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Tax Publishers 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."

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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."