Expenses on issue of preference shares

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

12 April 2013 expneses incurred on issue of preference shares is capital or revenue nature?

Whether it is allowed or disallowed and under which section?

Mihir Doshi

Mihir Doshi (Expert)
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12 April 2013 Tax treatment

It was held that share issue expenses are capital for income-tax purposes. As a result, it is not deductible from profits. The only exception can be inferred from a reading of S.35D of the Income Tax Act, dealing with amortising of preliminary expenses. If the issue is made to finance a project, share issue expenditure constitutes preliminary expenditure for the purposes of this section. Therefore, such expenditure, subject to the limits specified under this section, can be amortised over a period of five years commencing from the year in which the project starts generating income.