1. The Income-tax Appellate Tribunal ("the Tribunal "for short), Ahmedabad Bench, has referred to us two questions at the instance of the assessee and four questions at the instance of the Revenue for our opinion under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). They are as under :

At the instance of the assessee :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee was not entitled to proportionate export rebate on qualifying income as per sub-rules(3) and (4) of rule 2 of the Income-tax years 1966-67 and 1967-68) (2) Whether the Tribunal was justified in law in disallowing expenditure of Rs. 52,555.50 incurred towards issue of bonus shares by the assessee holding the same as expenditure of capital nature ?"

At the instance of the Revenue :

"(3) Whether, on the facts and in the circumstances of the case, the figure arrived at by computation under rule 19(5) was to added to the figure arrived by computation under rule 19(1) for determining the average capital employed in the assessee's undertaking for assessments years 1966-67 and 1967-68 ?

(4) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the expenditure of Rs. 59,331 incurred by the assessee on repairing and reconditioning the existing room to accommodate I.B.M. machines was of a revenue nature and not of a capital nature for the assessment year 1966-67 ?

(5) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in allowing development rebate at 35% on the PVC compound plant and PVC processing plant for assessment years 1966-67 and 1967-68 ?

(6) Whether, on the facts and in the circumstances of the case, the assessee is entitled to relief under section 80E of the Income-tax Act, 1961, in respect of profit attributable to direct sale of PVC resin, which amounted to Rs. 96,25,218 for the assessment year 1966- 67 ?"

2. Out of the aforesaid six questions referred to us, two questions arejcovered by the earlier decisions of this court. The first question referred to us at the instance of the assessee which relates to the assessee-company's claim for proportionate export rebate is covered by the decision of this court in the assessee-company's own case : Ahmedabad Mfg. & Calico Printing Co. Ltd. v. CIT [1982] 137 ITR 616. In the assessee's own case which arose out of its income-tax assessments for the assessment years 1964-65 and 1965-66, the assessee-company had claimed benefit of deduction under section 2(5)(a)(i) of the Finance Act, 1964, and section 2(5)(a)(i) of Finance Act 1965. This court confirmed the view taken by the Tribunal rejecting the assessee-company's claim for the said deduction. So far as the years under consideration are concerned, namely, assessment years 1966-67 and 1967-68, the facts and the provisions under which the deduction is claimed are identical. Therefore, the aforesaid, decision will govern the assessee-company's claim for deduction for the assessment years under consideration. Therefore, for the reasons recorded by this court in the aforesaid decision, the assessee-company's claim for the assessment years under consideration must also be rejected. We therefore, confirm the view taken by the Tribunal and answer the first question referred to us at the instance of the assessee in the affirmative and against the assessee.

3. Question No. 3 which is referred to us at the instance of the Revenue is directly by decisions of this court in CIT v. Elecon Engineering Co. Ltd. [1976] 104 ITR 510 and Karamchand Premchand Pvt. Ltd. v. CIT [1982] 137 ITR 209. Following the said two decisions, we answer the said question in the affirmative and against the Revenue. This leaves for our consideration one question referred to us at the instance of the assessee and three questions referred to us at the instance of the Revenue.

4. We will first take up for consideration the question referred to us at the instance of the assessee. The question referred to us at the instance of the assessee relates to disallowance of expenditure of Rs. 52,555.50 incurred by the assessee towards the issue of bonus shares by the assessee-company in the assessment year 1967-68. The details of this expenditure incurred by the assessee-company are as under :

1. Fees paid to Registrar of Companies,

Ahmedabad, for increasing share capital 17,250.00

2. Expenditure incurred for stamp duty on

Rs. 87,500 ordinary shares at the rate of 25

paise per share 21,875.00

3. Purchase of 10,334 revenue stamps each

of 25 paise. 2,583.50

4. Cost of stationery and service charges of

computer machineries 10,847.00

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Total 52,555.50

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5. The assessee which is a public limited company had issued bonus shares to its shareholders and the aforesaid expenditure was incurred in connection with the issuance of these shares. The assessee-company claimed deduction of the said expenditure claiming it to be expenditure of revenue nature. The Income-tax Officer was of the view that the expenditure was of the capital nature and, therefore, deduction could not be allowed as claimed by the assessee-company. The Appellate Assistant Commissioner disagreed with the view taken by the Income-tax Officer and held that the expenditure was of a revenue nature as according to him no enduring benefit was derived by the assessee company by incurring the said expenditure for issue of bonus shares. The Tribunal accepted the submission made on behalf of the Revenue that the expenditure was intimately connected with the capital structure of the company and, such, it was expenditure of a capital nature. In the result, it set aside the decision of the Appellate Assistant Commissioner and resorted the order passed by the Income-tax Officer. It is in the background of the above facts that the question reproduced hereinafter is referred to us at the instance of the assessee company.

