BROOKE BOND INDIA LTD. versus COMMISSIONER OF INCOME TAX, WEST BENGAL-III.

Citation: [1997] 2 S.C.R. 524 · Decided: 27-02-1997 · Supreme Court of India · Bench: S.C. AGRAWAL, G.B. PATTANAIK · Disposal: Dismissed

Judgment (excerpt)

A 
BROOKE BOND INDIA LTD. 
v. 
COMMISSIONER OF INCOME TAX, WEST BENGAL-III. 
FEBRUARY 27, 1997 
B 
(S.C. AGRAWAL AND G.B. PATTANAIK, JJ.] 
Income Tax Act, 1961-Section 37(1)--Whether expenditure incu"ed 
for issuing shares for expanding capital base can be treated as revenue expen-
diture and therefore allowed as a deductible expense-Held : Expenditure 
C incumd for issuing shares to expand capital base with the object of having 
more working funds and eaming more profit is capital expenditure and there-
fore not a deductive expense. 
The assessee, a public limited company, claimed deduction for the 
expenditure incurred by it for issuing shares with a view to increase its 
D share capital for the assessment year 1969-70. The deduction was disal-
lowed by the Income Tax Ollicer on the ground that the expenditure 
incurred by the assessee was on the capital account. This view was allirmed 
by the Appellate Assistant Commissioner and the Tribunal. On appeal, the 
High Court, while upholding the view of the Tribunal, held that the 
E expenditure incurred by the assessee in issuing shares with a view to 
increase its capital could not amount to revenue expenditure and would 
fall under capital expenditure. Being aggrieved, the assessee-appellant 
filed the present appeal. 
F 
Dismissing the appeal, this Court 
HELD : 1. Though the increase in the capital results in expansion of 
the capital base of the company and incidentally that would help in the 
business of the company and may also help in the profit-making, the 
expenses incurred in that connection still retain the character of a capital 
G expenditure since the expenditure is directly related to the expansion of 
the capital base of the company. [528-B] 
Punjab State Industrial Development Corporation Ltd. v. CIT, (1997) 
10 sec 184, relied on. 
H 
India Cements Ltd. v. Commissioner of Income Tax Madras, (1966) 60 
524 
BROOKE BOND (I) LTD. v. C.I.T. 
525 
ITR 52; CIT v. Kisenchand Cha/laram India (P) Ltd., (1981) 130 ITR 385; A 
Empire Jute Co. Ltd. v. CIT, (1980) 14 ITR; CJ.T, Bombay v. Associated 
Cements Co. Ltd., (1988) 172 ITR 257;Alembic Chemical Works Company 
Ltd. v. CIT, Gujarat, (1989) 177 ITR 377; Warner Hindustan Ltd. v. Com-
missioner of Income Tax, AP (1988) 171ITR224; Hindustan Machine Tools 
Ltd. (No. 3) v. Commissioner of Income Tax, Karnataka-II, (1989) 175 ITR B 
220 and Federal Bank Ltd. v. Commissioner of Income Tax, Kerala, (1989) 
180 ITR 241, referred to. 
Brooke Bond India Ltd. v. CIT, (1983) 140 ITR 272 (Cal.), affirmed. 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5771 C 
(NT) of 1983. 
From the Judgment and Order dated 17.8.81 of the Calcutta High 
Court in I.TA No. 17 of1978. 
Dr. Debi Pal, S. Ganesh, Rahul P. Dave, Ms. Shipra Ghose and D 
Hirendra Krishna Dutt for the Appellant. 
Ranbir Chandra, B. Krishna Prasad, C. Radha Krishna and N.D.B. 
Raju for the Respondent. 
The Judgment of the Court was delivered: 
In this appeal, by certificate granted by the High Court under Section 
261 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), the 
following question referred to the Calcutta High Court by the Income Tax 
Tribunal (hereinafter referred to as 'the Tribunal') was answered in favour 
E 
of the Revenue and against the assessee : 
F 
"Whether on the facts and in the circumstances of the case, the 
Tribunal was right in sustaining the disallowance of Rs. 13,99 ,305 
being expenses incurred in connection with the issue of fresh lot 
of shares in 1967?" 
The question relates to the assessment year 1969-70 and the relevant 
account year ended on June 30, 1968. The assessee is a public limited 
company. It issued ordinary shares of Rs. 16,75,000 of Rs. 10 each at a 
premium with a view to increase its share capital and, in that connection, 
G 
it incurred an expenditure of Rs. 13,99,305 which amount was claimed by H 
526 
SUPREME COURT REPORTS 
[1997] 2 S.C.R. 
A it as deductible expenses. The said deduction was disallowed by the Income 
Tax Officer on the view that the expenditure incurred by the assessee was 
on the capital account. The ·said view. of the Income Tax Officer was 
affirmed by the Appellate Assistant Commissioner and the Tribunal. The 
High Court, while upholding the view of the Tribunal, has held that the 
B expenditure incurred by the assessee in issuing shares with a view to 
increase its capital could not amount to revenue expenditure and would 
fall under capital expenditure. The High Court has p

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