Metro General Credits Limited vs Commissioner of Income Tax

Abdul Hadi, J.—This Tax Case Petition No. 3 of 1995 u/s 256(2) of the Income Tax Act, 1961, is against the order dated September 17,

1994, of the Tribunal in R. A. No. 226/(Mds) of 1994 in I. T. A. No. 447/(Mds) of 1988. By the said order, the Tribunal rejected the said

application, holding that the findings arrived at by it in the above I. T. A. do not give rise to any referable question of law.

According to the assessee, the following three questions are referable :

Whether the Tribunal is right in its view that the expenditure incurred by a finance company doing business in leasing and hire purchasing for

raising share capital will not be allowable as a revenue expenditure ?

Whether the Tribunal is right in its view that money cannot be considered to be a stock-in-trade of a leasing and financing company ?

Whether the Tribunal is right in its view that the assessee being a leasing and financing company doing business with money as its assets and

earnings profits using money as its instrument of business, the disallowance cannot be restricted to the amount invested on the fixed assets ?

Actually speaking, the first question, which is a comprehensive one, would cover the second and third questions also. The assessee, no doubt,

made a total claim with reference to an expenditure of Rs. 4,73,828.51, the details of which are given in paragraph 4 of the order of the first

appellate authority out of which a sum of Rs. 12,390 and a sum of Rs. 6,100 set out in clauses (b) and (e) therein had been already allowed as

revenue expenditure and only the balance of Rs. 4,55,338.51 is now in dispute. The said expenditure, whose break-up figures are given in the

abovesaid paragraph 4 of the order of the first appellate authority, was incurred in the course of public issue of share capital to the extent of about

Rs. 14,00,000 by the assessee. Regarding the said expenditure, the claim of the assessee was negatived by all the authorities below, including the

Tribunal.

The argument of learned counsel for the assessee is that the assessee being engaged in financing of hire purchase and other leasing transactions,

the increase in share capital is one of finding resources to carry on its business and hence the abovesaid expenditure is only revenue expenditure

which, according to the assessee, in the present case, is similar to the expenditure that may be incurred for borrowing money for the purpose of the

business of the assessee.

But, in our view, the reasoning of the Tribunal in rejecting the reference application is justified. In India Cements Ltd. Vs. Commissioner of

Income Tax, Madras, , the Supreme Court held that obtaining capital by issue of share is different from obtaining loan by debentures and that a

loan obtained cannot be treated as an asset or advantage for the enduring benefit of the business of the assessee. On the other hand, expenditure

incurred for obtaining capital by issue of shares does bring about an asset or advantage for the enduring benefit of he business of the assessee and

so it has to be held only as capita expenditure. The said view has also been followed in Bharat Carbon and Ribbon Manufacturing Co., Ltd. Vs.

Commissioner of Income Tax, New Delhi, . It is clear from India Cements Ltd. Vs. Commissioner of Income Tax, Madras, that it is irrelevant to

consider the object with which the share capital is raised. In other words, the same rule has to be followed even in the case of raising or increasing

the share capital for the purposes of the assessee''s business of financing hire purchase or other lease transactions. The first appellate authority also

has rightly said that any accretion tot he capital by issue of shares ensures only to the advantage of the business, whether the business is of financing

or any other line of activity.

No doubt, learned counsel for the assessee relies on Commissioner of Income Tax Vs. Glaxo Laboratories (India) Ltd., . But, there, factually it

was found that the assessee did not need funds, but it needed the technical collaboration agreement to run profitably and that the motivation for the

assessee to incur the expenditure in question was the expediency of ensuring the continuance of the technical collaboration arrangement. But, in the

present case, even according to learned counsel for the assessee, the assessee only needed funds and thus the motivation was entirely different

here. Hence, the said decision is not applicable at all to the present facts.

No doubt, learned counsel also relied on the following observation in Commissioner of Income Tax Vs. Kisenchand Chellaram (India) P. Ltd., :

Without capital, the company could not have carried on the business and, therefore, the expenses incurred to increase the capital of the company

is bound up with the functioning and financing of the business.

But, that decision turned on its own facts. That is why, it is observed therein even after referring to India Cements Ltd. Vs. Commissioner of

Income Tax, Madras, :

It has to be held ion the facts here that the sum was spent only for the purpose of business and that there is no capital element in the expenditure.

Learned counsel for the assessee also relied on Commissioner of Income Tax U.P. Vs. Nainital Bank Ltd., to contradict the finding of the

Tribunal that money cannot be considered stock-in-trade of the assessee, a leasing and financing company. No doubt, the Supreme Court, in the

said case observed in the context of the actual question before it that cash was the stock-in-trade of banking business. But, the context therein was

whether loss of cash by dacoity was a trading loss. But that observation of the Supreme Court made in the above context, cannot refer to any cash

raised by way of share capital. Certainly such cash raised by the assessee here is not his stock-in-trade.

Then et result is, we concur with the order of the Tribunal in the above reference application and dismiss the tax case petition. No costs.