6. The main contention of Mr. K. C. Patel, learned counsel for the assessee-company is, that as a result of issuance of bonus shares, the assessee-company had not acquired any new asset, nor is there any inflow of new capital. According to Mr. Patel, the capital which was available to the assessee-company as accumulated profits of the previous years, is now converted into paid-up share capital of the assessee-company. Inviting our attention to Palmer's Company Law, 23rd den. p. 1004, it is urged that what is done by the assessee-company is capitalisation of profits by issue of shares which are wholly paid-up out of the profits of the previous years. Mr. Patel submitted that as pointed out by learned author, "technically, the transaction is carried out in the following manner : bonus is provided out of the credit balance of the profit and loss account or out of reserves-both being items appearing on the liabilities side of the balance sheet, so that the balance sheet thenceforward shows the profit and loss account or reserves at a reduced figure and the issued share capital at a correspondingly increased figure. As far as the balance-sheet is concerned, the only effect of the transaction is that one item on the liabilities side of the balance-sheet and in the company's books becomes replaced (in whole or in part) by another; The asset side of the balance-sheet is unaffected." It was submitted that the assets side of the balance-sheet is unaffected because no new asset has been acquired. Mr. Patel also invited our attention to "A Dictionary for Accountants" by Eric G. Kohler (fifth edition), wherein the meaning of the expression "share bonus" given is "split up; a British term". Meaning of the word "split up" given in the said dictionary as follows :

"1. The issue to present stockholders of additional shares of a Corporation's capital stock without changing the amount of paid-up-capital application to outstanding shares. It may be accomplished by calling in outstanding shares and issuing in their stead a larger number of shares each with a lesser par value; or as additional number of no-par shares may be issued pro rata to existing stockholders. Where outstanding shares are called in and fewer shares issued in their place, the transaction is known as a revenue split up. A transfer of paid-in surplus to capital stock account, accompanying the issue of additional shares, does not alter the character of a split up, but a transfer out of retained earnings (earned surplus) causes the issued to take on the appearance of a stock dividend, unless the amount so transferred is small in relation to the fair value per share of the stock outstanding."

7. It was urged that by issuance of bonus shares, in affect and substance what is done by the assessee-company is to utilise the accumulated profits for its business in a different form. What was with the company as accumulated profits was now available to it as paid-up share capital of the shareholders. There is, therefore, no acquisition of new advantage or benefit to the assessee-company. Under the circumstances, the expenditure which the assessee-company had incurred in connection with the inssuance of bonus must be regarded as business expenditure.

8. Shares which are wholly or partly paid-up and issued out of profits or accumulated profits of previous years are popularly known as bonus shares. Profits are capitalised by issue of such shares. As pointed out in Palmer's Company Law, p. 1004, bonus is provided out of the credit balance of the profit and loss account or out of reserves-both being items appearing on the liabilities side of the balance-sheet, so that the balance-sheet thenceforward shows the profit and loss account or reserves at a reduced figure, and the issued capital at a correspondingly increased figre. As explained in "Advanced Accounts" by M. C. Shukla & T. S. Grewal (Sixth edition), bonus shares are generally issued in the following circumstances :

"(a) When the company's cash resources are inadequate for a cash dividend.

(b) When the company wants to build up for expansion or other purposes like repayment of liability. Many of the present large companies have achived their position by refusing to distribute all their profits as cash dividends.

(c) When the company, having built-up large reserves, wishes to show the outsiders (and also the shareholders) the correct earning capacity."

9. The company has to make the following entries in the books while issuing bonus shares :

1. Debit profit and loss Appropriation Account (or Reserve Fund or Share Premium Account or Capital Redemption Reserve Account, depending from what source the bonus is given) and Credit Bonus to shareholders account.

2. Debit Bonus to Shareholders Account with the total amount. Credit Share Capital Account with the nominal value of shares issued-Credit Share Premium Account with the Premium Account with the premium, if any, on the bonus shares.

If the bonus is to be utilised for making partly paid shares fully paid shares, the second entry will be split into the two following entries :

1. (a) Debit Share Call Account Credit Share Capital Account.

