COMMISSIONER OF INCOME TAX, MUMBAI versus M/S. GENERAL INSURANCE CORPORATION

Citation: [2006] SUPP. 6 S.C.R. 561 · Decided: 25-09-2006 · Supreme Court of India · Bench: ASHOK BHAN · Disposal: Dismissed
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Judgment (excerpt)

COMMISSIONER OF INCOME TAX, MUMBAI 
A 
i: 
MIS. GENERAL INSURANCE CORPORATION 
SEPTEMBER 25. 2006 
[ASHOK BHAN AND MARKANDEY KA TJU, JJ.] 
B 
Companies Act, 1956: 
Section 8 I-Expenditure incurred in connection with issuance of bonus 
shares-Held: ls revenue expenditure and not capital expenditure. 
C 
The question which has arisen for consideration in the present appeal 
is whether the expenditure incurred in connection with the issuance of bonus 
shares is a capital expenditure or revenue expenditure. 
Dismissing the appeal, the Court 
HELD: 1.1. The expenditure on issuance of bonus shares is revenue 
expenditure and not capital expenditure. 1570-AJ 
D 
1.2. Issuance of bonus shares does not result in any inflow of fresh funds 
or increase in the capital employed. The capital base of the company prior to E 
or after the issuance of bonus shares remains unchanged. Issuance of bonus 
shares by capitalization of reserves is merely a reallocation of company's fund. 
If that be so, then 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 any F 
change in the capital structure of the company. (569-8, F( 
C/Tv. Dalmia Investment Co. Ltd., (1964) 52 ITR 567 (SC), relied on. 
Bombay Burmah Trading Corporation Ltd. v. CIT, (1984) 145 ITR 793; 
Richardmn Hindustan Limitedv. CIT, (1988) 169 ITR 516 (Bombay) and Wood G 
Craft Products Limitedv. Commissioner of Income-Tat, (1993) 204 ITR 545, 
approv~ 
Ahmedabad Manufacturing and Calico Pvt. Ltd. v. Commissioner of 
561 
H 
562 
SUPREME COURT REPORTS (2006] SUPP. 6 S.C.R. 
A Income-Tax, (1986) 162 ITR 800; C!Tv. Mihir Textiles limtied, (1994) 206 
ITR 112 (Gujarat); C!Tv. Aiit Mills limited, (1994) 210 ITR 658; Va::ir Sultan 
Tobacco Co. Ltd v. CIT. (1990) 184 ITR 70 and Va::ir S11/tan Tobacco Co. 
ltd v. CIT. (1988) 174 ITR 689, overruled. 
Punjab State Industrial Developmem Corporation ltd. v. CIT, (1997) 
B 225 ITR 792 (SC); Gujarat Steel Tubes ltd. v. CIT. (1994) 210 ITR 358; Union 
Carbide India ltd v. CIT, (1993) 203 ITR 584; Brooke Bond India limitedv. 
CIT, (1997) 225 ITR 798(SC) and C/Tv. Alo/Or Industries Co. ltd, (1998) 
229 ITR 137, Distinguished. 
c 
Empire Jute Co. ltd. v. CIT. (1980( 4 SCC 25, referred to. 
Atherton v. British Insulated and Helsby Cables ltd., 10 TC 155 and 
Eisner v. Macomber, (1920) 252 U.S. 189, referred to. 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4422 of2001. 
D 
From the Judgment and Order dated 18.9.2000 of the High Court of 
Judicature at BoPlbay in Income Tax Appeal No. 45712000. 
Mohan Parasaran, A.S.G., Harish Chander, O.P. Srivastava, T.A. Khan 
and D.S. Mahra for the Appellant. 
E 
F.V. Irani and K..B. Hathikhanawala for the Respondent. 
The Judgment of the Court was delivered by 
BHAN, J. The question which arises for consideration in this appeal is, 
as to whether the expenditure incurred in connection with the issuance of 
F bonus shares is a capital expenditure or revenue expenditure. The question 
of law framed in the High Court was: 
G 
H 
(i) 
Whether on the facts and in the circumstances of the case and 
in law the Tribunal was right in holding that the expenditure 
incurred on account of share issue is allowable expenditure? 
The Assessee is an Insurance Company which has four subsidiaries. 
For the assessment year 1991 ·92 the assessee filed a return of income of Rs. 
58,52,80,850/- along with the audit report. The assessing Officer disallowed a 
few expenses incurred as revenue expenditure, one of them being in the sum 
·-
COMMR. OF INCOME TAX, MUMBAI i·. GENERALINSURANCECORPN. [BHAN. J] 
563 
of Rs. 1,04,28,500/- incurred towards the stamp duty and registration fees paid A 
in connection with the increase in authorized share capital. The respondent-
assessee had during the accounting year, incurred expenditure separately for: 
(i) The increase of its authorized share capital and 
(ii) The issue of bonus shares. 
The Assessing Officer disallowed both the items of expenditure as 
revenue expenditure. According to him, the expenses incurred were towards 
a capital asset of a durable, nature for the acquisition of a capital asset and, 
therefore, the expenses could only be attributable towards the capital 
expenditure. 
The assessee being aggrieved filed an appeal under Section 143 (3) 
before the CIT (Appeals). Disallowance of Rs. 1,04,28,500/- in respect of 
stamp du
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