AJIT K. SENGUPTA, J. ( 1 ) IN this reference under Section 256 (1) of the Income-tax Act, 1961, for the assessment year 1979-80, the following questions of law have been referred to this court :"1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the provisions of Section 40 (c) are applicable to the expenditure on remuneration payable or benefits or amenities provided to the wholetime directors of the assessee-company when there is no finding that such expenditure is excessive or unreasonable having regard to the legitimate business needs of the company whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the excess payment of Rs. 8,721 made on account of fluctuations in the exchange rate of dollars, at the time of repayment of the dollar loan, raised from ICICI for purchasing machinery from abroad was a capital expenditure and not an allowable revenue expenditure ? whether, on the facts and in the circumstances of the case, the Tribunal ought to have allowed depreciation on the assets representing the capital expenditure on scientific research fully allowed as deduction in computing the total income for the earlier years ? whether, on the facts and in the circumstances of the case, the Tribunal should have held that the issue of additional capital having been made for the preservation of the existing business the expenditure incurred for such issue was of a revenue nature wholly and exclusively incurred for the purpose of the assessee's business ? whether, on the facts and in the circumstances of the case and on a true construction of Clause (47) of Section 2 and Section 45 of the Income-tax Act, 1961, the Tribunal erred in holding that the amount received from the insurance company in respect of plant and machinery and furniture and fittings destroyed during the riots by the workers on a 'transfer' and, therefore, taxable under the head 'capital gains' ? whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that expenses on freight, insurance charges and interest on packing credit incurred in connection with its exports, were not entitled to weighted deduction under Section 35b of the Income-tax Act, 1961" ( 2 ) THE first question relates to disallowance of expenditure by way of remuneration payable or benefits or amenities provided to the wholetime directors of the assessee-company under Section 40 (c ). The Assessing Officer, in his assessment order, disallowed the sum of Rs. 3,06,935 being the remuneration paid in excess of the prescribed limits. The assessee's contention has been that Section 40 (c) contemplates disallowance under Section 40 (c) only on the finding of such remuneration being excessive or unreasonable, having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom and that, in the absence of a finding as to excessiveness or unreasonableness, the disallowance is unauthorised. The Commissioner of Income-tax (Appeals), however, held that the provisions of Section 40 (c), apart from authorising disallowance on grounds of excessiveness or unreasonableness, prescribes a ceiling limit to the aggregate of such remuneration including the value of any benefit or amenity provided to a director. He, therefore, upheld the addition of the excess of the remuneration over the ceiling limit prescribed by that provision. He, over and above this, relied upon a decision of this court on this issue in Bilaspur Spinning Mills and Industries Ltd. v. CIT [1982] 135 ITR 496. The Tribunal also affirmed the Income-tax Officer's action. ( 3 ) SECTION 40 (c) imposes in express terms an overall ceiling limit to the allowance of expenditure on remuneration paid or benefit or amenity provided to a director or a person having substantial interest in the company or a relative of the director of such an interest-holder. Such limit appears in Sub-clauses (A) and (B) of Clause (c) of Section 40. The Sub-clauses are set out below :" (A) where such expenditure or allowance relates to a period exceeding 11 months comprised in the previous year, the amount of Rs. 72,000 ; (B) where such expenditure or allowance relates to a period of 11 months or lesser period comprised in the previous year an amount calculated at the rate of Rs. 6,000 for each month or a part thereof. 