2. (b) Debit bonus to Shareholders Account Credit Share Call Account. The fact of the issue of the bonus shares has to be disclosed in the balance-sheet. Mention must be made of the number and the amount of shares issued as bonus shares and the sources from which the bonus shares have been issued."

10. It would be thus appear that the assessee-company was first required to debit profit and loss appropriation account and credit the bonus to shareholders' account. Thereafter, it was required to debit the bonus to shareholders account with the total amount and credit share capital account with the nominal value of shares issued. Therefore, though bonus was not actually paid to the shareholders, it was credited to the shareholders account. It was only after the bonus so credited that it was debited to the shareholders' account and credited to the share capital account. The argument advanced on behalf of the assessee-company that accumulated profits out of which the bonus shares were alleged to have been issued has all along remained with the assessee-company and that as a result of issue of bonus shares all that has happened is that these profits got converted into paid-up capital, therefore cannot be accepted. The accumulated profits first went to the shareholders in the form of bonus and then this bonus brought back way by way of paid-up capital by issuance of bonus shares out of it. In terms of accounts, the accumulated profits out of which the bonus shares were alleged to have been issued went out of the control of the assessee company when it debited bonus to the shareholder's account and it was this bonus which was brought back to the assessee-company by way of paid-up capital. In other words, the bonus shares were issued out of bonus paid or payable to the shareholders. It is true, that if bonus shares are not issued the assessee-company could have retained the accumulated profits with it, but it would not be correct to say that when it issued the bonus shares, no change in regard to the accumulated profits took place and that the accumulated profits continued to remain with the assessee-company as before, though now in form of paid-up share capital. The bonus shares are issued only after a resolution to that effect is passed at the shareholder's meeting. The shareholders instead of receiving the distribution of accumulated profits in cash, agree to invest that amount in shares of the company and, consequently, the company instead of paying the amount in cash issues wholly or partly paid-up shares out of profits. The assessee-company, therefore, could not have issued bonus shares without the shareholders agreeing to reinvest the profits which were to be distributed amongst them in shares and merely because profits in the form of bonus shares were not paid or distributed in cash does not mean that the assessee-company had retained the accumulated profits first as accumulate profits and then as paid-up capital without parting with them. The assessee-company did part with the accumulated profits to the extent the bonus was paid to the shareholders. And it was out of the bonus paid to the shareholders that the wholly paid-up shares were issued to the shareholders. It is clear that when bonus shares were issued, two things take place : (i) bonus is paid to the shareholders; and (ii) wholly or partly paid-up shares are issued against the bonus payable to the shareholders. The shareholders invest the bonus paid to them in the shares and that is how the bonus shares are issued to them.

11. In our opinion, therefore, it would not make any difference whether paid-up share capital is augmented by issuance of right shares or bonus shares to the shareholders. The question whether expenditure incurred for issuance of right shares is allowable as revenue or business expenditure came up for consideration before this court in Shree Digvijay Cement Co. Ltd. v. CIT [1982] ITR 45. That was a case in which the assessee-company had incurred expenditure of Rs. 11,815 for issue of right shares and claimed deduction of the said expenditurejas business expenditure. According to the assessee-company, the expenditure was incurred for procuring finance for the purpose of business and, therefore, it was allowable as business expenditure. The Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal rejected the claim and held that the expenditure was of a capital nature. This court held that the shares issued by the assessee-company constitute its capital and they were an integral part of the permanent structure of the company and were not in any way connected with the working capital of the company which is utilised to carry on day to day operations of the business. Agreeing with the view taken by the Allahabad High Court in Upper Doab Sugar Mills Ltd. v. CIT [1979] 116 ITR 928, the Himachal Pradesh High Court in Mohan Meakin Breweries Ltd. v. CIT (No.2.) [1979] 117 ITR 505 and the Calcutta High Court in Hindustan Gas and Industries Ltd. v. CIT [1979] 117 ITR 549, it was held that the expenditure incurred in connection with issued of right shares is not revenue expenditure and, consequently, it cannot be claimed to be deductible from business income.

