Interest on share application money - revenue expenditure

[Rohit Doshi]

Can Interest paid on share application money recevied by a Private Limited Company to the applicants to whom shares are not alloted be treated as revenue expenditure ?

[DEV KUMAR KOTHARI]

Please give full facts. How the capital received by way of share application money was used is relevant. If it was used to meet revenue expenses, to purchase trading stock etc, or to pay off other libility, then interest paid on refund of shae application money can be allowed u/s 36 or S 37However, if used for capital expenses, then interest for the period till assets are put to use can be treated as capital expenses. In this case also in some circumstances interest may be allowed.

[Rohit Doshi]

Thanks for ur reply. The share application money was used for purchase of Trading Stock & paying off creditors.So from ur reply it seems that the Interest paid would be allowed as revenue expenditure. Secondly how long can we continue to hold the share application money recevied & pay interest on it ? Is there any time limit as far as Private Limited Co is concerned regarding refund of share application money recevied ?

AI Summary

Interest on share application money: allowable as revenue expense if funds were used for revenue purposes, otherwise capitalised. Interest on share application money depends on how the capital was used: if used for revenue purposes (for example, purchasing trading stock or paying creditors) interest on refund is treated as revenue expenditure and allowable; if used for capital expenditure, interest until assets are put to use must be capitalised. The key determinative factor is the nature of the expenditure funded by the application money.