[Opinion] Amortisation of Public Issue Expenses u/s 35D

CA Rakesh Kedia & Sakshi Garg – [2025] 172 taxmann.com 375 (Article)

“Between restrictive and illustrative, logic always favors clarity.”

Introduction to Section 35D

Under the Income Tax Act, 1961 revenue expenses are generally allowable as deductions unless specifically disallowed, while capital expenditures are not deductible unless expressly permitted by law. Public issue expenses, incurred by companies for raising capital through the issuance of shares or debentures, involve significant investment and provide long-term benefits, thus classifying them as capital in nature. To provide relief for such expenses, the Act introduced Section 35D, which allows for the amortization of certain preliminary expenses, subject to conditions. Specifically, under Section 35D(2)(c)(iv), public issue expenses can be amortized over a period of five years, enabling companies to spread the deduction across multiple financial years.

The provision primarily benefits companies by permitting them to claim deductions for public issue expenses over a period of time. However, the scope of allowable expenses under Section 35D(2) is ambiguous, leading to significant interpretational issues, particularly concerning public issue expenses.

2. Scope of Section 35D(2)

Sub-section (2) of Section 35D enumerates the expenses that qualify for amortisation. Clause (c)(iv) of this sub-section is particularly relevant for companies issuing shares or debentures to the public. It states:

“35D (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),—

(2) The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely :—

(c) where the assessee is a company, also expenditure—

(iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus;”

In the New Income Tax Bill 2025, Section 35D has been renumbered as Section 44. Additionally, the provision previously under Section 35D(2)(c)(iv) is now renumbered as Section 44(2)(c)(iii) and there is no change proposed in the Income Tax Bill except the renumbering of the above stated law.

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