Sen, J. - (1.) THE Tribunal has referred the following questions of law to this Court under s. 256(1) of the IT Act, 1961 ('the Act'): "1. Whether, on the facts and in the circumstances of the case and particularly having regard to the fact that the profits assessed in the hands of the Indian Company arose from business actually carried on by the sterling company during the relevant previous year, the Tribunal was right in holding that the expenditure of Rs. 75,000 incurred in fulfilment of the condition for so carrying on of the business represented expenditure of capital nature? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right holding that the surtax liability under the Companies (Profits) Surtax Act, 1964, for the asst. yr. 1978-79 was not an allowable deduction in the income-tax assessment for the said assessment year?"
(2.) THE assessment year involved as the asst. yr. 1978-79. THE relevant accounting period was the year ended on 31st March, 1978. So far as the first question is concerned, the facts found by the Tribunal are as under: "The first dispute in this case related to the assessee's claim for Rs. 75,000 incurred on account of amalgamation. The assessee-company came into existence under the scheme of amalgamation approved by the Hon'ble High Court of Calcutta, IN carrying out the scheme it had to obtain sanction of the Reserve Bank of India for which a lot of legal labour had to be done. A sum of Rs. 75,000 was paid by the assessee to Lovelock and Lewes as their professional fees. The ITO held these expenditure related to amalgamation matter and was in the nature of capital expenditure. He, therefore, disallowed the same and the said conclusion was upheld by the CIT (A) relying upon the two decisions in Raza Buland Sugar Co. Ltd. vs. CIT (1980) 122 ITR 817 (All) and Bengal and Assam Investment Ltd. vs. CIT (1982) TLR 2017. The assessee preferred further appeal against the order of the Tribunal and the Tribunal held as under: "After carefully considering the all-over facts and circumstances of the case we are not inclined to accept this contention raised on behalf of the assessee. The reason is that the question of claiming any expenditure relating to amalgamation on the Revenue account would arise only if it was proved that the business had already been started before the amalgamation was finalised. It was conceded on behalf of the assessee that though the amalgamation had been ordered by the High Court on 21st Sept., 1977 the order was conditional and would not be effective unless approval was obtained from the Reserve Bank. In other words, the assessee which is an Indian company came into existence as a result of the amalgamation itself. If at all the business had to be discontinued without amalgamation, that was the business of the predecessor company and not that of the present assessee. The present assessee came into existence by the factum of the amalgamation itself. Therefore, this expenditure was capital so far as the assessee was concerned. The question in dispute was considered by Calcutta High Court in Bengal and Assam Investment Ltd. vs. CIT (1983) 142 ITR 156. In this case the ITO had disallowed the claim of the assessee for deduction of Rs. 6,077 incurred in connection with the proposed amalgamation with another company which was confirmed by the CIT (A). On a reference it was held that the purpose and the object of incurring the expenditure irrespective of whether it succeeded or not was to alter the framework and the structure under which the assessee was carrying on the business and since it affected the structure of the profit earning machinery of the assessee itself, the expense was to be treated as capital one. In the present case not only the structure has been altered but the assessee company has itself come into existence as a result of the amalgamation. Therefore, this is a still a worse case for the assessee. Again in Straw Products Ltd. vs. ITO (1938) 6 ITR 35 (sic) a banking company had merged with the assessee under a scheme of amalgamation approved by the High Court. On the eve of merger the assessee expanded its capital base by doubling its authorised capital. The legal expenses incurred to effect the merger were disallowed by the ITO and the CIT (A). On a second appeal it was held by the C Bench of the Tribunal that the legal expense fell in the capital field and could not be allowed as a revenue expenditure. The decision in Addl. CIT vs. W.A. Beardsell and Co. (P) Ltd. (supra) was duly considered by the learned Members. In the result we reject the assessee's first ground raised in this appeal before us." The Tribunal has given good reasons for coming to the conclusion that the expenditure was of the capital nature. Dr. Pal disputed the finding made by the Tribunal and urged that the amalgamation was necessary to carry on the business. If the assessee could carry on business only by the process of dilution of shareholding or amalgamation because of the Rules and Provisions of the Foreign Exchange Regulation Act, then the assessee must be deemed to have taken certain steps for the purpose of remaining in business and in such case the expenditure would be an expenditure in the profit making process and not an expenditure relating to the capital structure of the company. But the finding of the facts made by the Tribunal is that the Indian Company, which is the assessee, came into existence as a result of the amalgamation. Therefore, the expenditure was of capital nature so far as the assessee was concerned. The question is, therefore, answered in the affirmative and in favour of the Revenue.
(3.) THE second question is concluded by the judgment of this Court in the case of Molins of India Ltd. vs. CIT (1983) 35 CTR (Cal) 284 : (1983) 144 ITR 317 (Cal). In view of the judgment delivered in that case, this question is also answered in the affirmative and in favour of the Revenue. THEre will be no order as to costs.;