CIT, Mumbai v. General Insurance Corporation (2006)

Last updated: 27 September 2008

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Court :
supreme court

Brief :
Profits and Gains of Business or Profession Special 1. Are expenditure incurred by a company on account of stamp duty and registration fees for the issue of bonus shares allowable as revenue expenditure? CIT, Mumbai v. General Insurance Corporation (2006) Relevant section: 37(1)

Citation :
1. Are expenditure incurred by a company on account of stamp duty and registration fees for the issue of bonus shares allowable as revenue expenditure?

On this issue, the Supreme Court observed that there is no inflow of fresh funds or increase in capital employed on account of issue of bonus shares. There is merely a reallocation of company’s fund on account of issue of bonus shares by capitalization of reserves. Therefore, the company has not acquired a benefit or advantage of enduring nature. The total funds available with the company will remain the same and there is no change in the capital structure of the company consequent to the bonus issue. Thus, issue of bonus shares does not result in the expansion of capital base of the company. Therefore, the expenditure incurred by the company on account of stamp duty and registration fees for the issue of bonus shares is allowable as revenue expenditure. Note - While arriving at this decision, the Supreme Court has considered the effect of issue of bonus shares on the capital employed i.e. share capital plus reserves and not merely on capital alone. It may be noted that though bonus issue increases the capital of the company, the capital employed is left intact. This decision of the Apex Court has settled the long-standing dispute amongst the High Court’s regarding the Allowability of expenses on issue of bonus shares.