Redemption premium on convertible bonds remains revenue expenditure and may be amortised proportionately across the bonds' maturity period.

Premium payable on redemption of foreign currency convertible bonds is treated as revenue expenditure because borrowing-related costs incurred for business purposes do not create an enduring asset or advantage. The redemption-premium liability arises when the bonds are issued and is allowable under the applicable business-expenditure provision. Although the liability arises in the year of issue, settled treatment permits its proportionate amortisation over the bonds' maturity period, irrespective of possible early redemption. No fresh question of law arose on the timing of deduction because that issue had not been raised before the appellate authorities.

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Issues: (i) Whether premium payable on redemption of foreign currency convertible bonds is capital or revenue expenditure; (ii) Whether the premium liability may be claimed wholly in the year of issue or spread over the bonds' maturity period.

Issue (i): Whether premium payable on redemption of foreign currency convertible bonds is capital or revenue expenditure.

Analysis: Expenditure incurred in connection with issuing debentures or obtaining loan funds is incurred for business purposes and does not create an asset or advantage of enduring character. The liability to pay the redemption premium arises upon issue of the bonds and is allowable as revenue expenditure under the applicable business-expenditure provision.

Conclusion: Premium payable on redemption of the foreign currency convertible bonds is revenue expenditure, in favour of the assessee.

Issue (ii): Whether the premium liability may be claimed wholly in the year of issue or spread over the bonds' maturity period.

Analysis: The liability to pay the premium arises in the year in which the debentures are issued. The settled principle permits proportionate spreading of that liability over the prescribed maturity period, irrespective of whether redemption is possible before maturity. The timing question had not been raised before the appellate authorities and required no fresh adjudication.

Conclusion: No fresh question of law arose concerning the timing of deduction; the settled law permits proportionate spreading of the premium over the maturity period, in favour of the assessee.

Final Conclusion: The deduction allowed for the premium on redemption of the foreign currency convertible bonds remains governed by the settled treatment of such borrowing-related expenditure as revenue in nature.

Ratio Decidendi: A liability for premium payable on redemption of debentures arises on their issue and is revenue expenditure; it may be amortised proportionately over the period of their maturity.

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