ITAT HYDERABAD  :- OCIMUM BIO SOLUTIONS INDIA LTD., HYDERABAD. VERSUS DY. COMMISSIONER OF INCOME-TAX, CIRCLE – 16 (3) , HYDERABAD- No.- ITA No. 2178/H/2018

Dated.- May 5, 2021

On perusal of the financial statements submitted by the assessee, we find that there is no doubt that the assessee has increased share capital.

On perusal of the provisions of section 35D, we find substance in the written synopsis submitted by the ld. AR of the assessee relying on the judgement quoted supra that section 35D provides amortization of certain expenses, which are in the nature of capital/intangibles/ preliminary expenses, which have been incurred by the assessee in the preliminary stage of the company or in the normal course of business and the assessee is entitled to amortize of expenses over a period of time as per section 35D.

 Therefore, the AO is directed to allow the ROC expenditure incurred towards increase of share capital as per section 35D

 Decided in favour of assessee.

1.BROOKE BOND INDIA LIMITED VERSUS COMMISSIONER OF INCOME-TAX- Aupreme Court- [1997] 225 ITR 798 (SC):-

Expenses for issue of shares – though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and may also help in the profit-making, the expenses incurred in that connection still retain the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company – Tribunal was not right in sustaining the disallowance.

2. PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LIMITED VERSUS COMMISSIONER OF INCOME-TAX- SUPREME COURT-[1997] 225 ITR 792 (SC)

Fee paid to the Registrar for expansion of the capital base of the company – directly related to the capital expenditure incurred by the company – Tribunal was right in law in holding that the amount of ₹ 1,50,000 paid to the Registrar of Companies, as filing fee for enhancement of capital was not revenue expenditure – Held, yes

3. COMMISSIONER OF INCOME TAX, FARIDABAD VERSUS M/S NUCHEM LIMITED-  PUNJAB & HARYANA HIGH COURT-[2015] 371 ITR 164 (P&H)

Share capital expenses – AO made disallowance of expenses claimed u/s 35D in respect of capital raising expenses being one-tenth on the ground that these were not covered under the said provision – ITAT confirming order of CIT(A) in deleted addition – Held that:- In Multi Metals Ltd. [1990 (10) TMI 55 – RAJASTHAN High Court] and Goa Carbon Ltd.’s cases (1993 (9) TMI 344 – BOMBAY HIGH COURT), it has been held by the Rajasthan and the Bombay High Courts, respectively, that any expenditure incurred by way of fees paid to the Registrar of Companies for enhancement of the authorized capital is deductible over a period of ten years under section 35D(2)(c)(iv) of the Act. We are in agreement with the aforesaid view and do not find any infirmity in the order of the Commissioner of Income-tax (Appeals) or the Tribunal in this behalf. – Decided in favor of assessee.

4. GOA CARBON LTD. VERSUS COMMISSIONER OF INCOME-TAX- BOMBAY HIGH COURT-No.- IT REFERENCE NO. 139 OF 982- we have no hesitation in accepting the submissions made by the learned counsel for the assessee that in the circumstances the assessee is entitled to avail of section 35D and the expenditure incurred by the assessee on ‘share issue’ be allowed to be deducted in the manner contemplated under section 35D as it stood at the material time. The Tribunal is directed to modify its order by deciding deduction of above- referred expenditure in terms of section 35D while giving effect to this order.

5. COMMISSIONER OF INCOME-TAX VERSUS MULTI METALS LIMITED-RAJASTHAN HIGH COURT-: [1991] 188 ITR 151:- To us, it appears that even if the provision of sub-section (2)(c)(iii) of section 35D is not applicable, the language of subsection (2)(c)(iv) of section 35D is wide in nature and would include the destructibility of fee paid by the assessee to the Registrar, for enhancement of capital. Therefore, the said provision was rightly applied to the present case by the Income-tax Appellate Tribunal.

Under these provisions, deduction of expenditure incurred for registration is to be spread over a period of ten years and is not allowable in the year in which the expenses are incurred. To uphold the submission of the Revenue that expenditure incurred for obtaining registration would not be allowable either under sub-section (2)(c)(iii) or sub-section (2)(c)(iv) of section 35D would defeat the obvious intention of the Legislature and would produce a wholly unreasonable result. To achieve the obvious intention and produce a reasonable result, we have to hold that under subsection (2)(c)(iv) of section 35D, the expenditure incurred for obtaining registration would be liable to be deductible. AP

We, consequently, hold that the fee paid to the Registrar of Companies for raising authorized capital of the assessee-company was covered by subsection (2)(c)(iv) of section 35D of the Income-tax Act.

Let the papers of this case be returned to the Income-tax Appellate Tribunal with the answers mentioned above. Since we have answered one question in favour of the Revenue and the other against it, we do not consider it to be in the interest of justice to award any costs