Increase in authorised capital
This query is : Resolved
14 December 2009
Sir,
A company has increased the authorised share capital and has paid ROC fees as Rs.80,000/-.
What will be the accounting treatment of this expense.
Regards,
Jyoti
A company has increased the authorised share capital and has paid ROC fees as Rs.80,000/-.
What will be the accounting treatment of this expense.
Regards,
Jyoti
14 December 2009
Hi,
Fees paid to the RoC for increase in authorised capital is a capital expenditure not deductible u/s 37(1) but deductible u/s 35D.
Citation:-
1. Punjab State Industrial Development Corporation Ltd 225 ITR 792 (Sc).
2. Mohan Meakin Breweries Ltd 117 ITR 501 (HP)- says that Fees paid for increase of authorised capital is an inadmissable expenses.
Regards
Fees paid to the RoC for increase in authorised capital is a capital expenditure not deductible u/s 37(1) but deductible u/s 35D.
Citation:-
1. Punjab State Industrial Development Corporation Ltd 225 ITR 792 (Sc).
2. Mohan Meakin Breweries Ltd 117 ITR 501 (HP)- says that Fees paid for increase of authorised capital is an inadmissable expenses.
Regards
15 December 2009
Hello
Thanks for the reply.
How is the expenditure incurred for increase in authorised capital of an existing company deductible under section 35D.
Section 35D allows expenditure on issue of shares.
Regards
Jyoti
Thanks for the reply.
How is the expenditure incurred for increase in authorised capital of an existing company deductible under section 35D.
Section 35D allows expenditure on issue of shares.
Regards
Jyoti
31 July 2024
Under the Income Tax Act, 1961, Section 35D deals with the amortization of certain expenses related to the expansion or setting up of a business. Here’s a detailed look at how expenditures incurred for increasing the authorized capital of an existing company can be deductible under Section 35D:
### **Section 35D Overview**
**Section 35D** allows for the amortization of certain preliminary expenses over a period of five years. These include:
- **Expenses incurred in connection with the setting up of a business.**
- **Expenses incurred for the expansion of a business.**
### **Expenditure Related to Authorized Capital**
**Authorized Capital Increase:** When a company increases its authorized capital, it typically involves various expenses such as:
- **Legal Fees:** For drafting and filing documents with regulatory authorities.
- **Consultancy Fees:** For financial and legal advice.
- **Stamp Duty:** On the increase of authorized capital.
- **Other Administrative Costs:** Related to the process of increasing capital.
**Amortization Under Section 35D:**
1. **Eligibility for Deduction:**
- The expenditure incurred for increasing the authorized capital of an existing company is considered a capital expenditure related to the expansion of business.
- **Section 35D** specifically provides for the amortization of preliminary expenses, which can include certain costs incurred for increasing the authorized capital, provided these are directly related to the expansion of the business.
2. **Nature of Expenditure:**
- **Preliminary Expenses:** Section 35D covers expenses like legal and consultancy fees related to the expansion or setting up of a business. If the increase in authorized capital is part of an expansion plan, the associated costs may fall under this category.
3. **Treatment and Deduction:**
- The eligible expenditure can be amortized over a period of five years.
- This means that instead of deducting the full amount of the expenditure in the year it was incurred, you can spread the deduction across five financial years.
### **Procedure to Claim Deduction:**
1. **Identify Eligible Expenditure:** Ensure that the expenses incurred are directly related to the expansion or setting up of business and not routine administrative expenses.
2. **Record Expenditure:** Maintain proper documentation and records for all expenses related to the increase in authorized capital.
3. **Amortize Over Five Years:** Claim the deduction for such expenses in the profit and loss account by amortizing the total eligible expenditure over a period of five years.
4. **File Income Tax Return:** Reflect the amortized amount in your income tax return for each year during the five-year period.
### **Important Points to Note:**
- **Specific Expenses:** Only certain types of expenditures are covered under Section 35D, so ensure that the expenses are indeed of the nature allowed under this section.
- **Documentation:** Maintain thorough documentation and evidence of all expenditures claimed under Section 35D.
- **Consultation:** It’s advisable to consult a tax professional or financial advisor to ensure compliance and to get personalized guidance on the specifics of your case.
By following these guidelines, you can effectively claim the deduction for expenses incurred in increasing the authorized capital of your company under Section 35D.
### **Section 35D Overview**
**Section 35D** allows for the amortization of certain preliminary expenses over a period of five years. These include:
- **Expenses incurred in connection with the setting up of a business.**
- **Expenses incurred for the expansion of a business.**
### **Expenditure Related to Authorized Capital**
**Authorized Capital Increase:** When a company increases its authorized capital, it typically involves various expenses such as:
- **Legal Fees:** For drafting and filing documents with regulatory authorities.
- **Consultancy Fees:** For financial and legal advice.
- **Stamp Duty:** On the increase of authorized capital.
- **Other Administrative Costs:** Related to the process of increasing capital.
**Amortization Under Section 35D:**
1. **Eligibility for Deduction:**
- The expenditure incurred for increasing the authorized capital of an existing company is considered a capital expenditure related to the expansion of business.
- **Section 35D** specifically provides for the amortization of preliminary expenses, which can include certain costs incurred for increasing the authorized capital, provided these are directly related to the expansion of the business.
2. **Nature of Expenditure:**
- **Preliminary Expenses:** Section 35D covers expenses like legal and consultancy fees related to the expansion or setting up of a business. If the increase in authorized capital is part of an expansion plan, the associated costs may fall under this category.
3. **Treatment and Deduction:**
- The eligible expenditure can be amortized over a period of five years.
- This means that instead of deducting the full amount of the expenditure in the year it was incurred, you can spread the deduction across five financial years.
### **Procedure to Claim Deduction:**
1. **Identify Eligible Expenditure:** Ensure that the expenses incurred are directly related to the expansion or setting up of business and not routine administrative expenses.
2. **Record Expenditure:** Maintain proper documentation and records for all expenses related to the increase in authorized capital.
3. **Amortize Over Five Years:** Claim the deduction for such expenses in the profit and loss account by amortizing the total eligible expenditure over a period of five years.
4. **File Income Tax Return:** Reflect the amortized amount in your income tax return for each year during the five-year period.
### **Important Points to Note:**
- **Specific Expenses:** Only certain types of expenditures are covered under Section 35D, so ensure that the expenses are indeed of the nature allowed under this section.
- **Documentation:** Maintain thorough documentation and evidence of all expenditures claimed under Section 35D.
- **Consultation:** It’s advisable to consult a tax professional or financial advisor to ensure compliance and to get personalized guidance on the specifics of your case.
By following these guidelines, you can effectively claim the deduction for expenses incurred in increasing the authorized capital of your company under Section 35D.
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