12. As already pointed out above, bonus shares are not different from rights shares. The bonus shares issued by the assessee-company also constitute its capital. These shares, as right shares, are an integral part of the permanent structure of the company and are not in any way connected with the working capital of the company which is utilised to carry on day to day operations of the business. It is also not correct to say that no benefit whatsoever is derived by the assessee-company when its profits and/or reserves are converted into paid-up shares. It may be recalled that according to Mr. Patel for the assessee-company, no asset or benefit or advantage of enduring nature has been acquired by the assessee-company as a result of the conversion of profits into bonus shares and, therefore, any expenditure incurred in connection with the issuance of bonus shares cannot be regarded as capital in nature. Capitalisation of profits or reserves by issuance of bonus shares benefits the assessee-company inasmuch as the past accumulated profits are permanently retained in the business. Further, the share capital is adjusted to a figure more on a level with the actual capital employed in the undertaking. Where the profits and the consequent dividends are large in comparison with the company's paid-up capital, the inference of profiteering naturally follows : but where the paid-up capital is increased by the issue of bonus shares, although the profits will remain practically at about the previous level, the percentage of dividend must necessarily be reduced, although the actual return to the individual shareholder will remain the same (vide commentary under caption "Capitalisation of Reserves" in Advanced Accountancy, 25t end., by L. R. Batliboi p. 591). It also cannot be gainsaid that augmentation of paid-up capital by issuance of bonus shares would increase the creditworthiness of the assessee-company. One of the factors which are usually taken into consideration by a person dealing with a company is its paid-up capital. Therefore, there cannot be any doubt that as a result of the increase in the paid-up share capital, the creditworthiness of the assessee-company would increase. These are, in our opinion, benefits or advantages of enduring nature derived by the assessee-company as a result of issuance of bonus shares. We, therefore, do not agree with Mr. Patel that no benefit or advantage whatsoever is derived by the assessee-company by issuance of bonus shares. But apart from that, as observed above, the bonus shares are an integral part of the permanent structure of the assessee-company.

13. Strong reliance was, however, sought to be placed on the decision of the Supreme Court in India Cements Ltd. v. Commissioner Of Income Tax, Madras.. [1966] 60 ITR 52, in support of the assessee's claim that the expenditure was revenuejexpenditure. That was a case in which the assessee-company had obtained a loan of Rs. 40 lakhs from the Industrial Finance Corporation secured by a charge of its fixed assets. In connection therewith, it spent a sum of Rs. 84,633 towards stamp duty, registration fees, lawyer's fees etc., and claimed this amount as business expenditure. The Supreme Court held that the amount spent was not in the nature of capital expenditure and was laid out or expended wholly and exclusively for the purpose of the assessee's business and was, therefor, allowable as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. It was observed that the act of borrowing money was incidental to the carrying on of business, the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period, and it was irrelevant to consider the object with which the loan was obtained. Mr. Patel for the assessee-company, submitted that issuance of bonus shares was comparable with a loan inasmuch as by issuance of bonus shares, the assessee-company had not acquired any asset or an advantage of enduring nature. Therefore, it was submitted, as held by the Supreme Court in India Cement's Case [1966] 60 ITR 52, expenditure in question must be held to be revenue expenditure. We have already negatived the contention of Mr. Patel that by issuance of bonus shares, the assessee-company had not acquired any benefit or advantage of enduring nature. As already pointed out above, the profits out of which the wholly paid-up shares which are described as bonus shares were issued were debited as bonus to the shareholders. In other words bonus was first paid to the shareholders out of these profits and then this bonus was used for the issuance of fully paid-up shares. Thus, the profits first went out of the assessee's company's hands or control and then came back to it by investment thereof in shares by the shareholders. Therefore, in effect and substance, the assessee-company did acquire capital by issuance of bonus shares. As already observed above it also acquired other benefits or advantages of enduring nature. Therefore, issuance of bonus shares by a company cannot be compared with the act of borrowing money as urged on behalf of the assessee-company. It may also be pointed out that the Supreme Court had in India Cement's case [1966] 60 ITR 52 approved the decision of the Bombay High Court In re Tata Iron and Steel Co. Ltd., [1921] 1 ITC 125. In the case before the Bombay High Court, the Tata Iron and Steel Co. Ltd. had incurred an expenditure of Rs. 28 lakhs as underwriting commission paid to underwriters on an issue of 7 lakhs preference shares of Rs. 100 each and the company claimed to deduct this amount as expenses under section 9(2)(ix) of the Indian Income-tax Act of 1922. Macleod C.J. of the Bombay High Court, dealing with the claim, observed (at page 132 of 1 ITC and at pp. 59 and 60 of [1966] 60 ITR 52 : "If then it is admitted that the cost of raising the original capital cannot be deducted from profit after the first year, it is difficult to see how the cost of raising additional capital can be treated in a different way. Expenses incurred in raising capital are expenses of exactly the same character whether the capital is raised at the flotation of the company or thereafter : Texas Land and Mortgage Company v. William Holtham [1894] 3 Tax Cas 255." He further observed (at page 132 of 1 ITC and at page 60 of [1966] 60 ITR 52) : "as long as the law allows preliminary expenses and goodwill to be treated as assets, although of an intangible nature, the money so spent is in the nature of capital expenditure just as much as money spent in purchase of land and machinery". The Chief Justice accordingly held that Rs. 28 lakhs could not be treated as expenditure (not in the nature of capital expenditure) solely incurred for the purpose earning the profits of the company's business. In the case of India Cements [1966] 60 ITR 52, the Supreme Court while holding that the Bombay High Court was wrong in relying on Texas Land and Mortgage Company v. William Holtham [1894] 3 Tax Cas 255, went on to observej(at page 61) : "But we do not say that the Tata Iron and Steel Co.'s case [1921] 1 ITC 125 was wrongly decided. Obtaining capital by issue of shares is different from obtaining loan by debentures." Thus, the Supreme Court made it clear that obtaining capital by issue of shares is different from obtaining loan by debentures. The assessee-company did obtain capital by issuing bonus shares and, therefore, issuance of bonus shares would not stand on the same footing as obtaining loan by debentures. In our opinion, therefore, the decision of the Supreme Court in India Cements Ltd.'s case [1966] 60 ITR 52 is of no assistance to the assessee-company.

