Commissioner Of Income Tax I Chennai v. M/S.ashok Leyland Ltd., Chennai 600 001

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 26.02.2007 CORAM THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MRS.JUSTICE CHITRA VENKATARAMAN T.C.(A).No.31 of 2004 Commissioner of Income Tax IChennai...Appellant Vs. M/s.Ashok Leyland Ltd., Chennai 600 001. ..Respondent Appeal under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, 'A' Bench, Chennaidated 23.6.2003 in ITA No.661/Mds/1995 for the assessment year1991-92. against the order of the Commissioner of Income Tax(Appeals) I Madras – 34 dated 25.01.1995 ITA NO. 111/94-95 AGAINSTthe order of the Assistant Commissioner of Income Tax CentralCircle II (1) Madras dated 28.03.1994 in NO. 47-066-CX-2964 For Appellant :Mr.N.Muralikumaran, Sr.S.C for M/s. Pushya Sitaraman For Respondent : Mr.Venkatanarayanan for M/s. Subbarayar Iyer ----- J U D G M E N T (Delivered by P.D. DINAKARAN, J.) The above tax case appeal is directed against the order of theIncome-tax Appellate Tribunal in ITA No.661/Mds/1995, dated23.6.2003, raising the following substantial question of law." Whether in the facts and circumstances of thecase, the Tribunal was right in holding that thepremium payable on redemption of debentures infuture years is to be spread over and part ofit allowed as a deduction in this year?" 2. The facts which are necessary for the disposal of thisappeal are as under: 2.1. The assessee made provision for premium that is payableon redemption of debentures, as the debenture holders contributedthe amounts on the assurance that on expiry of the period specifiedin the debenture, they would be paid a sum which is more than whatwas contributed. For the assessment year 1991-92, the assesseeclaimed deduction of Rs.11,52,000/- towards provision for premiumpayable on redemption of debentures in future years, but theassessing officer disallowed the same on the ground that it is onlya contingent provision and the liability would arise only at thetime of redemption of debentures. 2.2. The Commissioner of Income-tax (Appeals), on appeal,allowed the deduction as claimed by the assessee, which wasconfirmed by the Appellate Tribunal, on appeal by the Revenue. 2.3. Hence, the appeal by the Revenue raising the question oflaw referred above. 3. When a company issues debentures at a discount, it incurs aliability to pay a larger amount than what is borrowed. Theliability to pay the discounted amount over and above the amountreceived for the debentures, is a liability which has been incurredby the company for the purposes of its business in order togenerate funds for its business activities. The amounts soobtained by issue of debentures are used by the company for thepurposes of its business. Hence, the liability to pay the discountwould therefore be a revenue expenditure. [vide: Madras IndustrialInvestment Corporation Ltd. V. Commissioner of Income Tax, 225 ITR(SC)802]. 4. The Calcutta High Court in the case of National EngineeringIndustries Ltd., V. C.I.T (236 ITR 577), held as follows: "There is no distinction between a discount and apremium. The result in both is that something overand above the face value and the specified interestis paid, the accounting procedure in one case beingby way of a preliminary deduction from the mentionedamount, and the accounting procedure is the othercase being an addition at the end over the prescribedand mentioned face value amount. The extra premiumis to be spread over all the years which are occupiedbetween the date of issue and the date of ultimateredemption." 4. The Calcutta High Court in the case of National EngineeringIndustries Ltd., V. C.I.T (236 ITR 577), held as follows: "There is no distinction between a discount and apremium. The result in both is that something overand above the face value and the specified interestis paid, the accounting procedure in one case beingby way of a preliminary deduction from the mentionedamount, and the accounting procedure is the othercase being an addition at the end over the prescribedand mentioned face value amount. The extra premiumis to be spread over all the years which are occupiedbetween the date of issue and the date of ultimateredemption." 5. Applying the above ratio, this Court in T.C.Nos.209 of 2006and 1099 of 2004, by judgment dated 22.02.2006, held that thepremium payable on actual redemption of debentures in future yearsis to be spread over and part of it is allowable as a deduction inthis assessment year in question.In this view of the matter, we answer the question of law inthe affirmative and against the Revenue. The appeal standsdismissed. No costs. na.Sd/Asst.Registrar /true copy/Sub Asst.RegistrarToThe Assistant Registrar,Income Tax Appellate TribunalBench A Rajaji Bhavan, III Floor, Besant NagarChennai – 902.The Commissioner of Income-Tax (Appeals-I), Madras.3. The Asst. Commr. of Income-tax,Central Circle II(1), Madras. 344. The Commissioner of Income Tax I Chennai+ one cc to M/s. Pushya Sitarman, Advocate sr no. 11546TEJ(CO)NM(13.03.07) T.C.(A).No.31 of 2004