04 December 2009
There are 3 companies for ex. A,B&C Ltd in which company X & Y are the stake holder (companyA X33% Y67%)(companyBX51%Y49%)companyC (X51%,Y49%). As a social cause & obligation to cater the needs of the people residing in the town ship a school was constructed. An agreement has ben entered by company C with the school management. The school was constructed by company C. My query is whether the assets (ie) school building,furniture & others should be capitalised in the books of company c ; if the cost of the fixed assets pertaining to the school are shared among the 3 spvs then how the fixed assets should be maintained; whether all the 3 spvs could claim depreciation on the fixed assets
05 December 2009
The intention of constructing the school building is to fulfil a social cause. Whether the asset will remain the property of the Company or the School is not clear in the querry. U can treat the entire expenditure on the construction as a donation U/S 80G if the institution has the required approval under this section You can also examine the provisions of S 35AC.
05 December 2009
The said expenditure can be claimed as revenue and deduction may be availed under 'business expenditure' on the strength of the following decision.
Expenditure on providing drinking water facilities to local residents is deductible - The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the people of the locality in which the business is located in particular. Being known as a good corporate citizen brings goodwill of the local community, as also with the regulatory agencies and the society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill. Monies spent for bringing drinking water as also for establishing or improving the school meant for the residents of the locality in which the business is situated cannot be regarded as actually outside the ambit of the business concerns of the assessee, especially when the undertaking owned by the assessee is one which is to some extent a polluting indusÂtry. Hence, expenditure incurred by the assessee for establishing drinking water facilities to the residents in the vicinity of its refinery and for providing aid to the school run for the benefit of the children of those residents was allowable as deduction.
Citation : - CIT v. Madras Refineries Ltd. [2004] 266 ITR 170/138 Taxman 261 (Mad.)
05 December 2009
Assuming that ownership of school remians with Company C, it should be capitalised by Co. C. In case the cost is incurred by all the three co., they can capitalise their individual portion and claim depreciation. But make sure that portion of school owned by each co. should be separately identifiable.
However, in case the ownership is transferred to the society/ Tust, then it can not be capitalised by Co. C.
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