2019 (4) TMI 1124 - HC - Income Tax

Nature of expenses - lease premium amortised - revenue or capital expenditure - grant depreciation on the foregoing capital expenditure - HELD THAT - Appeal admitted on question 1 and 2 Expenditure incurred towards increase in share capital by way of fee for merchant bankers, legal fees, stamp duty, registration charges, etc.- capital expenditure - HELD THAT - This Court in case of Hindustan Lever Ltd. Vs. Commissioner of Income-Tax, reported in 2016 (11) TMI 969 - BOMBAY HIGH COURT , after referring to and relying upon the decisions of Supreme Court in case of CIT Vs. Kodak India Ltd, 2001 (10) TMI 7 - SUPREME COURT and Brooke Bond India Ltd. Vs. CIT, 1997 (2) TMI 11 - SUPREME COURT held that the expenditure incurred for increase in the share capital is capital expenditure. This question is therefore not required to be entertained. Deduction of foregoing capital expenditure u/s 35D - HELD THAT - Whether a banking company can be said to be an industrial undertaking is being considered by this Court in several Appeals. He drew our attention to a judgment of Kerala High Court in case of Dhanalaxmi Bank Ltd. Vs. Commissioner of Income-Tax 2018 (12) TMI 836 - KERALA HIGH COURT , in which it was held that a banking company is also industrial undertaking and the expenditure incurred in relation to the share capital would be amortized u/s 35D.

Summary

Issues:
1. Classification of lease premium as capital expenditure
2. Grant of depreciation on capital expenditure
3. Treatment of expenditure towards increase in share capital
4. Eligibility of industrial undertaking for amortization under section 35D

Analysis:
1. The first issue raised in the appeal concerns the classification of the lease premium as capital expenditure. The assessee claimed amortization of the lease premium as a deduction during the year under consideration. The Tribunal held that the lease premium qualifies as capital expenditure. The Court noted that similar questions were under consideration in another case involving the same assessee.

2. The second issue pertains to the grant of depreciation on the aforementioned capital expenditure. The assessee sought an alternative direction for the grant of depreciation, which the Tribunal did not provide. The Court referred to a case involving Hindustan Lever Ltd. and held that expenditure related to an increase in share capital is considered capital expenditure, thus not qualifying for depreciation.

3. The third issue revolves around the treatment of the expenditure incurred towards an increase in share capital. The assessee claimed the expenditure, including fees for merchant bankers, legal fees, stamp duty, etc., as a revenue expenditure. However, the Tribunal deemed it as capital expenditure. Citing precedents, the Court affirmed that expenditure for increasing share capital is considered capital expenditure.

4. The final issue concerns the eligibility of an industrial undertaking for amortization under section 35D of the Income-tax Act. The assessee argued that as an industrial undertaking, the expenditure for increasing share capital should be allowed to be amortized under section 35D. The Tribunal rejected this contention. The Court noted a judgment from the Kerala High Court, which held that a banking company can be considered an industrial undertaking, allowing for the amortization of related expenditures.

In conclusion, the Court admitted the appeal for consideration of substantial questions of law related to the classification of lease premium, grant of depreciation on capital expenditure, and the eligibility of an industrial undertaking for amortization under section 35D.