9911796707
TMI Blog1985 (5) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... d be taken into account in working out the capital employed for the purpose of relief under section 80J of the Income-tax Act, 1961 ('the Act'). This claim was not accepted by the ITO. It was brought to our notice at the time of the hearing of the appeal that this claim was also made by grounds of appeal before the Commissioner (Appeals) but was, not considered by him. The assessee-company has, therefore, come up in the present appeal before us. 3. The assessee's learned counsel, Shri Lalkaka, pointed out that the preliminary expenses of Rs. 4,95,435 appearing on the assets side of the balance sheet were for public issue of share capital. Our attention was invited to rule 1D of the Wealth-tax Rules, 1957 ('the 1957 Rules'), where Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be considered as a liability. Summing up, Shri Lalkaka vehemently argued before us that on this issue, the orders of the revenue authorities were not correct. 4. On the other hand, the learned departmental representative, Shri Mahadeshwar, pointed out that the preliminary expenses did not represent an asset intangible or otherwise, they were fictitious assets, which had no value whatsoever and they were shown on the assets side of the balance sheet only because they being expenses of a capital nature, could not be debited to the profit and loss account and had, therefore, to be shown on the assets side of the balance sheet to comply with the requirements of Schedule VI of Part I of the Companies Act, 1956. Reference was then made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the money spent on preliminary expenses was in the nature of capital expenditure or revenue expenditure and it was in this context that the observation was made that preliminary expenses were in the nature of capital expenditure just as much as expenses in the purchase of land and machinery. This is not, therefore, any authority for the proposition that preliminary expenses represent an asset. On the other hand, even according to the principles of accountancy, as explained in Spicer and Pegler's Book Keeping and Accounts, Seventeenth edn., at p. 4, preliminary expenses, in the case of a limited company, are fictitious assets of no value, which have to be written off as soon as possible. Section 35D of the Act also provides for expenses i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se debts ; (v) in the case of assets being cash in hand or bank, the amount thereof. (3) From the aggregate of the amounts as ascertained under sub-rule (2) shall be deducted the aggregate of the amounts, as on the first day of the computation period, of borrowed moneys and debts owed by the assessee (including amounts due towards any liability in respect of tax). " " 80J. (1A) (I) For the purposes of this section, the capital employed in an industrial undertaking or the business of a hotel shall except as otherwise expressly provided in this section be computed in accordance with clauses (ii) to (iv) and the capital employed in a ship shall be computed in accordance with clause (v). (II) The aggregate of the amounts representing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the amounts representing the values of the assets as on the first day of the computation period of the undertaking. We also agree with the learned departmental representative, Shri Mahadeshwar, that all the borrowed moneys and debts owed by the assessee, including amounts due towards any liability in respect of tax have to be deducted, from the aggregate of the amounts as ascertained representing the value of the assets and there is, therefore, no justification for excluding any borrowed moneys or debts while making the deduction. We, therefore, see no merit in the assessee's alternative argument and have no hesitation in coming to the conclusion that the preliminary expenses were rightly not taken into account in the computation of ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
