TMI Blog2011 (2) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... llected against the issue of shares. Money collected against the issue of shares always remains capital - hence expenditure incurred is capital in nature. Regarding amortization - Held that:- The expenses incurred after commencement of the business, should be incurred in connection with extension of the undertaking or in connection with setting up of a new unit - An undertaking is always having an area of physical structure which produces goods and services by utilising the necessary factors of production - The expansion in the present case is in the business prospects of the existing undertaking - thus the expenditure incurred by the assessee-company in connection with the issue of shares do not qualify to be amortised under section 35D - Appeal is dismissed - ITA NO. 1023 (BANG.) OF 2010 - - - Dated:- 22-2-2011 - SHRI DR. O.K. NARAYANAN, AND SMT. P. MADHAVI DEVI, JJ. Shri Padam Chand Khincha for the Appellant. Shri G.V. Gopala Rao for the Respondent. Dr. O.K. Narayanan, Vice-President This appeal is filed by the assessee. The relevant assessment year is 2006-07. The appeal is directed against the order of the Commissioner of Income-tax (Appeals), LTU a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als) that even though the expenditure were incurred for issuing shares, the issue proceeds were meant for working capital requirements and in that context the expenses should be treated as revenue in nature. This contention was also rejected by the Commissioner of Income-tax (Appeals). He has agreed with the view taken by the assessing authority. In respect of the alternate contention under section 35D, the Commissioner of Income-tax (Appeals) agreed with the assessing authority and found that the expenditure was incurred for raising capital. He held that the expenses claimed by the assessee do not come under any of the categories of expenses prescribed as eligible for amortisation under section 35D(2). The alternate ground was also rejected. 5. The assessee-company is aggrieved and, therefore, the second appeal before us. 6. The detailed grounds raised by the assessee are extracted below : "1.The learned Deputy Commissioner of Income-tax, LTU, Bangalore has erred in passing the assessment order in the manner passed by him and the learned Commissioner of Income-tax (Appeals), LTU, Bangalore has erred in sustaining the additions made by the learned Assessing Officer. The order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91 ; (iii) interest levied under section 234B be deleted." 7. As concluded by the assessee in its ground of appeal, we are to examine the two contentions of the assessee-company related to- "(1) Payment of Rs. 1,56,87,500 paid to M/s. Yes Bank. (2) Amortisation of expenditure under section 35D of expenditure amounting to Rs. 3,93,78,491." 8. The ground relating to levy of interest under section 234B, being incidental or consequential, does not call for any specific adjudication. 9. We heard Shri Padam Chand Khincha, the learned chartered accountant appearing for the assessee-company. 10. On the first issue of the claim of expenditure of Rs. 1,56,87,500, the learned chartered accountant argued in the following manner : (i) Even if the expenditure was incurred in connection with issue of shares to raise the capital, the capital was raised for the purpose of augmenting the working capital needs of the assessee-company. It is a settled law that expenses incurred for procuring working capital are revenue in nature. The case law relied on by the lower authorities does not deal with this particular issue. The decisions only deal with the expenses incurred in connection wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raising of capital block is also a capital expenditure and this position has been confirmed by a number of judicial pronouncements. 12. We heard both sides in detail and considered the plethora of case law relied on by the assessee-company and also the detailed written submission filed by the learned chartered accountant appearing for the assessee-company. 13. There is no doubt regarding the fact that the payment of Rs. 1,56,87,500 was made by the assessee-company to M/s. Yes Bank for services rendered in connection with issue of shares to increase the capital base of the assessee-company. The hon'ble Supreme Court has held in the case of Brooke Bond (India) Ltd. (supra) and other cases that the expenditure incurred in connection with the issue of shares is capital in nature. The learned chartered accountant has relied on the Third Member decision of the Income-tax Appellate Tribunal, Chennai Bench rendered in the case of Lakshmi Auto Components Ltd. (supra) to make a further argument that it was necessary to examine the object of the capital enhancement made by a company and then only it would be possible to hold whether the expenditure were capital or revenue in nature. He h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh, the assessee-company gets the funds in its hands and once the funds have come into the hands of the assessee-company, the process of issue of share capital is complete. Therefore, the scope of expenditure incurred for raising the share capital by issuing shares must also stop at that point. The scope should not be enlarged further. It is the wisdom of the company to decide in which manner the funds available with it, collected by way of issue of shares, should be applied. If the funds are utilised for working capital requirements, it is only an appropriation of funds available in the hands of the company. Raising the capital and utilising the funds are different. Application of funds does not decide the character of the money collected against the issue of shares. Money collected against the issue of shares always remains capital. Therefore, the argument of the learned chartered accountant that the expenditure incurred for issue of shares to raise share capital for working capital requirements needs to be allowed as revenue expenditure cannot be accepted. 16. We find that the lower authorities have rightly held that the payment made by the assessee to M/s. Yes Bank for servic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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