Shristi Housing Development Ltd. v. DCIT [ITA No.
60/Kol/2020, dt. 11-8-2020] : 2020 TaxPub(DT) 3147 (Kol-Trib)
Bonus issue expenses allowability
Facts:
Assessee capitalized their reserves by issuing bonus shares
which resulted in incurring ROC expenses to increase authorized capital
consequential to the bonus issue. This was disallowed as capital expenditure by
lower authorities. Aggrieved assessee went in higher appeal to ITAT -
Held in favour of the assessee that bonus issue expenses
since they do not bring in any fresh capital infusion but merely realign the
capital structure the same is an allowable expenditure. Bonus issue expenses do
not bring forth any enduring benefit to be termed as a capital expenditure.
The case was remanded to assessing officer check the bonus
issue to furtherance the allowance claim of assessee.
Upheld: CIT v.
General Insurance Corporation (2006) 286 ITR 232 (SC) : 2006 TaxPub(DT) 1870
(SC) where it was decided as under --
"18. Issuance of bonus
shares does not result in any inflow of fresh funds or increase in the capital
employed, the capital employed remains the same. Issuance of bonus shares by
capitalization of reserves is merely a reallocation of company's fund.
19. 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 change in the capital structure of
the company.
20. The case Wood Craft
Products Ltd.'s case (supra) of the Calcutta High Court is similar of the
case to the respondent. In that case as well there was increase of authorized
share capital by the issue of fresh shares and a separate issue of bonus
shares. The Calcutta High Court drew a distinction between the raising of fresh
capital and the issue of bonus shares and held that expenditure on the former
was capital in nature as it changed the capital base. On tile other hand, in
the case of bonus shares, was held to be revenue expenditure following the
decision of the Supreme Court in Dalmia Investment Co. Ltd.'s case
(supra) on the ground that there was no change in the capital structure at all.
21. In our considered opinion,
the view taken by the Bombay and Calcutta High Courts is correct to the effect
that the expenditure on issuance of bonus shares is revenue expenditure."