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Capital expenditure v/s revenue expenditure

CA V. Mohanakrishnan (Chartered Accountant) (401 Points)

11 October 2008

A company is incorporated say in April 2008 and obtains license from RBI to operate as an NBFC in September 2008. The company incurs expenses towards setting up its operations during the period April to September 2008.

a) Can the company claim the expenses as normal business expenses as it is already in existence in April 2008 eventhough the license to operate as NBFC has been obtained only in Sept

b) or should the expenses be treated as capital expenditure which would be disallowed for income tax purpose

c) should the expenses be treated as pre-operative (eventhough in existence since April 2008) as the Company has been created for operating as an NBFC and the same cannot happen without the RBI license being granted

how should the treatment be?

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3 Replies

Santosh (Service) (18 Points)
Replied 11 October 2008

In the given case Sec.35D has to be applied.The said exp has to be treated a Pre-operative expenses and claimed as per Sec35D

(Guest)

CAPITAL EXPENDITURE:-The nature of this expenditure is Non-
Recurring.

This expenditure should give long term benefit to the 
organization.

EX:-Expenditure on acquisition of fixed assets, Expansions 
of business. E.tc.

Revenue Expenditure:-Recurring in nature.

EX:-Petrol to a van.

Expenditure which are capital in nature and are exhausted 
over the life time of the asset are capitalised to the cost 
of the asset.

Revenue expenditure are those expenditure the effect of 
which are felt immeditaely like expentire incurred for 
salary.

Deffered Revenue expenditure are those which are revenue in 
nature but the effect of which are felt over the period of 
2 to 3 years.