Fees paid to the ROC for issuing shares qualify for amortisation under Section 35D(2)(c)(iv).

The assessee claimed deduction of ₹15,11,500, being one-fifth of ₹75,57,500 paid to the Registrar of Companies (ROC) during Financial Year 2003–04 towards issue of shares and increase of its share capital, under Section 35D(2)(c)(iv) of the Income-tax Act, 1961.

The Assessing Officer disallowed the claim. For Assessment Year 2004–05, however, the Revenue had allowed the corresponding claim, and the Commissioner of Income-tax (Appeals) accordingly deleted the disallowance for the relevant year.

The Income Tax Appellate Tribunal reversed the appellate order, holding that ROC fees were not underwriting commission, brokerage, or charges for drafting, typing, printing, or advertising a prospectus and therefore fell outside Section 35D(2)(c)(iv).

The assessee appealed under Section 260A of the Act.

The shares had been issued to the assessee’s holding company, Gujarat State Petroleum Corporation Ltd.

Whether ROC fees of ₹15,11,500 paid in connection with the issue of shares and increase of the assessee-company’s capital were allowable for amortisation under Section 35D(2)(c)(iv) of the Income-tax Act, 1961?

The Court applied Section 35D(2)(c)(iv) of the Income-tax Act, which permits amortisation of expenditure incurred “in connection with the issue” of shares or debentures, including underwriting commission, brokerage, and charges for drafting, typing, printing, and advertisement of the prospectus.

It held that the provision is descriptive and not exhaustive, so expenditure directly connected with the issue of share capital is not restricted to the specifically enumerated categories.

Relying on Nitta Gelatine India Ltd. v. Assistant Commissioner of Income-tax, (2016) 243 Taxman 245 (Kerala), the Court further held that “public subscription” may include subscription by a defined section of the public, including existing shareholders, by reference to Sections 67 and 81 of the Companies Act, 1956.

The Court also referred to CIT v. Andhra Chamber of Commerce, AIR 1965 SC 1281, for the principle that a statutory reference to the public may include a sufficiently identifiable section of the public.

The Tribunal had read Section 35D(2)(c)(iv) as covering only expenditure relating to a public issue and only the listed items such as underwriting commission, brokerage, and prospectus-related charges.

The High Court found that this interpretation improperly narrowed the phrase “expenditure incurred in connection with the issue” and overlooked the punctuation and structure of the provision.

Since the ROC fee was paid for the purpose of issuing shares and enhancing the assessee’s share capital, it had a direct nexus with the issue of shares.

The fact that the shares were issued to the holding company did not exclude the expenditure from the provision, particularly because the expression “public subscription” could encompass subscription by a defined class or section of persons under the principles recognised in Nitta Gelatine.

The Court also noted that the Revenue had accepted the corresponding claim for the earlier assessment year.

It held that the ROC fees incurred in connection with the issue of shares fell within Section 35D(2)(c)(iv) and that the assessee was entitled to amortise one-fifth of the expenditure, amounting to ₹15,11,500, for the relevant assessment year.

The Tribunal’s order and the Assessing Officer’s disallowance were set aside, the order of the CIT(A) was restored, and the tax appeal was allowed.