TaxTMI 
TaxTMI 
TaxTMI 
2019 (4) TMI 370
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....30.12.1999. The assessment was completed as per Annexure A order, which being detrimental to the rights and interest of the assessee, was challenged by filing an appeal before the Commissioner of Income Tax. The Commissioner passed Annexure B order dated 31.12.2004, whereby some relief was extended to the assessee, but declining it under some other heads. This made the assessee to file further appeal before the Tribunal. After considering the facts and figures, the relevant provisions of law and the precedents cited, the version of the assessee was accepted and relief was granted; which made the Revenue to feel aggrieved, who has approached this Court by filing the present appeal. 3. When the matter came up for consideration on 27.09.2010, notice was ordered on all questions of law raised by the appellant. The questions suggested by the Revenue, as involving 'substantial questions of law' are in the following terms : 1. Whether, on the facts and in the circumstances of the case - i) The Tribunal is right in law in deleting the disallowance of Rs. 1,07,99,770/- made towards expenditure relating to prior years in respect of issue of non-convertibale debentures and redem....
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....e Madras High court in the case of Universal Cable Ltd Vs CIT (161 CTR 388). The narration given below the claim (item 15 of the total income computation statement) in the return itself indicate that a part of the claim, is in fact, prior period expenses. A disallowance of Rs. 107,99,770/- is made as expenses not related to the year under consideration." 5. The Assessing Officer placed reliance on the verdict passed by the Apex Court reported in Madras Industrial Investment Corporation Vs. Commissioner of Income Tax [(1997) 225 ITR 802] to the effect that the premium payable on redemption of debentures, which is to be treated as revenue expenditure, had to be spread over the period of debentures for claiming deduction. The said view was upheld by the Commissioner as discussed in paragraph 6 (iii) of Annexure B order, which reads as follows. " 6(iii) - I have considered the appellant's objection. The issue in dispute is covered by the decision of the Supreme Court in the case of Madras Industrial Investment corporation In 225 ITR 802. As per the ratio of the decision in that case, the appellant is entitled to the deduction of the premium equally over the period of tenure of the ....
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.... discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures. The appellant, therefore, had, in its return, correctly claimed a deduction only in respect of the proportionate part of discount of Rs. 12, 500 over the relevant accounting period in question. In this connection, we agree with the reasoning and conclusion of the Madhya Pradesh High Court in the case of M. P. Financial Corporation v. CIT [1987] 165 ITR 765 . The view that we have taken is also in conformity with the accounting practice of showing the discount in the "discount on debentures account" which is written off over the period of the debentures. The appellant is, therefore, entitled to deduct a sum of Rs. 12,500 out of the discount of Rs. 3,00,000 in the relevant assessment year. The balance expenditure of Rs. 2, 87,500 cannot be deducted in the assessment year in question. Question No. 2 (as reframed), th....
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....ell, where the issuance of debentures 'on premium' [as in the instant case] is involved and that the entire amount/expenditure met by the assessee for the relevant year was declared as eligible to be claimed as deduction in the particular year. The said finding has been rendered after placing reliance on the verdict passed by the Apex Court in 225 ITR 802 [cited supra]; submits the learned counsel. 9. Even though the above submission made on behalf of the assessee appears to be of some force, on a deeper scrutiny, we find it difficult to persuade ourselves to accept the said proposition. The discussion made by the Apex Court with regard to the issuance of debentures and the liability incurred by the assessee with reference to the loss stands on a different pedestal. In the case of debentures issued on discount in a particular year, it is sure and certain that there is liability, in so far as the amount covered by the debentures has to be satisfied on completion of the period of debentures. The debenture is issued so as to procure funds for the business of the company/assessee and this business is spread over the period of years covered by the debenture. This being the posi....
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....that no part of the same was allowed as a deduction on pro-rata basis in the earlier years. The scope and applicability of the verdict passed by the Apex Court in 225 ITR 802 [cited supra], as discussed in paragraphs 6 and 7 is extracted below: "6. Question E is now taken up for consideration. The assessee had issued Non Convertible Debentures during the year ending on 31 March 1985. In the previous year relevant to Assessment Year 1992-93 the assessee repaid an amount of Rs. 450 lakhs, at a premium of Rs. 15 lakhs on account of the Non Convertible Debentures. The Assessing Officer took the view that the premium which was paid related to Capital Repayment and could not be allowed as revenue expenditure. The CIT (A) held in favour of the assessee relying upon his order for AY 1991 -92 which in turn was based on the judgment of the Calcutta High Court in Commissioner of Income Tax Vs. Thngbhadra Industries Ltd. [1994] 207 ITR 553. The CIT(A) directed the Assessing Officer to allow the deduction for premium actually paid during the previous year provided that no part of the said premium has been allowed as a deduction on a pro rata basis in the earlier years. In appeal, the Tribunal....
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....were issued for the financial year ending on 31.03.1985, which were liable to be redeemed in the financial year 1991 - '92 at a premium of Rs. 15 lakhs. The Bench also observed that the amount which was spent by the assessee towards the said premium of Rs. 15 lakhs was a liability, which was incurred by the assessee for its own business, in order to obtain the use of funds for the period covered by the issue of non-convertible debentures. The relation and co-relation between the loss incurred in the case of 'discount on loss' and in the case of 'issuance on premium' is mentioned in the following lines: "8.................................The Supreme Court held that when the assessee had issued debentures at a discount, it had incurred a liability to pay a large amount than what it had borrowed, at a future date. The Court held that the liability to pay the discounted amount over and above the amount received for the debentures is a liability which has been incurred by the company for the purpose of its business in order to generate funds for its business activities. The amounts so obtained by issue of debentures were used by the assessee for the purpose of its ....
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....irtue of this, the extent of loss suffered has to be applied in respect of each year covered by the debentures, to an appropriate extent. In the said circumstances, we are of the view that the Tribunal went wrong in passing Annexure C order, upsetting Annexures A and B orders passed by the Assessing Officer and the Commissioner of Income Tax [Appeals]. The first question raised by the Revenue involves a substantial question of law and it stands answered in favour of the Revenue. 15. Coming to the second question, the discussion made by the Assessing Officer to decline the relief to the assessee, as discernible from paragraph 11 of Annexure A order, is with reference to the various statutory payments like Provident Fund, ESI etc. There was a short delay in effecting the payment, considering the due date and the date of payment. The deduction sought for by the assessee in this regard was totally disallowed by the Assessing Officer, as the payment effected was not on or before the due date, but belated. The Tribunal considered the case projected by the assessee and held that the deduction claimed as such was allowable and granted relief accordingly, in the following terms: 13. Grou....
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....below : "26. Therefore, in our view, when section 43B, as it stood prior to the amendment, and section 36(1)(va) Explanation thereto read with section 2(24)(x) are considered together, it as clear that they operate in different fields. So far as the employees' contribution received is concerned, it should have been paid on or before the due date prescribed under the relevant statutes. Then again the learned counsel contended that on a reading of section 43B(b), any sum "payable by the assessee as an employer" by way of contribution to any provident fund meant payment of both the employees contribution and the employer's contribution, by the employer and, therefore, the assessee was entitled to pay both contributions together on or before the filing of the return under section 139 (1) of the Act. We are unable to accept the said contention advanced by the learned counsel. If such a contention is accepted, that would make section 36(1)(va) and the Explanation thereto otiose. According to us, there was no indication in section 43B, as it stood prior to the amendment and thereafter also to deface section 36(1)(va) and the Explanation thereto from the Income-tax Act. Thus, it means th....