72,000 ; (B) where such expenditure or allowance relates to a period of 11 months or lesser period comprised in the previous year an amount calculated at the rate of Rs. 6,000 for each month or a part thereof. " ( 4 ) THE provisions prescribing the ceiling limits are independent of the provisions as to the excessiveness or unreasonableness which are to be judged as per the criteria formulated in the main limb of Section 40 (c ). Where the aggregate of the expenditure or allowance as envisaged by Section 40 (c) exceeds Rs. 72,000 for a particular year in relation to a director or a person having substantial interest, etc. , the excess is disallowable outright immaterial of whether the payment is excessive or unreasonable. We, therefore, answer the first question in the negative and against the assessee. ( 5 ) THE second question relates to the augmented liability of Rs. 8,721 arising on account of fluctuation in the exchange rate of dollars at the time of repayment of the dollar loan obtained from the ICICI for purchasing machinery from abroad. According to the assessee, the liability is incurred for repayment of loan for purchase of machinery. The loan not being an asset, the losses suffered in repayment of the loan are pleaded by the assessee to be allowable revenue expenditure. The Tribunal held that the disallowance of the amount as capital expenditure was correct because the Income-tax Officer found that the loan was taken for the purchase of machinery. He, therefore, capitalised the enhanced liability as part of the cost of the machinery eligible for depreciation. The Tribunal supported the Income-tax Officer's action as it found the same to be in conformity with the decision of this court under similar circumstances in CIT v. Bharat General and Textile Industries Ltd. [1986] 157 ITR 158. In that case, the assessee also obtained a loan in foreign exchange for purchasing a capital asset. The said loan was repayable in instalments in Japanese yen, which in fact represented instalments towards the purchase price of the machinery on deferred payment basis. The assessee in that case had to suffer an additional liability on account of fluctuations in the exchange rate as the repayment was governed by the exchange rate prevalent on the date of repayment. The said loan was repayable in instalments in Japanese yen, which in fact represented instalments towards the purchase price of the machinery on deferred payment basis. The assessee in that case had to suffer an additional liability on account of fluctuations in the exchange rate as the repayment was governed by the exchange rate prevalent on the date of repayment. This court, on this set of facts, found that there is no qualitative difference in the additional expenditure incurred due to the devaluation or fluctuation in the rate of exchange. In both the cases, an additional liability is imposed but whether the expenditure involving the additional liability will be a revenue expenditure will depend on whether the expenditure is on capital account or on revenue account. It is the nature and character of the expenditure which would determine the question. This court, even earlier, in Bestobell (India) Ltd. v. CIT [1979] 117 ITR 789, held that the additional expenditure incurred due to the devaluation while repaying a loan in foreign exchange is a capital expenditure, Though, in that case, the augmented liability was for devaluation of the rupee, the fundamental nature is the same and the principle laid down therein will equally apply to extra liability on account of fluctuation in the exchange rate. The liability arising from devaluation and the liability arising from day to day fluctuation in the exchange rate make no difference in the quintessential nature of the liability. In this case, it has not been contested by the assessee that the loan represented the price of the capital assets purchased and the repayment was the instalment payment of the consideration. That being the case, we have no reason for departing from the earlier decisions of this court and, respectfully following the same, we answer the second question in the negative and against the assessee and in favour of the Revenue. ( 6 ) THE third question relates to allowability of the depreciation on the assets representing capital expenditure on scientific research which have already been allowed full deduction in computing the total income for the earlier years. The Commissioner of Income-tax (Appeals) as well as the Tribunal had taken a forthright approach by declining to grant depreciation. ( 6 ) THE third question relates to allowability of the depreciation on the assets representing capital expenditure on scientific research which have already been allowed full deduction in computing the total income for the earlier years. The Commissioner of Income-tax (Appeals) as well as the Tribunal had taken a forthright approach by declining to grant depreciation. Section 35 has been amended with retrospective effect precluding the assessee from claiming depreciation on the assets for which the deduction has been allowed under Section 35 of the Act. Therefore, the Tribunal was correct in holding that such assets are not entitled to depreciation over and above the full deduction allowed in respect of their cost in past years. The third question is, therefore, answered