Share issue exp. remains a capital expenditure even if SEBI disapproves of issue of shares; no sec. 37(1) allowance

Share issue expenses cannot be allowed as revenue expenditure even when shares could not be issued due to non-approval by SEBI

In the instant case the assessee incurred expenditure for issuing shares. However, on account of non-clearance from the SEBI, shares could not be issued. It claimed deduction for share issue expenses as revenue expenditure by contending that since the expenditure did not yield any desired result, the character of the expenditure had to be decided on the basis of the result that would yield benefit in assessee's business. The AO and the CIT (A) disallowed such expenses. The Tribunal also affirmed the view of the AO. Aggrieved assessee filed the instant appeal.

The High Court held in favour of revenue as under:

1) The impugned expenses were incurred by the assessee for the purpose of widening its capital base. The assessee, admittedly, took steps to go in 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. Thus, the efforts were aborted;

2) There was no justifiable ground to accept the plea of the assessee that on account of the abortive efforts, the expenditure incurred would lose its character as capital expenditure for the purpose of allowing it as a revenue expenditure - MASCON TECHNICAL SERVICES LTD. V. CIT(2013) 37 taxmann.com 253 (Madras)