14. Learned counsel for the assessee-company next inviting our attention to the observations made by the Supreme Court in Empire Jute Co. Ltd. v. Commissioner Of Income Tax . [1980] 124 ITR 1, at page 10 of the report, argued that there may be cases where expenditure even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle that expenditure benefit which brings into existence an asset or an advantage for the enduring benefit of a trade is attributable no to revenue but to capital. This undoubtedly is the settled legal position, but, as observed by the Supreme Court, what is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of the celebrated test laid down by Lord Cave L. C. in Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155 (HL), where the learned Law Lord stated (at page 192) :

"........ when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital."

15. In the instant case, the advantage which the assessee company acquired as a result of issuing bonus shares is for enduring benefit in the commercial sense and such advantage is in the capital field. The test of enduring benefit, therefore, does not break down and the expenditure incurred in connection with the issuance of bonus shares must be held to be capital in nature.

16. Learned counsel for the assessee-company next relied on decision of the Madras High Court on CIT v. Kisenchand Chellaram (India) P. Ltd. [1981] 130 ITR 385. In that case, the assessee-company paid fees for raising the capital of the company to the Registrar of Companies and claimed the amount paid as a revenue expenditure This claim was negatived by the Income-tax Officer and the Appellate Assistant Commissioner but upheld by the Tribunal on the ground that the amount was wholly and exclusively laid out for the purpose of the business. The Madras High Court held that without capital a company cannot carry on its business and hence the expenses incurred for increasing the capital was bound up with the functioning and financing of the business. After referring to the decision of the Supreme Court in India Cements Ltd. [1966] 60 ITR 52, the Madras High Court went on to observe (at p. 392) :

"Just as the expenditure on money borrowed for a capital purpose did not affect the allowance, similarly, the fact that the expenditure contributed to the increase in capital should not make a difference to its allowability, if it was otherwise no capital expenditure. It has to be held on the facts here that the sum was spent only for the purpose of business and that there is no capital elementjin the expenditure."

Relying on this decision of the Madras High Court, it was urged that since the assessee-company and, consequently, could not have carried on business without capital, expenditure incurred in connection with the issuance of bonus shares was linked with fuctioning and financing of the business of the assessee-company and, cosequently, the expenditure in question was business expenditure. With utmost respect, we do not agree with the view taken by the Madras high Court. We have already referred to the view expressed by the Supreme Court in the India Cements Ltd.'s case [ 1966] 60 ITR 52, wherein the distinction between obtaining capital by issuance of shares and obtaining loan by debentures is clearly brought out. As pointed out above, the Supreme Court approved the decision of the Bombay High Court in Tata Iron & Steel Co. Ltd. case [ 1921] 1 ITC 125 disallowing expenditure incurred in the context of issue of preference shares. The view taken by the Madras High Court is directly in conflict with the decision of the Supreme Court. For the reasons discussed above, in our opinion, the shares issued by a company constitute its capital and these are an integral part of the permanent structure of the company and are not in any way connected with the working capital of the company which is utilised for carrying on day to day operations of the company and, therefore, the expenditure incurred by the company in raising new shares in expenditure of capital nature. We, therefore, find ourselves unable to agree with the view of the Madras High Court.

