TaxTMI 
TaxTMI 
2024 (10) TMI 413
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....y convertible debenture (OCD) u/s 37 of the Act had not been admitted/adjudicated by the Tribunal while disposing of the appeal vide order dated 12.06.2023. Taking note of the grievance of the assessee stated in MA and finding force in the same, this Tribunal vide order dated 26.02.2024 was pleased to allow the MA and recalled the original second appellate order dated 12.06.2023 to the limited extent for admission/adjudication of the ibid ground of appeal viz the additional ground (supra). Pursuant to the MA order dated 26.02.2024, this appeal has been listed for hearing for the limited purpose of admission/adjudication of additional ground filed by letter dated 06.03.2018 which reads as under: - "On the facts and in the circumstances of the case and in law, the learned AO be directed to allow deduction for proportionate premium paid on repayment of optionally convertible debentures amounting to Rs. 33,860,754/-" 3. Brief facts relating to this ground of appeal are that assessee had issued compulsorily convertible debentures (CCD) of Rs. 250 crores on 5th January 2010. And on 30th January 2014, the assessee changed the terms of CCD to optionally convertible debentures (....
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.... Services India P. Ltd Vs. NFAC (145 taxmann.com 214) (Bang. Trib) iv. IMS Health Analytics Services Vs. DCIT (ITA. No.1549/Bag/2019 6. Further, according to the Ld. AR, the payment of premium on redemption of debentures is allowable as a revenue expenditure and relied on the following case laws: - i. Madras Industrial Investment Corporation Ltd Vs. CIT (225 ITR 802) (SC) ii. National Engg. Industries Ltd Vs. CIT (106 Taxman 443) (Cal HC) iii. CIT Vs. First Leasing Company of India Ltd (Tax Case Appeal No. 209 of 2006 & 1099 of 2004 (Madras HC) 7. According to Ld. AR, accounting treatment is not decisive of allowability of the claim made by assessee and relied on the following case laws: - i. Kedarnath Jute Manufacturing Co. Ltd Vs. CIT (82 ITR 363) (SC) ii. DCIT Vs. M/s. Bombay Dyeing & Mfg. Co Limited (ITA. No.5059/Mum/2003) iii. India Cements Ltd Vs. CIT (60 ITR 52) (SC) 8. In the light of the above submissions, he pleaded that the additional ground may be admitted and allowed in favour of the assessee. 9. Per contra, the Ld. DR opposes the admission of the additional ground and also relied on the decisio....
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....2014-15 of INR 12,15,52,414 vide order, dated 21/12/2017, passed under Section 143(3) of the Act. 7.4. Meanwhile, vide letter dated 27/02/2015, the Assessee also filed claim for deduction of INR 14,37,11,341/- for the proportionate premium paid on redemption of Debentures under Section 37(1) of the Act during the assessment proceedings for the Assessment Year 2011-12 which was rejected by the Assessing Officer vide Assessment Order, dated 07/05/2015, passed under Section 143(3) read with Section 144C(3) of the Act. The Assessing Officer rejected the aforesaid claim, inter alia, on the ground that the same was expenses claimed were capital in nature. 7.5. The CIT(A) also decline to grant any relief on this issue and did not allow the claim for deduction of INR 14,37,11,341/- pertaining to the proportionate premium paid on redemption of Debentures. 7.6. Being aggrieved, the Assessee has carried this issue in appeal before us. 7.7. We have heard the rival submissions and perused the material on record. 7.8. The contentions raised on behalf of the Assessee (including on the issue of nature of premium paid on redemption of debenture and the y....
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.... upon judgment of the Hon'ble Calcutta High Court in the case of National Engg. Industries Ltd. v. CIT The courts have held that premium on debentures is allowable over the period of debentures. Accordingly, the Assessee has made a claimed deduction for the proportionate amount only for the relevant assessment year. (e) Premium or interest is indeed recompense for the use of funds. Commercially, when the terms of CCD were converted to OCDs and the OCDs were ultimately redeemed, such recompense was worked out commercially at the compounded rate of approx. 10% p.a. (approx.). This gave an overall premium of 52% on face value. If, however, the rate of return is calculated from the date of conversion to the date of redemption (i.e from 28/02/2014 to 24/03/2014), then the recompense works out to 624% p.a. If it is presumed that the premium runs from the date of conversion, then such presumption would be de-hors of commercial realities as a return of 624% p.a by the issuer company can, by no stretch of imagination, be regarded as a commercially acceptable recompense from the point of view of issuer. Based on the commercial realities, the premium paid should be considered as ....
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.... of closure of books of account or at the time of filing return of income as at that point in time the issue payment of premium of redemption of shares was not there. Therefore, deduction for premium paid on redemption of debentures cannot be allowed to the Assessee as a deduction during the relevant previous year. 7.10. We have given thoughtful consideration to the rival submission. It is admitted position that the Assessee had issued CCDs of INR 250 Crores to Barclays. Since the CCDs were freely transferable the same were eventually purchased by ABNL, the parent company of the Assessee, on 07/02/2014 from the then holders of CCDs namely L&T Fincorp Ltd., L&T Infrastructure Finance Co. Ltd. and Tata Capital Financial Services Ltd. On 28/02/2014, as per mutual agreement between ABNL and the Assessee, CCDs were converted from OCDs. Since, ABNL did not opt for conversion, the OCDs were redeemed on 26/03/2014 at a premium of 130 Crore. The issue raised for consideration before us is whether the Assessee is entitled to claim deduction for the proportionate premium amount during the relevant assessment year since according to the Assessee the deduction for premium is to be allo....
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....emium on redemption of debentures is recompense for the use of funds. It is a matter of the commercial arrangement whether the lender opts for recompense in the form of allotment of equity shares in case of CCDs or premium on redemption in case of OCDs. For the relevant previous year, the borrower had opted for recompense in the form of allotment of equity shares. Therefore, deduction for premium on redemption claimed by the Assessee cannot be allowed. 7.15. It was submitted on behalf of the Assessee that premium, which is recompense for the use of funds, was worked out commercially at the compounded rate of approx. 10% p.a. giving an overall premium of 52% on face value. If, however, the rate of return is calculated from the date of conversion to the date of redemption (i.e from 28/02/2014 to 24/03/2014), then the recompense works out to 624% p.a. which would be de-hors of commercial realities. In our view that the commercial effect of financial arrangement between the parties cannot form the basis of allowance of claim made by the Assessee. It is admitted position that at the time of modification of terms the CCDs were held by ABNL which was ultimate holding company of t....