JUDGMENT
G.T. Nanavati, J.
1. The Income-tax Appellate Tribunal has referred the following two questions at the instance of the Revenue under section 256(1) of the Income-tax Act, 1961 :
“1. Whether, on the facts and in the circumstances of the case, the expenses of Rs. 17,127 incurred by the assessee for the issue of bonus shares can be said to be incurred in the course of business and for the purpose of carrying on the business ?
2. Whether, on the facts and in the circumstances of the case, the Income-tax Officer ought to have allowed the claim of the assessee for Rs. 10,79,935 being provision of gratuity based on the report of the actuary ?”
2. The point arising for our consideration as a result of question No. 1 is covered by two decisions of this court and the point arising for our consideration as a result of question No. 2 is covered by a decision of the Supreme Court. The facts leading to those questions, therefore, need not be stated.
3. So far as question No. 1 is concerned, it may be stated that it is not happily worded in the sense that the real controversy between the parties has not been properly brought out. The assessee’s claim for deduction of expenses of Rs. 17,127 incurred for issuing bonus shares was rejected on the ground that it was not revenue expenditure but capital expenditure. The Tribunal, however, held the said expenditure allowable as it was of the view that it was normal business expenditure, that is, revenue expenditure. This court in Shree Digvijay Cement Co. Ltd. v. CIT [1982] 138 ITR 45 and Ahmedabad Mfg. and Calico P. Ltd. v. CIT [1986] 162 ITR 80D, has held that such expenditure is not deductible as revenue expenditure. In the second case, it has been specifically held that expenses incurred in connection with the issuance of bonus shares are incurred by the company for its permanent structure and are directly connected with the acquisition of capital and advantages of an enduring nature.
4. As regards question No. 2, the Supreme Court in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585, has in terms held that whatever is provided for future use by the assessee out of the gross profits of the year of account for payment of gratuity to employees on their retirement or on the termination of their services would not be allowed as a deduction in the computation of profits and gains of the year of account, unless the respective conditions specified in clause (b) were fulfilled. In this case, it is not in dispute that the requisite conditions have not been fulfilled. Therefore, following the Supreme Court judgment, it will have to be held that the Tribunal was wrong in directing the Income-tax Officer to allow that claim.
5. In the result, question No. 1 is answered in the negative, that is, in favour of the Revenue and against the assessee. Question No. 2 is also answered in the negative, that is, in favour of the Revenue and against the assessee. No order as to costs.