17. Mr. Patel next relied on a decision of the Bombay High Court in Bombay Burmah Trading Corporation Ltd. v. CIT [1984] 145 ITR 793. Three of the questions, namely, question Nos. 3,4, and 6, which arose for consideration before the Bombay High Court in that case were as follows :

Question No. 3 :

"Whether, on the facts and in the circumstances of the case, the sum of Rs. 47,250 paid as fees by the assessee to the Registrar of Companies for the enhancement of capital was an allowable revenue expenditure ?"

Question No. 4 :

"Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 31,899 incurred by the assessee during the year in connection with the issue of bonus shares and splitting of shares was an allowable revenue expenditure and not in the nature of capital expenditure ?"

Question No. 6 :

"Whether, on the facts and in the circumstances of the case, the sum of Rs. 5,250 estimated by the Tribunal to be the expenditure incurred by the assessee by way of fees in connection with the issue of bonus shares out of the total fees of Rs. 52,500 was an allowable revenue expenditure and not in the nature of capital expenditure ?"

18. While dealing with question No. 3, the Bombay High Court relying on the decision of the Supreme Court in India Cements Ltd.'s case [1966] 60 ITR 52, dissented from the decision of the Madras High Court in CIT v. Kisenchand Chellaram (India) Pvt. Ltd. [1981] 130 ITR 385 and held that the fees paid by the assessee to the Registrar of Companies for the enhancement of capital was not an allowable revenue expenditure. Mr. Patel, however, strongly relied on the decision of the Bombay High Court on questions No. 4 and 5. Breakup of expenditure of Rs. 31,899 referred to in question Nos. 4 was as follows : Rs. 22,699 were expenses under head "Printing and Stationery" and Rs. 9,200 were expenses under the head "Postage and Telegrams". These expenses asjindicated in the question were incurred in connection with the issue of bonus shares and splitting of shares. The Bombay High Court held that these expenses incurred consequent upon the issue of bonus shares could not be said to have been incurred for the purpose of raising any additional capital. The expenses, it was held, were incurred in the normal course of business. Same view was taken with regard to expenses of Rs. 5,250 referred to in question No. 6. It appears that out of total fees of Rs. 52,500 paid to the Registrar of Companies for the enhancement of capital, Rs. 5,250 were attributable to bonus shares. According to the Bombay High Court, this expenditure was also not of capital nature. Relying on this decision of the Bombay High Court, it was submitted that the expenses in question incurred by the assessee-company must be held to be of revenue in nature. With utmost respect, we are not in agreement with the view taken by the Bombay High Court. As already held above, the expenses which the assessee-company incurred we for its permanent structure and were directly connected with the acquisition of capital and advantage of enduring nature. This expenditure cannot be said to be in normal course of business. Capital of the company was augmented by increase of paid-up share capital by the issue of bonus shares and the expenditure being in capital field, it must be regarded as of capital nature. In our opinion, the entire expenditure being connection with increase in the share capital must be regarded as capital in nature. We, therefore, answer question No. 2 referred to us at the instance of the assessee in the affirmative and against the assessee-company.

19. This brings us to the following question referred to us at the instance of the Revenue :

"(4) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the expenditure of Rs. 59,331 incurred by the assessee on repairing and reconditioning the existing room to accommodate I.B.M. machines was of a revenue in nature and not of a capital nature for the assessment year 1966-67 ?"

20. The facts relating to this question are that in the previous year relevant to the assessment year 1966-67, the assessee-company incurred an expenditure of Rs. 59,331 which it claimed was incurred for repairing and reconditioning of the existing room to accommodate I.B.M machines. The Income-tax Officer held that the expenditure was capital in nature inasmuch as the assessee had acquired an advantage of enduring nature in the form of building capable of accommodating the I. B. M. machines. In the appeal, however, the Appellate Assistant Commissioner came to the conclusion that the amount spent was of a revenue nature and no new asset had been created by such expenditure. The Revenue being aggrieved by the order of the Appellate Assistant Commissioner carried the matter in appeal before the Tribunal. The Tribunal upheld the view taken by the Appellate Assistant Commissioner holding that the expenditure which was incurred for repairing and reconditioning the existing flooring with a view to accommodate I. B. M. machines, cannot be regarded as capital expenditure. It is observed that by incurring the said expenditure, no new asset or any benefit of enduring nature could be said to have come into existence. The Revenue has challenged the view taken by the Tribunal.

