Disallownace of fees paid

This query is : Resolved

CA.CS.V.Viswanathan

CA.CS.V.Viswanathan (Querist)
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31 October 2009 Respected Experts,

The query is that how could the Fees Paid for increase in authorized capital which was done after 2 years of incorporation be taken as "PRELIMINARY EXPENSES" and how can deduction u/s 35D be claimed..
pl clarify

in the case of Punjab State Industrial Development Corporation Limited. vs CIT(SC)
Supreme Court Decision dt.04-12-1996
225 ITR 792(SC), it is only stated that the fees is capital in nature only and not said as "PRELIMINARY EXPENSES"..

Please Explain the definition of "PRELIMINARY EXPENSES" under income tax act and also clarify whether it can be amortized u/s 35D

CA. B.SRINIVASULU

CA. B.SRINIVASULU (Expert)
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01 November 2009 Expenses paid for increase in capital at a later stage after the formation of a company will not allowed as expenses under section 37 general deductions or expenses under section 35D preliminery expenses. It shoud be debited to profit and loss account and it will be disallowed for the purpose of computing tax. If the fees is very less compared to your profits you can write off in one year or you can spread over a period of 5 years.

CA. Vinod Pandey

CA. Vinod Pandey (Expert)
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01 November 2009 I agree with Mr. Srinivasulu up to some extent. Since he is saying that it is to be added back /disallowed for the purpose of computing tax. In case of PSIDC Vs CIT (1997) 225 ITR 792 (SC)clarified that fee paid to ROC for enhancement of of the capital of a company is a acapital expenditure.

Capital expenditure doesn't mean disallowance. Capital expenditure also amortises in more than one year and to be allowed u/s 37 of the income tax to the extent of amount to be amortised.

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