Case Law Details
Issue :- Whether expenditure incurred to meet out the need for working funds in which expansion of share capital was undertaken, is capital expenditure even when the purpose for which expenditure was incurred did not result in creation of an asset or benefit due to intervention by an external agency.
The assessee claimed deduction under the caption ‘share issue expenses paid during the year deferred in books’. The expenditure was claimed as revenue as the same was expended to augment its working capital. The assessee went for public issue and after incurring expenditure, just before the public issue, by reason of the orders from the SEBI, the assessee could not achieve the purpose.
It is an accepted fact, as evident from various judicial pronouncements, that fees paid to the Registrar of Companies for expansion of the capital base of a company is 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 is directly related to the expansion of the capital base of the company.
Held that on account of the abortive efforts, the expenditure incurred would not lose its character as capital expenditure as the assessee had admittedly took steps to go for public issue and after incurring expenditure, just before the public issue, by reason of the orders from the SEBI, the assessee could not go in for public issue.
High Court of Judicature at Madras
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