21. Now, it appears from the Income-tax Officer's order that the assessee company's statement that it had incurred an expenditure of Rs. 59,331 in repairing and reconditioning the room in which I. B. M. machines were installed, has not been questioned. The floor of the room was repaired to install the machines. Since it is not found that the expenditure was not incurred for repairing and reconditioning as stated by thejassessee-company, it is difficult to come to the conclusion on the facts on record that the assessee had acquired any benefit or advantage of an enduring nature by incurring the expenditure. No new building or room was brought into existence as observed by the Income-tax Officer. In view of the concurrent findings of the Appellate Assistant Commissioner and the Tribunal, we see no reason to take a view of different from the one taken by them and hold that the expenditure was incurred for repairs of the floor of the room where the I. B. M. machines have been installed. Having regard to the finding recorded by the Appellate Assistant Commissioner and the Tribunal, the expenditure in question is revenue expenditure, which is deductible from the business income of the assessee company. The question which is referred to us at the instance of the Revenue must, therefore, be answered in the affirmative and against the Revenue.

22. This brings us to the last questions, namely, question No. 5 and 6 referred to us at the instance of the Revenue. The facts relating to questions Nos. 5 and 6 which are common to the assessment years 1966-67 and 1967-68 are as follows :

In the return files by the assessee-company for the assessment year 1966-67, the assessee-company claimed development rebate at the rate of 20% on various items of the machinery. However, in the course of assessment proceedings for the said year, the assessee claimed development rebate of the enhanced rate of 35% as against 20%. The details of the items of machinery on which the enhanced rate of development rebate was claimed were as follows :

1. Calcium Carbide plant.

2. P.V.C. resin plant.

3. P.V.C. Compound plant.

4. P.V.C. plant.

5. P.V.C. processing plant.

23. Under the provisions of section 33(1)(iii)(c)(a) of the Act as they stood in the assessment years under consideration, the assessee was entitled to development rebate at a higher rate of 35% on machinery used for the purpose of manufacture or production of articles or things covered by item 18 of the Fifth Schedule. The said item read :

"(18) Petrochemicals including corresponding products manufactured from other basic raw materials like calcium carbide, ethyl alcohol or hydrocarbons from other sources."

24. The Income-tax Officer held that the assessee-company was entitled to claim development rebate at the higher rate of 35% in respect of machinery installed for production of P.V.C. resin and P.V.C. plant. So far as remaining machineries or plants were concerned, the Income-tax Officer was of the view that they were not covered by the said item (18) of the Fifth Schedule reproduced above. Under the circumstances, while allowing development rebate at the higher rate for plants at "serial Nos. 2 and 4, referred to above, he rejected the assessee-company's claim for grant of development rebate at the rate in respect of machineries or plant at serial Nos. 1, 3 and 5. Same view was taken for the assessment year 1967-68.

25. The Appellate Assistant Commissioner before whom the matter was carried in appeal accepted the assessee's contention that under thejaforesaid item (18) of the Fifth Schedule, the definition of expression "petrochemicals" was wide enough to cover varieties of petrochemicals such as hydrocarbons and corresponding products and asked the Income-tax Officer to grant higher development rebate at the rate of 35% on all the machineries or plants referred to above for which the assessee-company had claimed development rebate at the said rate. In other words, the assessee's claim for development rebate at the rate of 35% on the aforesaid machineries or plants was allowed in full by the Appellate Assistant Commissioner for both assessment years, namely, 1966-67 and 1967-68. The Revenue, being aggrieved by the order passed by the Appellate Assistant Commissioner, carried the matter in appeal before the Tribunal. The Tribunal, however, after examining various aspects of the claim made by the assessee-company, upheld the view taken by the Appellate Assistant Commissioner. The view taken by the Tribunal is sought to be challenged by the Revenue in this reference.

