Expenses on bonus shares is revenue expenditure, rules SC

The Supreme Court has ruled that expenditure incurred in the process of issuing bonus shares is a revenue expenditure and the company is eligible to avail of tax benefits while filing returns.

While hearing an appeal filed by the commissioner of income tax for disallowing tax breaks claimed by General Insurance Corporation, the apex court Bench observed: "The issue of bonus shares leaves the capital employed unchanged and does not result in conferring an enduring benefit to the company and the same has to be regarded as revenue expenditure."

The Bench, comprising Justice Ashok Bhan and Justice Markandey Katju, said: "Issuance of bonus shares by capitalisation of reserves is merely a reallocation of a company's funds. There is no inflow of fresh funds or increase in the capital employed, which remains the same."

The issue before the court was whether the expenditure incurred in connection with the issuance of bonus shares is a capital expenditure or revenue expenditure.

GIC, which has four subsidiaries, filed a return of Rs 58.52 crore along with the audit report for the assessment year 1991-92.

However, the assessing officer disallowed a few expenses incurred as revenue expenditure to the tune of Rs 1.4 crore incurred toward stamp duty and registration fees paid in connection with the increase in authorised share capital.