TaxTMI 
TaxTMI 
2012 (9) TMI 485
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....t payable in equity shares can be treated as actual payment u/s. 43B. 2. The issue in appeal lies in a narrow compass of material facts. In the course of the assessment proceedings, the Assessing Officer noticed that while the assessee has claimed deduction of Rs. 68,18,318/- in respect of interest paid to the IDBI, no such amount was actually paid though these interest dues were converted into equity shares of the assessee-company. The Assessing Officer was of the view that since "the interest of Rs. 68,18,318/- was neither paid during the financial year relevant to the assessment year, nor within the due date", the interest cannot be allowed as deduction under section 43B. Aggrieved, assessee carried the matter in appeal before the CIT(A....
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....that when interest payable has been converted into equity shares of the assessee-company it means in lieu of the interest payable the assessee has given a part of the ownership of the company to the lender. Thus the payment of interest may not be in cash but it is in kind that is in terms of the equity shares of the company which have been accepted by the lending bank. It can also be seen that to the extent of interest payable converted into equity the lending bank has reduced the interest receivable from the assessee. From all this discussion it can be said that conversion of interest payable into equity shares can be treated as actual payment and it can qualify for deduction u/s.43B. It may be noted that if the deduction for interest paym....
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....cannot be considered to have been payment towards expenditure", she merely reiterate her submissions. She, however, fairly admits that the said decision of the coordinate bench has not been reversed, nor there is any other judicial precedent from a higher forum directly on the issue. Learned Departmental Representative, on the other hand, points out that all these arguments are not relevant as the issue is covered against the assessee by a direct decision of the coordinate bench in the case of SRF Ltd. (supra). He also points out that there is significant difference in discharging a debt by transferring securities held by an assessee and discharging a debt by issuing own capital. While the former, according to the learned Departmental Repre....
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.... thereof. Explanation 3C to section 43B has been inserted with retrospective effect from 1.4.1989 and hence is applicable to the year in appeal also. Therefore, we primarily agree with the assessee if the amount is paid by the assessee, the same will be an allowable deduction. However, in the present case it is seen that the liability is discharged by way of issuance of shares and not actual payment by way of legal tender. What is allowable under section 43B is in respect of deduction otherwise allowable under this Act. The deduction allowable under the act is in respect of various sums referred to in sections 30 to 37 of the Act. Interest on any loan or borrowing is one such sum referred in section 36(i)(iii) of the Act. Therefore, for the....
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....nt which is debited against the assessee in the settlement of accounts may appropriately be termed 'expenditure' within the meaning of sec. 37(1). However, a mere forbearance to realize a claim is not 'expenditure'. Hon'ble Delhi High Court in the case of B K Khanna & Co. P Ltd v. CIT, 247 ITR 705 held that 'spending' in the sense of "paying out or away of money is the primary meaning of 'expenditure'. The word 'expenditure' means what is paid out or away and is something which is gone irretrievably. Hon'ble Supreme Court in the case of Eimco K C P Ltd v. CIT, 242 ITR 659, was considering the claim of assessee towards expenditure on technical know-how. In the said case the assessee was a joi....
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....he apex court in Eimco K C P Ltd v. CIT [2000] 242 ITR 659. It was held that where a foreign company gives a technical know-how and obtains equity shares in the new company, the amount attributable to technical know-how was not revenue expenditure under section 37 of the Act. However, it was treated to be of capital nature. It is clearly borne out from the various orders that the assessee was a new company. That being the position, the Tribunal was not justified in holding that the expenditure in question was revenue in character." In the present case it is seen that the liability was discharged by way of issuance of shares. When the assessee issues shares the assessee does not incur any expenditure as the assessee is not to make any payme....