in the negative and against the assessee. ( 7 ) THE fourth question relates to disallowance of expenditure incurred for issue of additional share capital. The Assessing Officer held that the expenditure being directly connected with the increase of share capital falls under capital account and is disallowable as capital expenditure. The Tribunal supported the Assessing Officer's view on the ground that the expenditure for issue of shares has been held by this court in Hindustan Gas and Industries Ltd. v. CIT [1979] 117 ITR 549 as capital expenditure. Therefore, the same ratio shall also operate in this case. But learned counsel for the assessee argued that the share capital had to be increased by fresh issue of equity shares to resident Indians for the purpose of Indianisation or dilution of the foreign holding. This is a requirement under the Foreign Exchange Regulation Act. The assessee, under the said Act, was required to bring down its foreign equity capital from 60 per cent. to 50. 9 per cent. The issue of shares was a statutory compulsion not dispensable by any means, if the assessee had to retain its entity and continue its business. The preservation of the income-earning apparatus required the issue of shares. It is not a voluntary or commercial decision to increase the share capital but an involuntary act to keep in line with the requirement of the law. Under such situation, the expenditure cannot be disallowed as capital expenditure. The decisions of this court are distinguishable as in those cases, the expenditure was incurred pursuant to the company's own decision to increase its share capital. Under such situation, the expenditure cannot be disallowed as capital expenditure. The decisions of this court are distinguishable as in those cases, the expenditure was incurred pursuant to the company's own decision to increase its share capital. ( 8 ) AT the first blush, the contention is quite attractive. In fact, the Bombay High Court in CIT v. Glaxo Laboratories (India) Ltd. [1990] 181 ITR 59, in similar circumstances, has held that the expenditure, though resulting in the augmentation of capital, is revenue expenditure. The increase in capital was not on the assessee's volition but on mandatory requirement of law. ( 9 ) BUT we are not readily drawn to this view of the matter. The dilution of foreign holding of shares, in our view, could as well be effected by transfer of the shares held by the foreign shareholders to the Indian shareholders. It is not that the increased share capital issued in favour of the Indian shareholders is the only mode of complying with the requirement of the Foreign Exchange Regulation Act with regard to the dilution of foreign holding. The same reduction of foreign holding could be achieved by readjustment of the shares amongst the existing shareholders not involving any fresh issue. ( 10 ) THAT, besides the ultimate effect, in our view, is to be determinative. The necessity of the dilution may be a causative factor of the fresh issue but the end result is the restructuring of the capital base by widening it through securing to the assessee-company a large substratum as capital. This, in our view, is the crucial factor. That apart, the enhancement in the share capital cannot be said to be wholly incidental to the preservation or continuation of the business, because there could be other means of reducing foreign holding in accordance with the statutory requirement under the Foreign Exchange Regulation Act as already indicated by us, viz. , internal readjustment of shareholding. Therefore, with respect, we differ from the decision of the Bombay High Court and hold that the expenses for increasing the share capital is capital expenditure regardless of what necessitated the increase. The plea, carried to its logical extreme, would be permissive of every increase in share capital being allowable as revenue expenditure, if such course is dictated by any exigency of the continuance of the business. The plea, carried to its logical extreme, would be permissive of every increase in share capital being allowable as revenue expenditure, if such course is dictated by any exigency of the continuance of the business. In Avery India Ltd. v. CIT [1993] 199 ITR 745 (Income-tax Reference No. 54 of 1989), where the judgment was delivered on July 18, 1991, this court took the same view. We, therefore, answer the fourth question in the negative and in favour of the Revenue. ( 11 ) WE shall take up the fifth question later as Dr. Pal has raised certain contentions, relying on a decision of the Madras High Court although, according to him, this question is concluded by the decision of this court. ( 12 ) THE sixth question relates to the claim for weighted deduction under Section 35b of the