T.U Metha, C.J:— The petitioner-assessee is a public limited company carrying on the business of manufacture and sale of beer, Indian made foreign liquors, malt, breakfast food articles and soft drinks, etc. During the accounting year 1966–67, relevant to the assessment year 1967–68, the assessee-company paid a sum of Rs. 30,000 to the Registrar of Companies, Jullundur, as a fee for the increase of its authorized capital from rupees one crore to rupees five crores. During the assessment proceedings, the assessee-company claimed the allowance of this Rs. 30,000 as revenue expenditure incurred by it in the course of carrying on its business, under s. 37(1) of the I.T Act, 1961. This claim of deduction was disallowed by the ITO, the A AC and then finally by the Tribunal.

2. During the same accounting year, the assessee-company paid an amount of Rs. 5,000 as tax under the provisions of Uttar Pradesh (Nagar Kshettra) Bhumi Aur Bhawan Kar Adhiniyam, 1962, in respect of the land and buildings used for the purpose of its business. Even this amount was claimed as deduction on account of revenue expenditure, but was disallowed by the ITO, the AAC and then by the Tribunal. The present reference is with regard to the above stated two claims for deductions made by the assessee-company. The Tribunal has, therefore, referred the following two questions for the opinion of this court:

“(1) Whether, on the facts and in the circumstances of the case, the fee of Rs. 30,000 paid for the increase of the authorised capital of the company is an expenditure of revenue nature and an allowable deduction under the Income-tax Act, 1961?

(2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 5,000 representing Bhumi Bhawan Kar, which is a tax paid to the U.P Government under the Uttar Pradesh (Nagar Kshettra) Bhumi Aur Bhawan Kar Adhiniyam, 1962, in respect of the land and buildings used for the purposes of the company's business is an allowable revenue expenditure under the Income-tax Act, 1961?”

3. So far as the second question is concerned, the same stands decided by our judgment given in Income-tax Reference No. 2 of 1974 on 5th March, 1979 (since reported supra in [1979] 117 ITR 501). In view of that judgment, we answer the second question by saying that the sum of Rs. 5,000 paid on account of tax under the U.P Act is an allowable revenue expenditure under s. 37 of the I.T Act, 1961.

4. So far as the first question is concerned, it is evident that the amount of Rs. 30,000 represents the fee paid by the assessee for the purpose of increasing its authorised capital from rupees one crore to rupees five crores. The contention of the assessee in this connection is based on the analogy of the view taken by the Supreme Court in India Cements Ltd. v. Commissioner Of Income Tax, Madras., [1966] 60 ITR 52, which was a case of an expenditure incurred in obtaining a loan. As against this, the contention of the respondent is that the decision given by the Supreme Court in India Cements Ltd. is not applicable to the facts of this case because, unlike raising of loan, the raising of share capital cannot be considered as anything pertaining to the running business of the company. It was contended that if share capital of the company is raised, it results in an advantage of enduring nature and since the expenditure in question is made once and for all, the expenditure in question must be treated as of capital nature and, therefore, not liable to be deducted under s. 37 of the I.T Act, 1961.

5. In order to decide whether a particular item of expenditure is of capital nature or of revenue nature, the courts in India have consistently followed the decision given in Atherton v. British Insulated and Helsby Cables Ltd., [1925] 10 TC 155 (HL), and the observations made by Viscount Cave in that decision, regarding the character of enduring nature of an asset or an advantage obtained by making the expenditure in question. In Assam Bengal Cement Co. Ltd. v. CIT, [1955] 27 ITR 34 (SC), Bhagwati J., speaking for the court, has summarised various English and Indian decisions on the question as to what criterion should be applied at the time of considering whether a particular item of expenditure is of capital nature or of revenue nature. After summarising the different reported cases on the subject, he has observed as under (p. 45):

“In cases where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there is mo doubt that it is capital expenditure. A capital asset of the business is either acquired or extended or substantially replaced and that the outlay whatever be its source whether it is drawn from the capital or the income of the concern is certainly in the nature of capital expenditure. The question however arises for consideration where expenditure is incurred while the business is going on and is not incurred either for extension of the business or for the substantial replacement of its equipment. Such expenditure can be looked at either from the point of view of what is acquired or from the point of view of what is the source from which the expenditure is incurred. If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure.”

6. These observations sufficiently make it clear that the expenditure which is made for initial outlay or for extension of business at a subsequent stage should be treated as an expenditure of capital nature. There is no dispute about the proposition that if an expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it would be attributable to the capital account. It need not be said that the advantage of enduring nature need not necessarily be tangible in character. Now, applying these tests to the facts of the present case what is found is that the expenditure in question has been incurred by the assessee-company for the purpose of raising the limits of its authorised capital from rupees one crore to five crores of rupees. It is evident that once the limit of the authorised capital of the company is raised to rupees five crores, the company would be entitled to issue fresh shares and thereby to increase its capital. By increasing its capital the company would be enabled to hold a very much more extensive business than the present one. Therefore, the increase in the limits of its authorised capital would not only increase its capital but would also result in an advantage of enduring nature. This advantage is so enduring that it will last till the company itself is alive.

