Sirs,
A govt. company was sanctioned grants -in-aid of Rs. 12.00 Lakh from the State Government to start a business. Actually, the Company got the Govt order sanctioning the money at the fag end of the Year. Actual disbursement of Rs. 12.00 Lakh from the Govt happened in the subsequent year. Being the first year of operation, the Company had no income. They incurred preliminary expenses worth Rs. 10.00 Lakh, that too on credit , as there was no fund. The Company showed the Govt. Grant as " Receivable" and the entire preliminary expenses shown as "Expenditure" in their Profit & Loss A/c and corresponding " Current Liability" was created.
My query is:
i) Whether the Preliminary Expenditure worth Rs. 10. Lakh can be claimed u/s 35D in subsequent years, although the entire exp. was charged to Revenue Account and "Loss" carried forward in their Accounts as negative figure in " Reserves & Surplus"
ii) From plain reading of the Government Sanction, it appears that the Grants-in-aid was in the nature of "Revenue Grant". Then whether, the balance Rs. 2.00 Lakh will be treated as " Income " for the purpose of taxation.
iii) If it is Capital Grant, I think, there will be no tax for the first year.
May kindly advise.
CAclubindia
