(a) Capital raising expenses
Issue/Justification
Expenses incurred for raising capital are being treated as capital in nature and no deduction is allowed in tax assessment. Section 35D provides for deduction in respect of some of the expenses, over a period of five years, subject to conditions and limits. Raising capital is necessary activity for carrying out the business activity. Not allowing deduction of expenses for raising capital increases cost of carrying out the business and adversely affects the competitiveness of the business
Suggestion
Section 35D should be amended to allow deduction for all expenses incurred by an assessee for raising capital in five equal installments over a period of five years.
(SUGGESTIONS FOR RATIONALIZATION OF THE PROVISIONS OF DIRECT TAX LAWS)
(b) Amortization of Capital expenditure
Issue/Justification
Cash outflows by way of capital expenditure logically reduce the income. However, certain preliminary expenditure allowed to be amortised under section 35D, there is no provision in the act for amortization of capital expenditure like fees paid for increase in authorized share capital and payment made towards elimination of competition etc.Such expenditures being capital in nature cannot be charged to revenue as there is no provision for claiming these expenses in computing the income. As a result there is a difference
between real income & taxable income.
Suggestion
It is suggested that provisions may be incorporated in the Act to allow amortisation of such capital expenditures which are essential to run the business.
(SUGGESTIONS FOR RATIONALIZATION OF THE PROVISIONS OF DIRECT TAX LAWS)
