High Court upholds Tribunal's decision on interest, debenture expenses are deductible.

The High Court of Bombay dismissed the appeal by the Revenue regarding the disallowance of interest paid on loans for business purposes and the deductibility of expenditure on partly convertible debentures. The court upheld the decisions of the Income Tax Appellate Tribunal and the Rajasthan High Court, respectively. The Tribunal's decision to allow the interest as per Section 36(1)(iii) and the High Court's ruling that debentures expenses are allowable as revenue expenditure were affirmed, citing relevant Supreme Court precedents. The Revenue's contentions were not entertained, and the appeal was dismissed without costs.

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Issues involved:
1. Disallowance of interest paid on loans for setting up a new unit and modernization of plant.
2. Deductibility of expenditure on partly convertible debentures.

Disallowed Interest on Loans:
The Revenue raised a question regarding the deletion of disallowance of interest paid on loans for setting up a new unit and modernization of the plant. The Income Tax Appellate Tribunal allowed the interest under Section 36(1)(iii) as the borrowed capital was used in connection with the existing business of the assessee. The Tribunal's decision was supported by the Supreme Court ruling in Dy. Commissioner of Income tax v/s. Core Health Care Limited, which clarified that Explanation 8 to Section 43 of the Act would not apply in such cases. Therefore, the Tribunal's decision to allow the claim of the assessee was upheld, and the first question raised by the Revenue was not entertained.

Expenditure on Partly Convertible Debentures:
The second question raised by the Revenue concerned the deductibility of expenditure incurred on partly convertible debentures. The Revenue argued that such expenses are capital in nature and should be disallowed. However, the Rajasthan High Court, in the case of Commissioner of Incometax v/s. Secure Meters Limited, held that debentures, whether convertible or nonconvertible, represent a loan and are allowable as revenue expenditure. This decision was supported by the Apex Court's dismissal of the Revenue's Special Leave Petition against the High Court's ruling. Therefore, the second question raised by the Revenue was not entertained.

The High Court of Bombay dismissed the appeal with no order as to costs.

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