Karnataka High Court: Stamp Duty expenses of Public Subscription of Shares or Debentures is allowable

Karnataka High Court: Stamp Duty expenses of Public Subscription of Shares or Debentures is allowable

The Karnataka High Court (HC) division bench comprising of Justices Alok Aradhe and Natrajan Rangaswamy noted that expenditure on account of stamp duty even after the introduction of Section 35D of the Income Tax Act, 1961 (IT Act) is an admissible expenditure in connection with the issue of public subscription

In the case of Commissioner of Income Tax & Ors. (Appellants) v. Onmobile Global Limited (Respondents/ Assessee), the HC held that the expenses incurred by the assessee towards stamp duty in connection with the issue for public the subscription of shares in or debentures of the company is an allowable expenditure under Section 35D of the IT Act.

Section 35D allows amortization of certain specified preliminary share issue expenses incurred by an Indian company or a person other than a company incurred before the commencement of his business or after the commencement of his business, in connection with the extension of his undertaking or in connection with his setting up a new unit.

Before 2008, this Section was applicable only to industrial undertakings. Later by an amendment through Finance Act 2008, the word "Industrial" was removed from this Section, thereby extending the applicability of this provision to non-industrial undertakings as well.

The facts of the case are that the assessee has been engaged in the business of providing mobile value-added services and products. The assessee filed return of income for the Assessment Year 2008-09, in which it declared the income of Rs.58,96,36,736/- and claimed a refund of Rs.9,63,42,390/-.

It was alleged that the aforesaid return was processed by the Assessing Officer (AO) under Section 143(1) of the IT Act. Subsequently, the regular assessment was taken up. Thereafter, an order of assessment under Section 143(3) of the IT Act was passed by the Assessing Authority, by which the assessing authority disallowed the deduction claimed in respect of stamp duty charges.

The AO has rejected the aforesaid claim on the ground that the expenditure is capital in nature and not revenue expenditure. Even the Commissioner of Income Tax (Appeals) [CIT(A)] has accepted the aforesaid finding of the AO.

The matter was heard by the Income Tax Appellate Tribunal (ITAT) that affirmed the benefit of deduction of stamp duty that has been granted in view of Section 35D(3)(c) of the IT Act.

An appeal was filed by the revenue/ appellants before the HC under Section 260A of the IT Act. The substantial question of law pertains to the claim of the assessee regarding the stamp duty for an amount of Rs.6,87,770.

The HC while disposing of the appeal; remitted the matter to the ITAT to decide the claim of the assessee for deduction under Section 80JJAA of the IT Act according to the law.