CIT v. General Insurance Corporation

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The Tax Publishers2006 TaxPub(DT) 1870 (SC) : (2006) 286 ITR 0232 : (2006) 205 CTR 0280 : (2006) 156 TAXMAN 0096 CIT v. General Insurance Corporation INCOME TAX ACT, 1961 Capital or revenue expenditure- Increase in share capital-Stamp duty and registration fees towards increased authorized share capital and issue of bonus shares Assessee, an insurance company, filed its return and claimed deduction on account of expenditure incurred towards the stamp duty and registration fees paid in connection with the increase in authorized share capital and towards issue of bonus shares. AO disallowed claim of the assessee on the ground that impugned expenses were incurred for acquisition of a capital asset, therefore, these expenses could only be treated as capital expenditures. CIT(A) as well as Tribunal allowed the expenditure incurred on issue of bonus shares. *Held:As on Issuance of bonus shares the capital employed remains the same, there is no inflow of fresh funds or increase in the capital employed. Issuance of bonus shares by capitalization of reserves is merely a reallocation of companys fund. It cannot be held that the company has acquired a benefit or advantage of enduring nature. The total funds available with the company will remain the same and the issue of bonus shares will not result in the expansion of capital base of the company. Therefore, the expenditure incurred in connection with issuance of bonus shares should be treated as revenue expenditure. Income Tax Act, 1961* Section 37(1) Case Law Analysis:Followed: Decision of Bombay High Court in CIT v. General Insurance Corporation of India (No. 1) [2002] 254 ITR 203 /25 Taxman 374 -Affirmed, Decision of Bombay High Court in case of Bombay Burmah Trading Corporation v. CIT [1984] 145 ITR 793/[1983] 12 Taxman 178 -Approved, Decision of Calcutta High Court in case of Wood Craft Products Ltd. v. CIT [1993] 204 ITR 545 -Approved, Decision of Gujarat High Court in case of Ahmedabad Manufacturing and Calico (P.) Ltd. v. CIT [1986] 162 ITR 800 / 28 Taxman 306 -Disapproved, Decision of Andhra Pradesh High Court in case of Vazir sultan Tobacco Co. Ltd. v. CIT [1990] 184 ITR 70/ 48 Taxman 366 -Disapproved. Referred:Bombay Burmah Trading Corpn. Ltd. v. CIT [1984] 145 ITR 793 /[1983] 12 Taxman 178 (Bom.) [Para4], Richardson Hindustan Ltd. v. CIT [1988] 169 ITR 516/[1987] 32 Taxman 466 (Bom.) [Para 4], Ahmedabad Mfg. & Calico (P.) Ltd. v. CIT [1986] 162 ITR 800/ 28 Taxman 306 (Guj.) [Para 8], CIT v. Mihir Textiles Ltd. [1994] 206 ITR 112 (Guj.) [Para 8], Gujarat Steel Tubes Ltd. v. CIT [1994] 210 ITR 358 (Guj.) [Para 8], CIT v. Ajit Mills Ltd. [1994] 210 ITR 658 (Guj.) [Para 8], Vazir Sultan Tobacco Co. Ltd. v. CIT [1990] 184 ITR 70/ 48 Taxman 366 (AP) [Para 8], Vazir Sultan Tobacco Co. Ltd. v. CIT [1988] 174 ITR 689/ 41 Taxman 7 (AP) [Para 8], Punjab State Industrial Development Corpn. Ltd. v. CIT [1997] 225 ITR 792/ 93 Taxman 5 (SC) [Para 8], Brooke Bond India Ltd. v. CIT [1997] 255 ITR 798/ 91 Taxman 26 (SC) [Para 8], CIT v. Motor Industries Co. Ltd. [1998] 229 ITR 137/ 97 Taxman 7 (Kar.) [Para 8], Union Carbide India Ltd. v. CIT [1993] 203 ITR 584 (Cal.) [Para 8], CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567 (SC) [Para 9], Wood Craft Products Ltd. v. CIT [1993] 204 ITR 545 (Cal.) [Para 9] and Eisner v. Macomber [1920] 252 U.S. 189 (SC) [Para 13]. Decision: In favour of Assessee. A.Y. 1991-92 SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2006 TaxPub(DT) 1870 (SC) : (2006) 286 ITR 0232 : (2006) 205 CTR 0280 : (2006) 156 TAXMAN 0096

