“preliminary expenses”
The decision most relied on for preliminary expenses is Kesoram Industries & Cotton Mills Ltd. v. CIT (196 ITR 845), cited in 61 judgments on BharatTax.
Leading authorities on preliminary expenses
Expenditure incurred for exploring the feasibility of expanding or extending an existing business by setting up a new unit in the same line of business is revenue expenditure, not capital expenditure. Such expenditure, including obtaining project reports or legal opinions on desirability or feasibility, does not constitute the setting up of a new business.
Expenditure incurred for starting a new business is capital in nature, irrespective of whether the project materializes. The essential purpose for which an expenditure is incurred determines its character as capital or revenue under Section 37(1).
Expenses incurred in connection with a public issue of shares or debentures are allowable as revenue expenditure eligible for deduction under section 35D of the Income-tax Act. This includes expenses related to Qualified Institutional Buyers (QIBs).
Expenditure incurred in connection with the extension of an undertaking or setting up a new unit by an Indian company is eligible for deduction under section 35D of the Income-tax Act.
Premiums collected on share capital are not to be construed for the purpose of Section 35D(3)(b) of the Income Tax Act.
Amounts held in a stale draft account cannot be treated as income of the assessee.
