Whether expenditure allowable u/s 35D can be capitalized to asset for claim of depreciation u/s 32?

Last updated: 16 March 2015

Court :
Bombay High Court

Brief :
In the Assessment Year 1980-81, the assessee had issued 6,25,000 equity shares of Rs.10/- each. Accordingly, a sum of Rs.62.50 lakhs was adjusted by issue of shares and the balance application money was refunded to the subscribers. The increase in the share capital was for setting up an unit for the manufacture of computer and OEM peripheral manufacturing project. For the issue of shares, the assessee had incurred expenses of Rs.14,21,276/- under different heads like financial consultancy, managerial fees, legal fees, underwriting commission, advertisement, issue house expenses, printing charges etc. Out of total expenditure of Rs.14,21,276/-, the assesse capitalised a sum of Rs.29,668/- on plant & machinery and factory equipment and Rs.9,79,438/- on the work-in-progress. The balance sum of Rs.4,12,170/- was treated as preliminary expenses and on these expenses had claimed relief under Section 35D of the Act in the following Assessment Year i.e. 1981-82. On the capitalised amount of Rs.29,668/-, the assessee claimed depreciation of Rs.4,203/- in the said Assessment Year. The applicant justified the claim for depreciation on the ground that these amounts which were capitalised, represented expenditure incurred in raising finance for the acquisition of and/or for bringing into existence capital assets and thus formed part of the cost of fixed assets.

Citation :
M/s. International Computers Indian Manufacture Limited – Appellant – Versus – CIT – Respondent