INCREASE OF AUTHORISED CAPITAL

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

17 August 2010 Rs. 55000/- PAID FOR INCREASING AUTHORISED EXPENSES,

I THINK THESE EXPENSES ARE ALLOWED UNDER IT ACT FULLY IN THIS YEAR.
AND UNDER COMPANIES ACT, ITS ALLOWED AS 1/5TH OR 1/10TH.

IF WRONG PLEASE CORRECT ME.

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

17 August 2010 In IT act it will be allowed 1/5 every year for five years.

Querist : Anonymous

Querist : Anonymous (Querist)

17 August 2010 I THINK UNDER IT ACT,
PRELIMINARY EXPENSES DEFINATION INCLUDE ONLY COST OF PROJECT.

AND UNDER COMPANIES ACT IT IS 1/5TH OR 1/10TH ??///

Upgrade to CAclubindia Pro. Subscribe Now!

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

17 August 2010 (2) The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely :—

(a) expenditure in connection with—

(i) preparation of feasibility report;

(ii) preparation of project report;

(iii) conducting market survey or any other survey necessary for the business of the assessee;

(iv) engineering services relating to the business of the assessee :

Provided that the work in connection with the preparation of the feasibility report or the project report or the conducting of market survey or of any other survey or the engineering services referred to in this clause is carried out by the assessee himself or by a concern which is for the time being approved29 in this behalf by the Board;

(b) legal charges for drafting any agreement between the assessee and any other person for any purpose relating to the setting up or conduct of the business of the assessee;

(c) where the assessee is a company, also expenditure—

(i) by way of legal charges for drafting the Memorandum and Articles of Association of the company;

(ii) on printing of the Memorandum and Articles of Association;

(iii) by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956);

(iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus;

(d) such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act) as may be prescribed.

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

17 August 2010 Otherwise it would be (d) such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act) as may be prescribed.

Expenditure on raising additional share capital is capital expenditure - The expenditure incurred for raising additional capital by issue of ordinary shares is a capital expenditure - Vazir Sultan Tobacco Co. Ltd. v. CIT [1988] 41 Taxman 7/174 ITR 689 (AP).

Expenditure on changing capital structure to meet FERA requirements is capital expenditure - Where the expenditure was incurred for the purpose of changing the capital structure of the company to suit the requirements of the Foreign Exchange Regulation Act, 1973, by obtaining shares held by foreigners and transferring them to Indian citizens, thereby converting what was a non-resident company to a resident company, the expenditure was not deductible as a business expenditure - CIT v. Commonwealth Trust Ltd. [1987] 167 ITR 365 (Ker.).

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. Therefore, expenditure incurred on issuing shares to increase its share capital by a company would not be allowable as revenue expenditure - Punjab State Industrial Corporation Ltd. v. CIT [1997] 93 Taxman 5/225 ITR 792 (SC)/Brooke Bond India Ltd. v. CIT [1997] 91 Taxman 26/225 ITR 798 (SC).

Where assessee claimed having increased its share capital at RBI’s direction, so as to reduce its non-resident holding to 40 per cent, it was held that where object of assessee was to increase its share capital, either to continue to do business after RBI directive or otherwise, expenditure incurred for public issue of shares was capital expenditure - CIT v. Kodak India Ltd. [2002] 120 Taxman 498 (SC).

Fee paid to Registrar of Companies for enhancement of capital is a capital expenditure - The fee paid to the registrar for expansion of the capital base of the company is 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 retains the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company - Punjab State Industrial Development Corpn. Ltd. v. CIT [1997] 225 ITR 792/93 Taxman 5 (SC).

Fees paid for increasing share capital are capital expenditure - Fee paid to Registrar of Companies for increasing authorised capital will result in an advantage of enduring nature and is capital expenditure - Mohan Meakin Breweries Ltd. v. CIT (No. 2) [1979] 117 ITR 505 (HP)/Groz-Beckert Saboo Ltd. v. CIT [1986] 160 ITR 743 (Punj. & Har.)/Union Carbide India Ltd. v. CIT [1987] 165 ITR 678 (Cal.)/Bharat Carbon & Ribbon Mfg. Co. Ltd. v. CIT [1981] 127 ITR 239 (Delhi)/CIT v. Aditya Mills [1990] 50 Taxman 120 (Raj.)/Alembic Glass Industries Ltd. v. CIT [1993] 202 ITR 214 (Guj.)/CIT v. Tungabhadra Industries Ltd. [1994] 207 ITR 553 (Cal.)/Hindustan Machine Tools Ltd. (No. 3) v. CIT [1989] 175 ITR 220 (Kar.)/CIT v. Multi Metals Ltd. [1991] 188 ITR 151 (Raj.)/Wood Craft Products Ltd. v. CIT [1993] 204 ITR 545 (Cal.).

Querist : Anonymous

Querist : Anonymous (Querist)

17 August 2010 OK THANKS SIR,

BUT UNDER COMPANIES ACT, IT IS 1/5 TH ALLOWABLE OR 1/10 TH ALLOWABLE..

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

17 August 2010 In the books of accounts u have both options to write it off over a period of five years or write it off in one year itself.

All listed companies write it off in the year in which they are incurred and many non listed companies write it off over a period of five years.

For listed companies it is compulsory to write it off in the year in which they are incurred.

And u can thank by using the thank user icon also.

Message likes : 6 times