Filing fee & Stamp Duty on sub.issue of shares

vivek (Querist) 30 July 2010 This query is : Resolved

Whether Stamp Duty & Filing Fees for issue of Share capital in subsequent years can be claimed as deduction under section 35 D i.e 1/5 th every year including the year of Expenditure incurred.
Which is treated as Capital Expenditure for Tax Computation.

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A V Vishal (Expert) 30 July 2010
Yes, the expenses incurred by way of payment of fees to ROC and related expenses to increase of additional share capital is capital expenditure for income tax purpose refer to decsions of the Supreme Court in the cases Punjab State Industrial Development Corporation Vs. CIT 225 ITR 792(SC)and Brooke Bond India Ltd. Vs. CIT 225 ITR 798 (SC) Both the decisions deal with the allowability of the expenditure incurred for enhancement of share capital. In the first case, the assessee had paid fees to the ROC for increasing its authorised capital. In the second case, the assessee had incurred expenditure for issue of fresh right of shares. Both these cases were decided by the Supreme Court against the assessee holding that the expenditure is a capital expenditure and not revenue expenditure. In the first case the Supreme Court took the view that fees paid to the Registrar of Companies for increasing the Capital base of the Company was directly related to the Capital expenditure incurred by the Company and although incidentally that would certainly help in the business of the company and may also help in profit making, it still retain the nature of capital expenditure since the expenditure was directly related to increase of capital base of the Company. In the second case the assessee increased share capital in order to have more working funds for the assessee to carry on its business and to earn more profits and therefore the assessee claimed that the expenditure should be a revenue expenditure. The Supreme Court did not permit the assessee to raise that contention.

Vineet (Expert) 31 July 2010
Yes these expenses are Capital Expenditure as repeatedly held by courts. Further the filing fee and stamp duty are not covered under expenditure eligible for amortisation u/s 35D.