TaxTMI 
TaxTMI 
TaxTMI 
2015 (5) TMI 623
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....pt 3,00,149 convertible debentures of Rs. 100 each, amounting to Rs. 3,00,14,900 in lieu of the outstanding interest. On 15-3-1996, consequently, the assessee issued debentures in favour of ICICI. In its income-tax return, the assessee claimed that interest of Rs. 2,84,71,384 was deductible, explaining that it was actually paid by it in the relevant accounting period. Though the debentures issued amounted to Rs. 3,00,14,900, the interest claimed as deduction is a little less (Rs. 2,84,71,384) - the difference was explained to be as a result of the fact that a part of the interest was capitalized in the assessee's books as pre-production expenditure. The assessee's stand (of having actually paid, by issuing the debentures) was rejected by the Assessing Officer (AO) on the premise that the debenture issue resulted only in postponement of the interest liability and that the interest could not be considered as having been "actually paid" as required by Section 43B of the Income Tax Act, 1961 ("Act") to qualify for relief. He, therefore, disallowed the claim. 3. In the appeal to CIT (A), the assessee relied on the judgment of the Andhra Pradesh High Court in CIT v. Mahindra Nis....
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....will also include the money actually spent on behalf of the widow for her benefit towards her maintenance expenses. If we accept the construction proposed by Mr. Dhall appearing on behalf of the department, if the widow without actually receiving the amount of allowance directs to spend it in a particular way towards her maintenance expenses and in fact the money is so spent at her direction for her benefit and towards her maintenance, then the amount will not be deducted under the provisions of Rule 3. This seems to be completely unacceptable. Indeed "actually paid" includes the money which has been actually spent on her behalf towards maintenance, but does not include the money which is proposed to be spent for the widow, but not actually spent." 5. After discussing Mahindra Nissan (supra), the ITAT ruled that actual payment could not be given a narrow literal meaning, and held as follows: "In our opinion, this word has been used in the section only to emphasize that the payment should be real and a payment in point of fact and not something which is a pretence or a fiction. In the present case, ICICI has written a letter dated 11-8-1998 to the assessee on the subject. The lett....
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....other mode, i.e., in a physical sense. In this connection, it may be pertinent to observe that in the present case, we are concerned with a contractual liability as opposed to statutory liability. Parties are free to enter into contracts in relation to their business and there is no prohibition in law against such freedom, provided the contracts are not opposed to public policy or order or morality or are not violative of any other provisions of law. In the present case, the parties have agreed between themselves that the interest would be funded and convertible debentures would be issued in an amount identical to the funded interest and that this arrangement would be accepted by both of them as actual discharge of the liability to pay interest. In our opinion, nobody has the right to intervene and rewrite the arrangement for the parties and say that the parties cannot agree between themselves that this will be taken as actual discharge of the liability to pay interest. The apprehension expressed by the legislature while introducing the provisions of section 43B was that the assessee were not discharging their income-tax liabilities by paying them and in fact, some of them were eve....
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....debentures did not amount to actual payment. Learned senior counsel also relied on the Constitution Bench decision in Standard Chartered Bank v Andhra Bank, 2006 (6) SCC 94 where the Supreme Court held, inter alia, that: "A debenture is an actionable claim. However, Section 137 of the Transfer of Property Act exempts debentures inter alia from the provisions of Sections 130 to 136 of the TP Act. Thus, with respect to debentures, there is no prescribed mode of transfer of property under the TP Act." Counsel also relied on Vinir Engineering (P) Ltd. v Deputy Commissioner of Income Tax 313 ITR 154 and the Jharkhand High Court decision in Commissioner of Income Tax v Shakti Spring Industries (P) Ltd, [2013] 219 Taxman 124 to say that not all payments need to be in cash and that debenture payouts as part of arrangements with banks and financial institutions are deemed sufficient under Section 43B. 8. Section 43B, to the extent relevant for the present case, now reads as follows: "Section 43B. Certain deductions to be only on actual payment: Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of - (a) *** (b....
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.... with effect from 01.04.1989, would be applicable to the present case, as it relates to AY 1996-97. Explanation 3C squarely covers the issue raised in this appeal, as it negates the assessee‟s contention that interest which has been converted into a loan is deemed to be „actually paid‟. In light of the insertion of this explanation, which, as mentioned earlier, was not present at the time the impugned order was passed, the assessee cannot claim deduction under Section 43B of the Act. 11. In so concluding, this Court is supported by the decision of the Madhya Pradesh High Court in Eicher Motors Ltd. v. Commissioner of Income Tax, 315 ITR 312 and subsequently, the judgment of the High Court of Telangana and Andhra Pradesh in Commissioner of Income Tax v. Pennar Profiles Limited, (ITA No. 289 of 2003, decided on 11.02.2015). In Eicher Motors, the Court noted: "7. As observed supra, the Expln. 3C has now in clear terms provided that such conversion of interest amount into loan shall not be deemed to be regarded as "actually paid" amount within the meaning of Section 43B. In view of clear legislative mandate removing this doubt and making the intention of legislature....