TaxTMI 
TaxTMI 
TaxTMI 
2015 (1) TMI 706
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....fied with the same, it carried the matter before the Tribunal by filing two separate appeals, wherein, the Tribunal passed the impugned order. Hence, the present appeal. 3. At the time of admitting this matter, following question of law was framed; "Whether, in the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that expenditure on the issue of convertible debentures is a capital expenditure?" 4. In connection with the question of law framed in this Tax Appeal, Mr. Soparkar, learned Sr. Advocate for the appellant-assessee, invited our attention to the decisions of different High Courts, wherein, the questions of laws are answered in favour of the appellant, herein, which are as under; (1) "COMMISSIONER OF INCOME-TAX VS. SOUTH INDIA CORPN. (AGENCIES) LTD.", [2007] 290 ITR 217 (Madras High Court); (2) "COMMISSIONER OF INCOME-TAX VS. FIRST LEASING CO. OF INDIA LTD.", [2008] 304 ITR 67 (Madras High Court); (3) "COMMISSIONER OF INCOME-TAX, UDAIPUR VS. SECURE METERS LTD.", [2010] 321 ITR 611 = (Rajasthan High....
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..... Mr. Soparkar, in the alternative, prayed that if the Court is inclined to follow the judgment of this Court, then, he may be given the certificate of fitness so as to enable him to carry the matter before the Hon'ble Apex Court. 8. As against this, Mr. Mehta, learned Advocate for the respondent-revenue, submitted that in Tax Appeal Nos. 481 & 482 of 1999 in the case of "INCOME TAX OFFICER VS. VXL LTD.", the Division Bench of this Court (Coram : Hon'ble the Chief Justice K.S. Radhakrishnan, as His Lordship then was, and Hon'ble Mr. Justice, Akil Kureshi) answered the aforesaid question in favour of the Revenue, observing and holding 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, even though it may incidentally help in the business of the company and in the profitmaking, and therefore, the present appeal be dismissed as being without merit. 9. Heard, Mr. Soparkar, learned Sr. Advocate for the assessee, and Mr. Mehta, learned Advocate for the Revenue, at length on the issue involved in this appeal. ....
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....iption of preference capital is equity capital. Equity share capital is that part of share capital which confers a right either to the whole or part of any residue of any profits or to the whole or part of any residue of any assets remaining for distribution after satisfying the claims of any other shareholders whose right to participate therein is limited. Equity shareholders are 7. We heard learned Senior Counsel appearing for either side at length. Facts would clearly indicate that assessee 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 su....
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....may incidentally help in the business of the company and in the profit making. 9. In view of the above position, decisions cited by the learned counsel for the assessee have no application. Facts of the case clearly indicate that portion of the convertible debenture was converted into equity shares and assessee company had got enduring benefits and therefore, the expenditure incurred by the assessee on conversion of convertible debentures into equity shares has to be treated as capital expenditure. It may be noted that the Assessing Authority disallowed expenditure only to the extent pertaining to the convertible portion of the expenditure which formed part of the capital. As such disallowance made by the Income Tax Officer, which was confirmed by the Commissioner (Appeals) has to be sustained. The question of law raised by the Revenue, though not happily framed, is accordingly answered in the negative in favour of the Revenue and against the assessee. Consequently, appeals are allowed and the order of the Tribunal is set aside. Owners of the company, sharing its risks, profits, and losses a....