TaxTMI 
TaxTMI 
2016 (10) TMI 406
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..... The assessee is a Public Limited Company. In terms of the provisions contained in Section 81 of the Companies Act, in July 1998, the assessee announced a rights issue of shares and accordingly shares were offered to its existing share holders. Many of them accepted the shares offered and the shares which were not accepted by the existing shareholders were subscribed by the promoters of the Company themselves. In terms of the provisions contained in Section 35D(2)(c)(iv) of the Income Tax Act, the assessee claimed amortization of the preliminary expenses incurred for the rights issue. On the ground that only shares issued for public subscription qualified for the benefit of Section 35D(2)(c)(iv) of the Income Tax Act and that in a rights i....
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....come Tax Act . 6. Relevant part of Section 35D(2)(c)(iv), reads as follows: "35D. Amortisation of certain preliminary expenses:- (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2),- (i) before the commencement of his business, or (ii)...................................................................... the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may ....
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....es to its existing shareholders and such issue of shares is governed by Section 81 of the Companies Act. This Section provides that such shares shall be offered to the persons who, at the date of the offer, are holders of equity shares of the company, in proportion to the capital paid up on those shares at that date. It is also provided that after the expiry of the time specified for accepting the offer thus made by the company, if the offer is declined, the Board of Directors may dispose of the shares in such a manner as they think most beneficial to the company. 8. In compliance with Section 81 of the Companies Act, the assessee Company offered shares to its existing shareholders. Many shareholders accepted the offer and such of those sh....
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....s that any reference in the Companies Act or in the Articles of a Company offering shares to the public shall, subject to the provisions of the Companies Act, be construed as including a reference to offering the shares to any section of the public also. In other words, insofar as the Companies Act is concerned, the section of the public holding shares in a company would be treated as public, for the purposes mentioned in Section 67. It is also clear from Section 67, that the purposes of the Section would include rights issue of shares under Section 81 of the Companies Act also. Therefore, when the scope and purport of Section 35D(2)(c)(iv) of the Income Tax Act is examined, this Court is entitled to refer to the provisions of Section 67 of....