Act. Learned counsel for the assessee, relying on the decision of the Bombay High Court in CIT v. Eldee Wire Ropes Ltd. [1978] 114 ITR 485, claims that the freight and interest paid on packing credit are items of expenditure qualifying for weighted deduction, but this view is not acceptable, because this court in Bharat General and Textile Industries Ltd. v. CIT [1985] 153 ITR 747, has held that such expenditure does not fall under any of the clauses of Section 35b (1) (b ). We, therefore, answer this question in the negative and against the assessee. ( 13 ) THE fifth question relates to chargeability of the insurance money received in respect of plant and machinery, furniture and fittings destroyed during the riots by the workers. The facts are that the assessee received a sum of Rs. 4,27,955 as compensation from the insurance company in respect of certain plant and machinery and furniture and fittings destroyed in a fire following a riot by the workers in its division "electrolytic Manganese Company". The Income-tax Officer had taxed the amount of Rs. 2,27,720 (Rs. 4,27,955 minus original cost of Rs. 2,00,235) as long-term capital gains on the ground that there was a transfer of assets within the meaning of Section 2 (47) of the Act. On appeal to the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) confirmed the decision of the Income-tax Officer. 2,27,720 (Rs. 4,27,955 minus original cost of Rs. 2,00,235) as long-term capital gains on the ground that there was a transfer of assets within the meaning of Section 2 (47) of the Act. On appeal to the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) confirmed the decision of the Income-tax Officer. On second appeal to the Tribunal, the Tribunal held that the excess received from the insurance company over the cost of the assets destroyed during the riot is taxable as capital gains. ( 14 ) THE Division Bench of this court in the case of Marybong and Kyel Tea Estates Ltd. v. CIT, considered a similar issue. In that case, a fire broke out in the assessee's factory resulting in the damage and destruction of some assets. These assets were covered by fire insurance policies and the assessee received an amount over Rs. 6 lakhs from the insurance company. The Assessing Officer assessed the difference between the original cost and the written down value of the assets destroyed by fire under Section 41 (2) of the Income-tax Act, 1961, and the balance amount as capital gains. The Tribunal found that, under the terms of the insurance policy, the insurer had the right to take possession of, or require to be delivered, any property of the insured in the building or the premises at the time of the loss or damage and the right to remove the property or otherwise deal with the same, and that, in that case, the leftover property was taken over by the insurance company. Accordingly, the Tribunal held that the balance amount was assessable as "capital gains": On a reference, a Division Bench of this court was of the view that, on payment of the policy money, the insurer became entitled to what remained of the capital assets and took it over. This was, therefore, a case of transfer of that capital asset in a changed shape and form and the gains arising therefrom were assessable as "capital gains". ( 15 ) OUR attention has also been drawn to a decision of a Division Bench of this court in the case of Darjeeling Consolidated Tea Co. Ltd. v. CIT [1990] 183 ITR 493. ( 15 ) OUR attention has also been drawn to a decision of a Division Bench of this court in the case of Darjeeling Consolidated Tea Co. Ltd. v. CIT [1990] 183 ITR 493. In that case, the assessee claimed that the ropeway machinery belonging to the company was blown off in a storm and could not be recovered from the hills as recovering it was considered to be uneconomical. The assessee-company claimed Rs. 2,07,900 as revenue loss under Section 32 (1a) (ii) of the Income-tax Act, 1961. The Income-tax Officer found that the provision of Section 32 (1a) (ii) came into force from April 1, 1971, and was not applicable to the year in question which ended on December 31, 1969. The Income-tax Officer further observed that the auditor was silent about this loss and there was no evidence to support this claim. He held that the loss was a capital loss and he disallowed the amount. The assessee claimed before the Appellate Assistant Commissioner that the loss should be allowed as a short-term capital loss under Section 45. The Appellate Assistant Commissioner rejected the claim and this was upheld by the Tribunal. ( 16 ) ON a reference, the Division Bench held that the ropeway machinery had been blown off and was stated to be lying in the valley. The assessee considered the recovery of such machinery uneconomical. But the asset and