CIT v. General Insurance Corporation

INCOME TAX ACT, 1961

Capital or revenue expenditure- Increase in share capital-Stamp duty and registration fees towards increased authorized share capital and issue of bonus shares

Assessee, an insurance company, filed its return and claimed deduction on account of expenditure incurred towards the stamp duty and registration fees paid in connection with the increase in authorized share capital and towards issue of bonus shares. AO disallowed claim of the assessee on the ground that impugned expenses were incurred for acquisition of a capital asset, therefore, these expenses could only be treated as capital expenditures. CIT(A) as well as Tribunal allowed the expenditure incurred on issue of bonus shares. Held:As on Issuance of bonus shares the capital employed remains the same, there is no inflow of fresh funds or increase in the capital employed. Issuance of bonus shares by capitalization of reserves is merely a reallocation of companys fund. It cannot be held that the company has acquired a benefit or advantage of enduring nature. The total funds available with the company will remain the same and the issue of bonus shares will not result in the expansion of capital base of the company. Therefore, the expenditure incurred in connection with issuance of bonus shares should be treated as revenue expenditure.

Income Tax Act, 1961 Section 37(1)

Case Law Analysis:Followed: Decision of Bombay High Court in CIT v. General Insurance Corporation of India (No. 1) [2002] 254 ITR 203 /25 Taxman 374 -Affirmed, Decision of Bombay High Court in case of Bombay Burmah Trading Corporation v. CIT [1984] 145 ITR 793/[1983] 12 Taxman 178 -Approved, Decision of Calcutta High Court in case of Wood Craft Products Ltd. v. CIT [1993] 204 ITR 545 -Approved, Decision of Gujarat High Court in case of Ahmedabad Manufacturing and Calico (P.) Ltd. v. CIT [1986] 162 ITR 800 / 28 Taxman 306 -Disapproved, Decision of Andhra Pradesh High Court in case of Vazir sultan Tobacco Co. Ltd. v. CIT [1990] 184 ITR 70/ 48 Taxman 366 -Disapproved.

Referred:Bombay Burmah Trading Corpn. Ltd. v. CIT [1984] 145 ITR 793 /[1983] 12 Taxman 178 (Bom.) [Para4], Richardson Hindustan Ltd. v. CIT [1988] 169 ITR 516/[1987] 32 Taxman 466 (Bom.) [Para 4], Ahmedabad Mfg. & Calico (P.) Ltd. v. CIT [1986] 162 ITR 800/ 28 Taxman 306 (Guj.) [Para 8], CIT v. Mihir Textiles Ltd. [1994] 206 ITR 112 (Guj.) [Para 8], Gujarat Steel Tubes Ltd. v. CIT [1994] 210 ITR 358 (Guj.) [Para 8], CIT v. Ajit Mills Ltd. [1994] 210 ITR 658 (Guj.) [Para 8], Vazir Sultan Tobacco Co. Ltd. v. CIT [1990] 184 ITR 70/ 48 Taxman 366 (AP) [Para 8], Vazir Sultan Tobacco Co. Ltd. v. CIT [1988] 174 ITR 689/ 41 Taxman 7 (AP) [Para 8], Punjab State Industrial Development Corpn. Ltd. v. CIT [1997] 225 ITR 792/ 93 Taxman 5 (SC) [Para 8], Brooke Bond India Ltd. v. CIT [1997] 255 ITR 798/ 91 Taxman 26 (SC) [Para 8], CIT v. Motor Industries Co. Ltd. [1998] 229 ITR 137/ 97 Taxman 7 (Kar.) [Para 8], Union Carbide India Ltd. v. CIT [1993] 203 ITR 584 (Cal.) [Para 8], CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567 (SC) [Para 9], Wood Craft Products Ltd. v. CIT [1993] 204 ITR 545 (Cal.) [Para 9] and Eisner v. Macomber [1920] 252 U.S. 189 (SC) [Para 13].

Decision: In favour of Assessee.
A.Y. 1991-92