2002 (6) TMI 594 - AT - Income Tax

Debenture Allotment Stamp Duty: Treatment & Deduction Decision

Deputy Commissioner of Income-Tax Versus A.T.V. Projects India Ltd.

The Tribunal held that stamp duty expenditure for debenture allotment should be treated as preliminary expenses and amortized over ten years under section ... - Issues Involved:1. Deductibility of stamp duty as revenue expenditure.2. Allowance of expenditure incurred for raising loans through convertible debenture issues.Issue-wise Detailed Analysis:1. Deductibility of Stamp Duty as Revenue Expenditure:The primary issue is whether the stamp duty expenditure of Rs. 22,140 incurred by the assessee for debenture allotment should be treated as revenue expenditure or preliminary expenses. The CIT(A) directed the allowance of this amount as revenue expenditure, contrary to the Assessing Officer's (AO) treatment of it as preliminary expenses, restricting the deduction to 1/10th under section 35D of the Income-tax Act, 1961. The AO's decision was based on the premise that such expenses should be amortized over ten years as preliminary expenses.2. Allowance of Expenditure for Raising Loans through Convertible Debenture Issues:The second issue revolves around whether the balance 9/10th of the expenditure amounting to Rs. 53.29 lakhs, incurred for raising loans through convertible debenture issues, should be allowed as revenue expenditure. The CIT(A) allowed this expenditure as revenue expenditure, whereas the AO treated it as preliminary expenses and restricted the deduction to 1/10th of Rs. 59.21 lakhs under section 35D. The AO's decision was influenced by precedents from the Bombay High Court, Karnataka High Court, and Andhra Pradesh High Court.Detailed Analysis:1. Deductibility of Stamp Duty:The assessee contended before the CIT(A) that the stamp duty expenses for debenture allotment and listing charges should be treated as revenue expenditure. The CIT(A) accepted this claim, directing the AO to allow the full expenditure in the year under consideration. The Revenue challenged this decision, arguing that section 35D(2)(c)(iv) clearly applies, which mandates amortization of such expenses over ten years.2. Expenditure for Raising Loans:The assessee argued that the expenditure incurred for raising loans through debentures should be fully deductible as revenue expenditure, relying on the Supreme Court's decision in India Cements Ltd. v. CIT (1966) 60 ITR 52, which allowed such expenses as revenue expenditure. The CIT(A) accepted this view, but the Revenue argued that specific provisions of section 35D override the general provisions of section 37(1).Tribunal's Findings:The Tribunal noted that the debentures were issued to raise funds for project expansion, and the assessee originally claimed only 1/10th of the expenditure, indicating it falls under section 35D. The Tribunal emphasized that specific provisions (section 35D) should override general provisions (section 37(1)). The Tribunal also referenced a CBDT Circular (No. 56 dated 19-3-1971), which clarified that amortization provisions do not supersede other provisions allowing deductions. However, the Tribunal interpreted the Circular to mean that expenses falling under section 35D should not be considered under section 37(1).The Tribunal distinguished the case from the Calcutta High Court's decision in CIT v. East India Hotels Ltd. (2001) 252 ITR 860, noting that the facts did not clearly indicate the applicability of section 35D. The Tribunal concluded that the expenditure incurred by the assessee is of the nature described in section 35D and should be amortized over ten years.Conclusion:The Tribunal set aside the CIT(A)'s order and restored the AO's decision, allowing only 1/10th of the expenditure as deduction under section 35D. The appeal filed by the Revenue was allowed, emphasizing the precedence of specific provisions over general provisions in tax law.