the rights of the assessee therein were still continuing. Therefore, there was no extinguishment of any rights in the capital asset. There was no transfer within the meaning of Section 2 (47) and the loss was not allowable. This case has no bearing on the question before us inasmuch as assets were not destroyed and were lying elsewhere. ( 17 ) DR. Pal has also drawn our attention to a decision of the Madras High Court in the case of C. Leo Machodo v. CIT [1988] 172 ITR 744. In that case, a boat belonging to the assessee, carrying on the business of plying of boats, met with an accident and sank in the sea. The assessee received a sum of Rs. 1,00,000 from the insurance company. The Income-tax Officer took the original cost of the boat at Rs. 49,992 and took the view that the balance of Rs. 50,008 was chargeable to capital gains tax and added this amount to the income of the assessee. The assessee received a sum of Rs. 1,00,000 from the insurance company. The Income-tax Officer took the original cost of the boat at Rs. 49,992 and took the view that the balance of Rs. 50,008 was chargeable to capital gains tax and added this amount to the income of the assessee. The Tribunal took the view that, since the rights of the assessee in the boat stood extinguished as the boat had sunk in the sea, this amounted to a transfer and in the case of an extinguishment of the right, it was not necessary that the asset should continue to exist. According to the Tribunal, the assessee had obtained money on the extinguishment of all his rights in the capital asset and hence he was liable to pay capital gains tax. On a reference, the Madras High Court held that, as the ship sank in the high seas without any act on the part of any person, the provisions of Section 45 will not be attracted. Where moneys were paid by an insurance company consequent upon total destruction of the property and no transfer results from such destruction or extinguishment of all rights in the capital asset, the amount paid by the insurance company could not be described as a consideration as a result of the transfer of the capital asset. Therefore, the assessee was not liable to be assessed to capital gains tax in respect of the sum of Rs. 1,00,000 received from the insurance company. ( 18 ) THIS decision did not, however, consider the decision of this court in the case of Marybong and Kyel Tea Estates Ltd. Moreover, this decision is distinguishable on facts. In Marybong and Kyel's case, the left-over property was taken over by the insurance company whereas in C. Leo Machodo's case [1988] 172 ITR 744 (Mad), the boat sank and no property was left over. Whether the loss or destruction was due to the act of parties, in our view, is not relevant in determining the question whether money payable by the insurance company on destruction of the capital asset is assessable as capital gains. ( 19 ) THE contention of Dr. Pal is that the expression "extinguishment" has been used to refer to rights in the assets. ( 19 ) THE contention of Dr. Pal is that the expression "extinguishment" has been used to refer to rights in the assets. It cannot refer to the asset itself ; if the asset is extinguished or destroyed as in this case, there cannot remain any scope for transfer. There is divergence of opinion on this issue. It may be that the word "extinguishment" in the definition of "transfer" cannot be construed to cover extinguishment of the asset and such extinguishment may require a bilateral act but, in view of the decision of a Division Bench of this court in Marybong and Kyel Tea Estates Ltd. 's case [1981] 129 ITR 661, which is binding on us, we are not inclined to differ from the conclusion arrived at in that judgment. Following the said decision, we answer the fifth question in the negative and in favour of the Revenue. ( 20 ) DR. Pal has, however, submitted that, in view of the divergence of judicial opinion on this question, this court should grant leave to appeal to the Supreme Court. ( 21 ) HAVING regard to the facts and circumstances of this case and having regard to the divergence of judicial opinion on the interpretation of Section 45 in the context of receipt of compensation on insurance policy for loss or destruction of assets by fire or otherwise, wholly or partially, we are of the view that it is a fit case for appeal to the Supreme Court. We, accordingly, certify it as a fit one for appeal to the Supreme Court. ( 22 ) LET the certificate under Section 261 of the Act be issued separately only on the following question : "whether the amount received from the insurance company in respect of plant and machinery, furniture and fittings destroyed during the riots by the workers would be taxable under the head 'capital gains'?" there will be no order as to costs.