7. Similar test has been applied by Lord Clyde in Robert Addie and Sons' Collieries Ltd. v. IRC, [1924] 8 TC 671. The test is: is it an expenditure laid out as part of the process of profit-earning? or, on the other hand, is it an expenditure necessary for the acquisition of the rights of permanent character, the possession of which is a condition for carrying on its trade at all? If it is the latter, it would be an expenditure of capital nature. Here the assessee-company wants to carry on an extensive business with the authorised share capital of rupees five crores instead of rupees one crore. The condition for carrying out that extended business is to obtain an authority to extend its share capital to that extent. The expenditure of Rs. 30,000 has been incurred by the assessee-company to fulfil that condition. Therefore, even on the test supplied by Lord Clyde in the above referred decision, the disputed expenditure should be treated as the one of capital nature.

8. On similar facts, the High Court of Bombay has taken the same view in Tata Iron and Steel Co. Ltd., In re, [1921] 1 ITC 125, wherein the amount disputed was the amount of money paid by the assessee-company to the underwriters on an issue of new shares increasing the capital of the company. The High Court of Bombay held that the expenditure made by this payment was of capital nature and not of revenue nature. In Bean v. Doncaster Amalgamated Collieries Ltd., [1946] 27 TC 296 (HL) and in the case of M. Subbiah Nadar v. Commissioner Of Income-Tax, Madras, [1953] 23 ITR 58 (Mad), the courts have accepted the principle that the expenditure which increases the value of capital asset is in the nature of capital expenditure.

9. Since the learned advocate of the assessee placed heavy reliance upon the decision given by the Supreme Court in India Cements Ltd., [1966] 60 ITR 52, it would be necessary to consider the observations made by the Supreme Court in that case at some length. In that case, the assessee obtained a loan of Rs. 10 lakhs from the Industrial Finance Corporation secured by a charge on its fixed assets. In connection with this transaction, it spent a sum of Rs. 84,633 towards stamp duty, registration fees, lawyer's fees, etc., and claimed this amount as revenue expenditure. The Supreme Court held, after reviewing some English and Indian decisions on the subject, that raising of loan cannot be construed as increasing the capital assets of the company because essentially loan was a liability and not an asset, and also because the loan was not an advantage of enduring nature inasmuch as it was required to be repaid. In its judgment, the Supreme Court referred to certain decisions including the above referred decision of the High Court of Bombay in Tata Iron and Steel Company's case, [1921] 1 ITC 125. While referring to this case, the Supreme Court held that the High Court of Bombay was wrong in relying on the English decision given in Texas Land and Mortgage Co. v. William Holtham, [1894] 3 TC 255 (QB). But at the same time, the Supreme Court hastened to clarify that they did not want to say that Tata Iron and Steel Company's case, [1921] 1 ITC 125 (Bom) was wrongly decided because “obtaining capital by issue of shares is different from obtaining loan by debentures”. This observation of the Supreme Court makes it abundantly clear that the distinction between the case where share capital is sought to be increased by issue of shares and the cases wherein a loan for a temporary period was obtained by an assessee was very much in the minds of their Lordships of the Supreme Court.- The ratio of the decision given by the Supreme Court in cases where loans are raised is contained in the following lines (p. 62):

“But we are unable to agree that a loan obtained can be treated as an asset or advantage for the enduring benefit of the business of the assessee. A loan is a liability and has to be repaid and, in our opinion, it is erroneous to consider a liability as an asset or an advantage within the test laid down by Viscount Cave and approved and applied by this court in many cases.” These observations show that expenditure incurred on account of raising of a loan was treated by the Supreme Court as of revenue nature because, according to it, it was a liability and not an asset, and it was required to be repaid. The cases wherein share capital of a company is proposed to be increased are not the cases which would fulfil these tests, namely, the test of repayment and the test of liability. In fact, by increasing its share capital a company gets more capital to spend on its business and every increase in capital is obviously an advantage of enduring nature. Under these circumstances, we are of the opinion that the decision given by the Supreme Court in India Cements Ltd., [1966] 60 ITR 52 (SC) is not helpful in any manner to the assessee in this case.

10. We, therefore, answer the first question referred to us by the Tribunal by stating that the expenditure of Rs. 30,000 made by the assessee for increase of its authorised capital is not an expenditure of revenue nature and, therefore, could not be treated as an allowable deduction under s. 37 of the I.T Act, 1961. Both the questions referred to us are answered accordingly and the matter is ordered to be sent back to the Tribunal for being dealt with according to law.

11. There shall be no order as to costs.