26. In CIT v. Nirlon Synthetic Fibres and Chemicals Ltd. [1981] 130 ITR 14 (SC), the respondent company which manufactured Nylon-6 yarn from imported caprolactum claimed that Nylon-6 was a "petrochemical" and that it was entitled to higher rebate of surtax under Schedule III to the Companies Profits (Surtax) Act, 1964, for the assessment year 1965-66, and to higher development rebate under section 33(1)(b)(B) and relief under section 80-I of the Act for the assessment years 1968-69 to 1970-71. Applying the commercial sense in which the expression "petrochemical" was used in item (18) of the Fifth Schedule and Sixth Schedule to the Act and item (19) of paragraph 2 to the Third Schedule of the Companies Profits (Surtax) Act and basing its conclusion on a large volume of documentary material drawn from general dictionaries, chemical dictionaries, technical, commercial and Government Publications, the documentary testimony of experts in the field, the classification set forth in related statutory enactments and objects with which the relevant rebate and relief were intended by Parliament, the Tribunal held that Nylon-6 manufactured by the respondent (in that case) was a "petrochemical" within those entries. The Tribunal declined to state a case to High Court and High court refused to call for a case on the question whether Nylon-6 manufactured by the respondent was a "petrochemical". On appeal to the Supreme Court, the Supreme Court dismissed the Department's appeal and held that there was nothing to show that the finding of the Tribunal proceeded on a misapplication of any rule of law or was based on no evidence or was based on inadmissible evidence or that the Tribunal had ignored material evidence or that its finding, on the evidentiary material, was perverse. The question sought for the Revenue for reference was not, therefore, a question of law. Similar view was taken by the Supreme Court in J.K. Synthetics Ltd. v. CIT [1981] 130 ITR 23 (SC). In the instant case also, the Tribunal has recorded a finding that the machineries and plants in question were used for the purpose of manufacture of articles or things covered by item (18) of the Fifth Schedule to the Act. It is not the Revenue's case that the finding of the Tribunal proceeded on the assumption of any rule of law or was based on no evidence or was based on inadmissible evidence or that the Tribunal had ignored material evidence or that its finding on the evidentiary material was perverse. Under the circumstances, as held by the Supreme Court in the decisions referred to above, no question of law arises. The findings being findings of fact, cannot be disturbed in reference under 256(1) of the Act. It is also pertinent to note that the Revenue had accepted the similar view taken by the Tribunal in the assessee-company's case Ahmedabad Mfg. and Calico Printing Co. Ltd. v. CIT [1982] 137 ITR 616 (Guj) for the earlier year. In other words, the Revenue had not sought reference against the Tribunal's decision in the assessee's case for the earlier years. But apart fromjthat, as held above, since no question of law arises, the findings of the Tribunal cannot be disturbed. We, therefore, answer question no. 5 referred to us at the instance of the Revenue in the affirmative and against the Revenue. It is not disputed that question No. 6 is consequential. In other words, if question No. 5 is answered in the affirmative, question No. 6 will also have to be answered in the affirmative. We, therefore, answer question No. 6 also in the affirmative and against the Revenue. In the result, we answer the following questions as under :

Questions (proposed by the assessee) Answers

1. Whether, on the facts and in In the affirmative and

the circumstances of the case, against the

the Tribunal was justified in assessee-company.

law in holding that the assessee

was not entitled to

proportionate export rebate on

qualifying income as per

sub-rules (3) and (4) of rule 2 of

Income-tax (Determination of

Export Profits) Rules, 1966 (for

assessment years 1966-67 and

1967-68) ?

2. Whether the Tribunal was In the affirmative and

justified in law in against the

disallowing expenditure assessee-company.

of Rs. 52,555.50 incurred

towards issue of bonus

shares by the assessee

holding the same as

expenditure of capital nature ?

Proposed by the Revenue :

3. Whether, on the facts and in In the affirmative and

the circumstances of the case, against the Revenue.

the figures arrived at by

computation under rule 19(5) was

to be added to the figure

arrived at by computation under

rule 19(1) for determining the

average capital employed in the

assessee's undertaking for the

assessment years 1966-67 and

1967-68 ?

4. Whether, on the facts and in In the affirmative and

the circumstances of the case, against the Revenue.

the Income-tax Appellate

Tribunal was justified in law in

holding that the expenditure of

Rs. 59,331 incurred by the

assessee on repairing and

reconditioning the existing room

to accommodate I.B.M. machines

was of a revenue nature and not

of a capital nature for the

assessment year 1966-67 ?

5. Whether, on the facts and in In the affirmative and

the circumstances of the case, against the Revenue.

the Income-tax Appellate

Tribunal was right in law in

allowing development rebate at

35% on the PVC processing plant

for the assessment years 1966-67

and 1967-68 ?

6. Whether, on the facts and in In the affirmative and

the circumstances of the case, against the Revenue.

the assessee is entitled to

relief under section 80E of the

Income-tax Act, 1961, in respect

of profit attributable to direct

sale of PVC resin, which

amounted to Rs. 86,25,218 for

the assessment year 1966-67 ?

27. Reference answered accordingly with no order as to costs.

28. A copy of this judgment should be sent under the seal of this Court and the signature of the Registrar to the Income-tax Appellate Tribunal, Ahmedabad Bench.