R.N. Misra, C.J.
1. The Bombay Bench-B of the Income-tax Appellate Tribunal has under Section 256(1) of the I.T. Act of 1961, stated this case and referred the following question .for our opinion :
' Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 12,620 incurred by the assessee-company by way of legal fees for making alterations in its articles of association in order to bring them into accord with the changes brought about in the law relating to companies, is deductible as revenue expenditure under Section 37(1) of the Income-tax Act, 1961 ?'
2. The relevant assessment year is 1969-70. The assessee was a private company as denned in Section 3(1)(iii) of the Companies Act of 1956. By Act 65 of 1960, the Companies Act underwent an amendment and Section 43A was incorporated into the statute which required private companies to automatically get converted into public companies if certain conditions were satisfied. With a view to bringing the articles of association of the company in conformity with the provisions of the statute as applicable to a public company as defined in Section 3(1)(iv) of the Companies Act, the assessee obtained the services of a solicitor's firm, M/s. Crawford Bayley & Company of Bombay, and paid Rs. 12,620 by way of fees. During the assessment year, the fees were claimed as revenue expenditure. The ITO treated the amount as capital investment and disallowed deduction. The AAC upheld the rejection while the Tribunal in second appeal by the assessee accepted its contention and allowed the claim by treating it as revenue expenditure. Aggrieved by the reversal in the second appeal, the revenue has raised the present dispute.
3. A Bench of the Allahabad High Court in the case of CIT v. Modi Spinning & Weaving Mills Co. Ltd. : 89ITR304(All) , dealing with a somewhat similar question, observed as follows (p. 311):
' In regard to the second question, the amount of Rs. 3,000 was paid to a lawyer for advising amendments in the articles of association and for drafting a special resolution. The articles of association had to be amended in order to bring it into accord with changes brought about in the law relating to companies. It seems to us that the expenditure was incurred by the assessee wholly and exclusively for the purpose of its business. Is was incurred in order that the company should continue to function in accordance with the law.'
4. Learned standing counsel relying upon some decisions drawing a distinction between capital and revenue expenditure tried to challenge the conclusion of the Tribunal. His contention has obviously overlooked the legal position that a private company which has got transformed into a public company by the amended statute could not function any longer without bringing its articles in accord with that of a public company. The amendment thus became necessary to permit the assessee-company to carry on its business. Merely because the amendment related to status which was to enure for a long term--during the entire period of the company's existence--we are not in a position to accept the submission made at the Bar by the learned standing counsel that the expenditure must be treated to be of capital nature. It is too well known that if the expenditure was intrinsically connected with running of the company and if it had not been incurred the company would not be able to operate in the field of its business, the expenditure would really be relatable to revenue. In the instant case, that is what has exactly happened. We are, therefore, of the view that the Tribulal rightly came to its conclusion that the expenditure was of revenue character and was admissible as a deduction. We, accordingly, answer the question referred to us against the revenue and would say:
'On the facts and circumstances of the case, the expenditure of Rs. 12,620 was deductible as a revenue expenditure under Section 37(1) of the I.T. Act.
As there is no appearance for the assessee, there would be no order for costs in the reference.
B.N. Misra, J.
5. I agree.