2001 (8) TMI 102 - HC - Income Tax

Debenture issue expenses and 11-year repayable loan terms: deduction allowed; s.35D can't block otherwise revenue deductions.

The dominant issue was whether expenditure incurred for issuing debentures was deductible, and whether the Tribunal's finding allowing the deduction was ... Amortisation of Preliminary Expenses - Capital or Revenue Expenditure - Whether, the finding of the Tribunal that the assessee is entitled to the deduction of expenses on account of issue of debentures amounting was based on any relevant material or otherwise perverse? - HELD THAT:- Section 35D has been introduced to give benefit to assessees in cases of capital expenses. When the capital expenses cannot be allowed as deduction in computing the income, but under section 35D capital expenses can be allowed as deduction in ten year span, i.e., 1/10 in each year. But how a deduction, which is allowable otherwise as revenue expenses, can be denied after the insertion of section 35D, learned counsel failed to explain. Admittedly, here the loan has to be repaid within eleven years from the date of allotment of debentures. If 20 per cent. of that loan is payable by the end of three years from the date of issue of debentures by way of issue of shares to make the debentures more lucrative/attractive that does not change the character of repayment of loan within eleven years. Therefore, in view of this admitted fact we find no reason to interfere in the order of the Tribunal. In the result, we answer the question in the affirmative, that is, in favour of the assessee and against the Revenue.   Issues: Whether the Tribunal's finding that the assessee is entitled to deduction of Rs.67,18,758 as expenditure on account of issue of debentures (assessment year 1982-83) was based on relevant material and whether such expenditure is properly allowable as revenue expenditure despite Section 35D.Analysis: The facts (undisputed) show issue expenses were incurred on 7,50,000 debentures repayable with interest within eleven years, with 20% repayable by issuance of equity shares at the end of three years and the balance at later years by cheque; the Tribunal applied the Supreme Court decision in India Cements Ltd. v. CIT that expenditure incurred to secure the use of money for a certain period is revenue expenditure under section 10(2)(xv). The Court examined the effect of Section 35D (providing amortisation of capital expenditure) and the Board's Circular No.56 of March 19, 1971, which clarified that the amortisation provision is not intended to supersede other provisions under which such expenditure is otherwise deductible. The Court found no basis to treat the part-repayment by issuance of shares as altering the character of the loan being repayable within the definite eleven-year period; accordingly the reasoning of India Cements remains applicable and the Tribunal's factual and legal conclusion was supported by material.Conclusion: The question is answered in the affirmative in favour of the assessee and against the Revenue; the expenditure of Rs.67,18,758 on issue of debentures is allowable as revenue expenditure.Ratio Decidendi: Expenditure incurred to secure the use of money for a definite period is revenue expenditure; the insertion of Section 35D (amortisation of capital expenditure) does not preclude deduction of such expenditure where it otherwise qualifies as revenue expenditure under the established precedent.