TaxTMI 
TaxTMI 
TaxTMI 
2009 (7) TMI 1205
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....ppellate Tribunal is right in law and on facts in allowing the claim of the assessee for amounts incurred for the issue of convertible debenture?" 2. Assessee company is engaged in the manufacture of woolen fabrics and also engaged in jobwork of woolen tops. We are in these cases concerned with the Assessment Years 198485 and 1985-86. For the assessment year 1984-85, return of income was filed on 26.6.1984 declaring a total income of Rs. 44,63,351/, whereas for the assessment year 1985-86, the return of income was filed on 23.12.1985 declaring a total income of Rs. 21,84,440/. Income Tax Officer computed the income for Assessment Year 198485 at Rs. 40,47,870/and for the year 1985-86 at Rs. 6,50,740/. Assessee claimed that company had issue....
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....Delhi. The Assessing Authority therefore, disallowed the claim for deduction holding that the expenses incurred for conversion of debentures into equity shares would have an enduring effect and the same has to be treated as capital expenditure and hence the claims for deduction made under Section 35D for both the years were disallowed. 3. Assessee took the matter in appeal before the Commissioner (Appeals) stating that Income Tax Officer has erred in law as well as in facts in treating a part of the gross expenditure on issue of debentures as capital expenditure. According to the assessee the real nature of expenditure was revenue expenditure and the conversion of part value of debenture into equity shares in the next accounting year was a....
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....nish R. Bhatt, learned Senior Counsel appearing for the Revenue submitted that the Tribunal was not justified in holding that the assessee was entitled to claim deduction of the expenditure under Section 35D of the Income Tax Act, stating that only convertible portion was a loan disallowed by the Assessing Officer since same would form part of the capital. Learned counsel submitted that conversion of part of value of debentures into equity shares would be enduring in nature and therefore, it has to be treated as a capital expenditure, as rightly held by the Assessing Officer as well as by the Commissioner (Appeals). In support of his contention, reliance was placed on the judgment of the Apex Court in Brooke Bond India Ltd. Vs. Commissioner....
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....ee company had issued convertible debentures of Rs. 125/each of which Rs. 45/each was to be converted into three shares on 1.7.1983 during the assessment year 1984-85 and had incurred expenses to the tune of Rs. 19,00,925/. According to the assessee, the expenses incurred are in respect of issuance of convertible debentures. Facts would further clearly indicate that major portion of the convertible debentures was converted into equity shares, and thereby assessing company had got enduring benefit. Debenture under the Company law means a document which either creates or acknowledges a debt. Debentures, wholly secured or unsecured are also used as convertible debentures with the option of being subsequently converted into shares. Share is a ....
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....to equity shares, the assessing company has already got enduring benefit and the expenditure incurred by the conversion of equity shares has to be treated as capital expenditure. 8. Apex Court in India Cements Ltd. Vs. CIT, Madras (supra), held that the loan obtained is not an asset or advantage of an enduring nature, but obtaining capital by issuance of shares is different from obtaining loan by debentures. Above referred judgment was followed by the Apex Court in Brooke Bond India Ltd. Vs. CIT (supra) and took the view that expenditure incurred by the company in connection with issue of shares with a view to increase its share capital, is directly related to the expansion of the capital base of the company, and is capital expenditure, ev....