Law: Income Tax Act, 1961

Section: 32

Section 35D, read with section 32, of the Income-tax Act, 1961 - Preliminary expenses (Share issue expenses) - Assessment years 1980-81 and 1981-82 - Whether depreciation cannot be allowed on capitalised expenditure on issue of shares; such expenditure would fall within provisions of section 35D - Held, yes [Para 11][In favour of revenue] FACTS â–  The assessee increased share capital by issue of shares for setting up a unit for the manufacture of computer and OEM peripheral manufacturing project. â–  For issue of shares certain expenditure were incurred. The assessee capitalised part of such expenditure to plant and machinery and factory equipment and claimed depreciation thereon. â–  The Assessing Officer disallowed assessee's claim holding that such expenditure was required to be treated in accordance with section 35D. â–  The order of the Assessing Officer was upheld by the Commissioner (Appeals) and the Tribunal. â–  On reference: HELD â–  The assessee was claiming depreciation on the capitalised expenditure on issue of shares which ex facie cannot fall within the purview of section 32. Section 35D provides for amortisation of certain preliminary expenses incurred by the assessee being an Indian company incurred after 31-3-1970 in respect of expenditure specified in sub-section (2) before the commencement of the business or after the commencement of the business, in connection with the extension of an industrial undertaking or in connection with his setting up a new industrial unit. [Para 7] â–  Section 35D(2)(c) concerns the expenditure by a company in connection with the issue, for public subscription, of shares or debentures, underwriting commission, brokerage and charge for drafting, typing, printing and advertisement of the prospectus. This provision, therefore, allows amortisation of the specific category of expenditures incurred by the assessee, by way of deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years as provided therein. The Legislature, therefore, having specifically provided for amortisation of the preliminary expenditure which includes expenditure…

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