Pre incorporation expenses

Section 35D

Preliminary expenses

Conditions precedent - Where assessee had not satisfied conditions prescribed under section 35D(2), assessee would not be entitled to amortisation under section 35D even if assessee proved that it was an industrial undertaking as contemplated under section 35D(1) - Agrocargo Transport Ltd. v. CIT [1997] 91 Taxman 44/224 ITR 90 (Mad.).

Expenditure on public issue of shares can be amortised - Where business of assessee-company had not yet commenced, expenditure on public issue of shares could be amortised under section 35D - Goa Carbon Ltd. v. CIT [1994] 73 Taxman 68 (Bom.).

Insurance policy taken by firm for payments to legal representatives of deceased partners is not covered - When a partner dies, the firm would stand dissolved unless the partnership deed provides that the surviving partners may carry on the business. In that event, the surviving partners would be required to pay the value of the share of the deceased partner to his legal representatives. If for paying the value of the share to the legal representatives an insurance policy is taken out, it is difficult to say that it is taken out against the risk of damage or destruction to the stocks, no matter how wide the expression ‘stocks’ is read. The case, therefore, would not fall within the ambit of section 36(1)(i) - CIT v. Khodidas Motiram Panchal [1986] 161 ITR 99 (Guj.).

Stamp duty will also qualify for deduction - The expression ‘in connection with the issue of public subscripttion of the debentures of the company essentially for the expansion of business’ is a very wide expression and would certainly include the stamp duty payable by the assessee on the debenture issue. Hence stamp duty paid will also qualify for deduction under section 35D(2)(c) of the Act - CIT v. Mahindra Ugine & Steel Co. Ltd. [2001] 250 ITR 84 (Bom.).

Fees paid for increase in share capital is not deductible - Under section 35D(2)(c)(iii) of the Act, only fees paid for registration of a company is deductible. Fees paid for increase in share capital is not fees for registration of the company, and hence is not amortisable under this provision - CIT v. Hindustan Insecticides Ltd. [2001] 250 ITR 338 (Delhi).

Management fees and lease rent cannot be spread over - Expenses on management fees and lease rent incurred before commencement of production cannot be allowed on a spread over basis under section 35D - CIT v. Ennar Steel & Alloy (P.) Ltd. [2004] 137 Taxman 429 (Mad.).

Debenture issue expenses - Where in order to accomplish expansion activity in their unit, board of directors of appellant-company resolved to raise money by way of issuance of partly convertible and partly non-convertible debentures, expenditure incurred towards debenture issue was covered by section 35D(1)(ii) and 35D(2)(c)(iv) - Shree Synthetics Ltd. v. CIT [2006] 205 CTR (MP) 386.

Share premium, whether ‘Capital employed’ - Premium collected by assessee-company on its subscribed share capital is not ‘capital employed in business of company’ within meaning of section 35D - Berger Paints India Ltd. v. CIT [2006] 154 Taxman 293 (Delhi).

but as per Section 37(1)

- Gneral Deduction ....Preliminary Expenses are allowed.

hence the expenditure of traveling and conferrence shall be allowable and it shall be debited in P& L Account. and further can be claimed as dedcution under section 37(1) of Income tax Act 1961.

And there is one another Accounitng treatment is given under Accounting Standard 26"Accounting for Intengible Assets" where as it was given that the priiminary expenses can be write off -