, counsel for the Revenue.
4. The question as to whether the amount deposited with the Registrar in connection with the amendment of the memorandum and articles of association in relation to increase of the capital has come up for consideration before various High Courts and the view is consistent that the said expenditure is capital expenditure and not revenue expenditure and in this connection reference may be made to Mohan Meakin Breweries Ltd. v. CIT (No. 2) [1979] 117 ITR 505 (HP) ; Bharat Carbon and Ribbon Manufacturing Co", Ltd. v. CIT [1981] 127 ITR 239 (Delhi), Bombay Burmah Trading Corporation Ltd, v. CIT [1984] 145 ITR 793 (Bom) and Groz-Beckert Saboo Ltd. v. CIT [1986] 160 ITR 743 (P&H).
5. The Tribunal has placed reliance on the decision of the Allahabad High Court in CIT v. Modi Spinning and Weaving Mills Co. Ltd. [1973] 89 ITR 304 and the decision of the Bombay High Court in CIT v. Elphinstone Spinning and Weaving Mills Co, Ltd. [1975] 100 ITR 139. We have considered the said decisions and we find that these decisions have no application to the present case. In Modi Spinning and Weaving Mills' case [ 1973] 89 ITR 304 (All), it was held that the amount paid to a lawyer for advising a company on amendments in the articles of association and for drafting a special resolution so that the articles could be amended to bring them into accord with changes brought about in the law relating to companies is an allowable expenditure under Section 10(2)(xv) of the Act as it is incurred in order that the company should continue to function in accordance with law and is not capital expenditure. Similarly, in CIT v. Elphinstone Spinning and Weaving Mills Co. Ltd. [1975] 100 ITR 139, the Bombay High Court, relying upon the decision of the Allahabad High Court in CIT v. Modi Spinning and Weaving Mills Co. Ltd. [1973] 89 ITR 304, has held that the amount expended by a company for making alterations in its memorandum and articles of association in order to bring them into accord with changes brought about in the law relating to companies is expenditure incurred by the assessee solely and exclusively for the purpose of its business and the said expenditure is incurred in order that the company should continue to function in accordance with law. The expenditure incurred for the purposes of amending the memorandum and articles of association so as to increase the capital, however, stands on different footing as mentioned in the decisions mentioned above because, as a result of the said amendment, additional amount of capital is available for carrying on the business of the company and, as such, the expenditure is an expenditure of a capital nature and not a revenue expenditure. We are, therefore, of the view that the Tribunal was not justified in allowing the deduction of Rs. 7,500 paid as fees to the Registrar of Companies, Jaipur, for bringing about a change in the memorandum and articles of association of the company in relation to increase in its authorised capital as revenue expenditure. In our view, the said expenditure should have been treated as a capital expenditure.
6. The reference is, therefore, answered in the negative, i. e., in favour of the Revenue and against the assessee in the following terms :
7. In the facts and in the circumstances of the case, the Tribunal was not justified in holding that the amount of Rs. 7,500 paid as fees to the Registrar of Companies, Jaipur, for bringing about a change in the memorandum and articles of association of the company in relation to increase of its authorised capital is allowable as a revenue expenditure.
8. No order as to costs.