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M/s Rana Polycot Limited Versus Commissioner of Income Tax, Aayakar Bhawan, Sector 17, Chandigarh

2015 (12) TMI 1127 - PUNJAB AND HARYANA HIGH COURT

Disallowance of depreciation at the rate of 15% on fee paid to Registrar of Companies for expansion of capital base - Held that:- Viewed from any angle, it is concluded that the claim of the assessee cannot be declined. Since the fees paid to Registrar of Companies for enhancing the authorized share capital for expansion of the business had been capitalized against plant and machinery, the assessee would be entitled to depreciation at the rate of 15% on ₹ 10,00,000/- and the benefit of Sec .....

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ppellate Tribunal, Chandigarh Bench 'A', Chandigarh (in short, the Tribunal ) in ITA No.1386/CHD/2010 for the assessment year 2006-07, claiming following substantial question of law:- Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal is justified in disallowing depreciation at the rate of 15% on fee paid to Registrar of Companies for expansion of capital base which was claimed by the appellant as capital expenditure in the light of judgment of Hon'b .....

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d depreciation. The assessment was framed vide order dated 26.12.2008 passed by the Assessing Officer (Annexure A.1) by making following additions: i) Public Issue expenses ₹ 6,92,753/- ii) Depreciation disallowed ₹ 1,50,000/- iii) Disallowance under section 40(a)(ia) ₹ 79,84,645/- iv) Interest disallowed ₹ 93,500/- v) Disallowance under section 40(a)(ia) Rs. 4,27,226/- Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT( .....

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sessing Officer regarding disallowance of depreciation @ 15% on fee paid to the Registrar of Companies. Hence the instant appeal by the assessee. 3. We have heard learned counsel for the parties. 4. The primary issue that arises for consideration in the present appeal relates to allowance of depreciation under Section 32(1) of the Act @ 15% on ₹ 10,00,000/- paid by the assessee as fees to the Registrar of Companies for the expansion of capital base and capitalized towards plant and machine .....

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hare capital for expansion of existing business and had to deposit ₹ 10 lacs as fees with the Registrar of Companies which was capitalized to plant and machinery during the year as the same was paid to generate funds for the expansion of the business. It was, thus, claimed that assessee was entitled to 15% depreciation on the aforesaid amount. Alternatively, it was submitted that in case the amount of fees paid to Registrar of Companies for augmenting the authorized capital was not attribu .....

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the revenue supported the order passed by the Tribunal and maintained that the assessee had been rightly disallowed depreciation of ₹ 1,50,000/- by the Assessing Officer and the Tribunal. Relying upon judgment of the Delhi High Court in CIT vs. Hindustan Insecticides Limited (and vice versa) (2001) 250 ITR 338, the claim of the assessee under Section 35D (2)(c) (iv) of the Act was also disputed. 7. The amount of fees paid to Registrar of Companies for augmenting the aforesaid share capita .....

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ing the authorized share capital is capitalized against plant and machinery as a necessary corollary, the assessee is entitled to depreciation at the rate of 15% on ₹ 10 lacs amounting to ₹ 1,50,000/-. The CIT(A) had rightly accepted the claim of the assessee with the following observations:- 19. After considering rival submissions, I find that the AO has wrongly disallowed the claim of the appellant. During the assessment proceedings, the AO accepted that the amount of ₹ 10,00 .....

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of the company was 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 was directly related to the expansion of the capital base of the company. 21. The Apex Court by giving the above finding, concluded that amount paid to Registrar of Companies as filing fee for enhancement of capital .....

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ity, the assessee would be entitled to claim an amount equal to one fifth i.e. 20% of such expenditure for each of the five successive previous years as amortization of preliminary expenses under Section 35D(2)(c)(iv) of the Act. Rajasthan High Court in CIT vs. Multi Metals Limited, (1991) 188 ITR 151 discussing the scope of Section 35D(2)(c)(iv) of the Act had held that the fees paid to Registrar of Companies for enhancing the authorized share capital of a company was allowable under section 35 .....

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ting and advertisement of the prospectus ;" Rebutting the submission of the Revenue, the assessee argued that the language of Section 35D is wide enough to cover a case of payment of fee to the Registrar for raising capital of the assessee-company and the provision should be so interpreted that the same be not against the assessee, particularly when its object was to benefit him. Learned counsel contended that the settled principle is that a provision of law capable of two interpretations s .....

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overed by the same. 9. To us, it appears that even if the provision of Sub-section (2) (c)(iii). of Section 35D is not applicable, the language of Subsection (2)(c)(iv) of Section 35D is wide in nature and would include the deductibility of fee paid by the assessee to the Registrar for enhancement of capital. Therefore, the said provision was rightly applied to the present case by the Incometax Appellate Tribunal. 10. Under these provisions, deduction of expenditure incurred for registration is .....

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