Allowability of fees paid to roc

Tax queries 1628 views 5 replies

CA Nimesh Maheshwari

Commercial Manager

334 Points Joined June 2011

My query is regarding the allowability of Expenditure incurred against increase in authorised share capital. Based on going through some case laws adjudged by various honourable courts in India, I have an understanding that the fee paid to ROC to increase autorised share capital is a capital expenditure and hence disallowed. Names of some of important case laws are reproduced below for your ready reference: 1. Brooke Bond India limited case [(1997) 225 ITR 798 2. Punjab State Industrial Development Corporationn ltd 225 ITR 792 (SC). The same view has also been expressed by a number of members a number of times.

However, based on a discussion I also believe that the authorised share capital of a company is increased when a resolution to that effect is passed in the General Meeting and the payment of fee is statutory payment. The same neither in any case increases the capital base of the company nor does it lead to any future profitability. Thus, why it has been treated as capital expenditure?

Also basis my research over net, I have come across a view that the object of the assessee is also a decisive factor for determination of allowability.

Would request to guide in above case.

Further, in case the same is a disallowed expenditure; what will be the accounting treatment viz. to say that will the same be considered as a permanent difference.

Further more would request if someone has some recent judgements on tax treatment of fees paid to ROC.

Replies (5)

CA Lokesh Pokharna

CA (Ahmedabad Bhilwara Chittorgarh)

4128 Points Joined November 2009

From taxation point of view i think its disallowed as your study says... & accounting point needs to be carre..it will be treated permanent difference in as 22, hence it wont be consider in DTA/DTL calculation..

CA Lokesh Pokharna

CA (Ahmedabad Bhilwara Chittorgarh)

4128 Points Joined November 2009

further in accounts its good to w/off it as def. rev. exp... because niether its a capex nor rev. exp.

CA Nimesh Maheshwari

Commercial Manager

334 Points Joined June 2011

Originally posted by : CA Lokesh Pokharna
	From taxation point of view i think its disallowed as your study says... & accounting point needs to be carre..it will be treated permanent difference in as 22, hence it wont be consider in DTA/DTL calculation..

Dear Lokesh,

Thanks for the reply. Even I am of the same view. But I am looking for concrete answer based on some recently decided case laws.

Also, I am looking for the answer that why the same is not a revenue expenditure basis my arguments above.

Please clarify.

CA Prateek Garg

CA in Practice

1447 Points Joined November 2009

yes it is true that authorized share capital of a company is increased when a resolution to that effect is passed by General Body of Co. and payment of fee is statutory payment.

but u can't see both items separately. Payment of Statutory fee is an expense and this expense is incurred due to a Capital item hence Expense is of Capital Nature.

you can compare this with a Imported Machine. u pay the machine price to Foreign Vendor which is a Capital Expenditure. now to clear the machine at Custom Station u have to incur many Expense including Custom Duty. now u have to capitalize all those expenses because they are related to Capital item. u can't say that Custom duty should not be capitalize because it do not increase the productivity of machine.