Expenditure on bonus shares

LEGAL DIGEST

The Supreme Court ruled last week that expenditure incurred in connection with the issuance of bonus shares is revenue expenditure, and not capital expenditure.

The commissioner of income tax, Mumbai, who had lost the case involving General Insurance Corporation in the Appellate Tribunal and the high court, appealed to the Supreme Court.

The judgement explained that the issue of bonus shares by capitalisation of reserves was merely a reallocation of the company's funds. There was no inflow of fresh funds or increase in the capital employed.

If that be so, it could not be held that the company had acquired a benefit or advantage of enduring nature, the court said. The total funds available with the company will remain the same and the issue of bonus shares will not result in any change in the capital structure of the company.

Decks cleared for release of Black Friday

The controversial film Black Friday, based on the 1993 Mumbai bomb blasts, will now be screened across the country, as the Supreme Court has given a go ahead to its release.

A Bench comprising Justice B P Singh and Justice Altamas Kabir permitted the release of the film with the rider that it would not be shown till the ongoing pronouncement of the judgement gets completed by the TADA court in Mumbai.

However, the court clarified that the producer can go ahead with the release of the film without waiting for the pronouncement of quantum of sentence against the convicts.

The order which came on a petition filed by the producer of the film, Mid Day Multimedia, was pending before the court for almost one-and-a-half year.

The producer had challenged the Bombay High Court order staying the screening of the film until the judgement in the case was finally delivered.

Mustafa Moosa Tarani, one of the accused, now convicted by the TADA court, had objected to the screening of the film pending trial contending that it may cause prejudice against him and could have adverse impact on the judge trying the case.

The film is based on the book written by S Hussein Zaidi narrating the sequence of the events starting from three days before the blast till the case was finally investigated by the Police.

Issue of cheques without balance

In a case of issuing of cheques of a company without the required balance in the bank, the Supreme Court stated that the person who complains should make a clear statement that the director who issued them was "in charge of the conduct of the business of the company."

In the case Sabitha vs RBS Channabasavardhya, the magistrate in Bangalore court had issued process to two directors. The Supreme Court quashed it as the complaint was faulty.

The court said: "In a case where the court is required to issue summons which would put the accused to some sort of harassment, the court should insist strict compliance of the statutory requirements."

Excise duty on cotton waste

The question whether cotton waste generated while manufacturing fine yarn for export is liable to excise duty has been referred by the Supreme Court to the Customs, Excise and Gold (Control) Appellate Tribunal in the case CT Cotton Yarn Ltd vs Commissioner of Central Excise.

This 100 per cent export oriented unit argued that the waste was not "manufactured" by it but it was only impure cotton separated from the cotton meant for export.

The authorities maintained that it was an interm-ediate product and it was sold in the domestic market.

BSNL's appeal dismissed

The Supreme Court has dismissed the appeal of Bharat Sanchar Nigam Ltd against the order of the Orissa High Court appointing an arbitrator in its dispute with a contractor, M/s Subhash Chandra.

The contractor had invoked arbitration, but the managing director of BSNL did not respond on time. So he moved the high court, which appointed an arbitrator by consent under Section 11 of the Arbitration and Conciliation Act.

BSNL challenged the jurisdiction of the high court to appoint the arbitrator when according to the agreement, the chief engineer would nominate him.

The Supreme Court rejected this argument and asserted that BSNL could not resile from its consent given to the court. "A person may have a legal right but if the same is waived, enforcement thereof cannot be insisted," the judgement said.

Trade tax on commission agents

The Supreme Court last week set aside the judgement of the Allahabad High Court holding commission agents in agricultural products liable to pay trade tax.

The commissioner of trade tax had maintained in a circular that products bought from farmers and sold to other traders fell within the category of 'manufacture' under the UP Trade Tax Act.

The high court upheld this view. The Supreme Court, while allowing the appeal of the agents in the case Jhunjhunwala vs State of UP, said that a circular could not declare the transaction 'manufacture', and it should be factually determined.

Action against guarantor

The Supreme Court last week reiterated that action against the guarantor could not be taken until the property of the principal debtor was sold first. In this case, Denin Leathers Ltd had taken a loan of Rs 40 lakh from the UP Industrial and Investment Corporation, mortgaging its immovable properties.

When the company suffered losses, the corporation started recovery action against the directors, on the premise that the company had no assets.

One of the directors, Ashok Mahajan, challenged this. The Supreme Court remitted the issue to the high court, reminding it of the priority in recovery of loans.