Dipak Kumar Sen, J. - (1.) Hindusthan Gas & Industries Ltd., the assessee, incurred expenditure of Rs. 10,080 and Rs. 50,687, respectively, for payment of professional charges to its solicitors, Messrs. Orr, Dignam & Co., for preparing a prospectus in connection with the issue of its preference shares and payment of underwriting commission and brokerage for the issue of the same, in the assessment year 1964-65, the corresponding previous year having ended on the 31st March, 1964. In its assessment to income-tax the assessee claimed deduction of the said expenditure from its business income. The ITO disallowed the claim on the ground that the said items were not expenditure of a revenue nature. On appeal, the AAC confirmed the order of the ITO. There was a further appeal by the assessee to the Tribunal. It was contended on behalf of the assessee before the Tribunal, inter alia, that the said amounts of expenditure should be treated as revenue expenditure. It was further contended that the said expenditure was incurred in respect of issue of not equity shares but redeemable preference shares. It was submitted that there was hardly any difference between a debenture and redeemable preference shares and, therefore, on the authority of India Cements Ltd. v. CIT , a decision of the Supreme Court, it was submitted that the expenditure incurred in connection with the issue of such shares had to be treated as a revenue expenditure. It was contended on behalf the revenue, on the other hand, that the said item must be treated as having been spent on capital account. The Tribunal accepted the contentions of the revenue and the appeal of the assessee on this point was dismissed.
(2.) On an application of the assessee under Section 256(2) of the I.T. Act, 1961, the Tribunal has drawn up a statement of case and has referred the following questions for the opinion of this court as questions of law arising from the order of the Tribunal : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the legal charges of Rs. 10,080 incurred on the issue of a prospectus for offering redeemable preference shares to the public was expenditure of a capital nature. 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 50,687 representing underwriting commission and brokerage paid for the issue of redeemable preference shares was expenditure of capital nature ?"
(3.) Mr. S. Bhattacharyya, learned counsel for the assessee, rested his submissions entirely on the decision of the Supreme Court in India Cements Ltd. v. CIT . The facts in that case were, inter alia, that India Cements Ltd., Madras, a public limited company, the assessee, had obtained a loan of Rs. 40 lakhs from the Industrial Finance Corporation of India during the relevant accounting year. The loan was secured by a charge on the fixed assets of the assessee. The proceeds of the said loan were partly utilised as working funds. The assessee incurred an expenditure of Rs. 84,633 in connection with the said loan including stamp, registration fees and legal fees, etc. In the accounts, this amount was sought to be appropriated against the profits of the year. The ITO refused to allow the deduction of the said amount on the ground that the loan was utilised on capital assets of the company. The AAC confirmed the order of the ITO. The Tribunal held, on the other hand, that the said expenditure for obtaining the loan was allowable as a deduction. On a reference, the High Court of Madras accepted the view of the ITO and held that, to a large extent, the amount of loan was expended for the purposes of capital nature in order to bring into existence the capital assets and, therefore, the conclusion of the Tribunal was not justified.;