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Expenses on issue of preference shares

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Querist : Anonymous (Querist)
12 April 2013 expneses incurred on issue of preference shares is capital or revenue nature?

Whether it is allowed or disallowed and under which section?
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Mihir Doshi

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Mihir Doshi (Expert)
12 April 2013 Tax treatment

It was held that share issue expenses are capital for income-tax purposes. As a result, it is not deductible from profits. The only exception can be inferred from a reading of S.35D of the Income Tax Act, dealing with amortising of preliminary expenses. If the issue is made to finance a project, share issue expenditure constitutes preliminary expenditure for the purposes of this section. Therefore, such expenditure, subject to the limits specified under this section, can be amortised over a period of five years commencing from the year in which the project starts generating income.
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