FEDERAL BANK LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE applicant herein is an assessee to income tax. It is a banking company. The Revenue is the respondent. At the instance of the assessee applicant, the Tribunal has referred the following question of law, for the decision of this Court :

(2.) WE are concerned with the asst. year 1977 78. During the relevant previous year, the assessee incurred an expenditure of Rs. 7,500 as filing fee with the Registrar of Companies for enhancement of its authorised capital. The ITO disallowed the deduction claimed. In appeal, the CIT (Appeals) held that the assessee (banking company) is different from other companies, that the money raised by enhancing the capital is stock in trade in the hands of the assessee and not for the purpose of capital expenditure. He held that by enhancement of the authorised capital, no benefit of an enduring nature was brought into existence. He allowed the deduction claimed. The Revenue took up the matter before the Tribunal. The Appellate Tribunal held that the expenditure should be taken to be related to the capital structure of the company and so it is a capital expenditure. In this view, the deduction of Rs. 7,500 claimed was disallowed. At the instance of the assessee, the Tribunal has referred the question of law, formulated hereinabove, for the decision of this Court.

(3.) The distinction between "revenue" and "capital" expenditure is a fine one. No single test or formula is conclusive. The question should be answered in the light of all attendant facts and circumstances. There are innumerable decisions of the Supreme Court and of the High Courts on this question. An appraisal of various decisions will only be a guide or afford a background to approach the question. The recent decision of the Supreme Court in Emprire Jute Co. Ltd. vs. CIT (supra) has surveyed the law on the point in great detail. At page 10, the Court stated the law as follows: