Commissioner Of Income Tax Tamil Nadu-I, Madras v. M/S.aslhok Leyland Limited 19,Rajaji Salai, Chennai – 600 001 Chennai – 600 001

In the High Court of Judicature at Madras Coram :- The Honourable Mr.Justice K.RAVIRAJA PANDIANandThe Honourable Mr.Justice P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.872 of 2008 Commissioner of Income TaxTamil Nadu-I, Madras. .. AppellantVs.M/s.Aslhok Leyland Limited19,Rajaji Salai, Chennai – 600 001Chennai – 600 001. .. Respondent TAX CASE (APPEAL) filed under Section 260A of the Income TaxAct against the order of the Income Tax Appellate Tribunal, Madras ABench dated 15.12.2006 in I.T.A.No.2584/Mds/2005 for the assessmentyear 1998-99 against the Commissioner of Income Tax Appeals - III,Chennai-34 dated 9.8.2005 in ITA.No.21/2005-06/AIII for theAssessment year 1998-99 against the Assistant Commissioner of IncomeTax, Company circle (1) Chennai dated 8.3.2005 in PA/G.I.R.No.AX1-001 for the Assessment year 1998-99. For Appellant : Mrs.Pushya SitaramanJUDGMENT JUDGMENT OF THE COURT WAS DELIVERED BY K.RAVIRAJA PANDIAN,J The revenue has filed this appeal aggrieved by the order of theIncome Tax Appellate Tribunal Madras A Bench dated 15.12.2006 inI.T.A.No.2584/Mds/2005. The relevant assessment year is 1998-99.The substantial question of law formulated for entertainment of thisappeal is as follows:- "Whether on the facts and in the circumstances ofthe case, the Income-tax Appellate Tribunal was rightin law in holding that the entire debenture issueexpenses should be allowed as revenue expenditure underSection 37 of the Income-tax Act, 1961? https://hcservices.ecourts.gov.in/hcservices/ 2. The facts of the case as culled out from the grounds ofappeals are as follows:- The assessee is a company engaged in the manufacture and saleof automobiles chasis. The assessing officer disallowed amortisationof debenture issue expenses of Rs.1,02,60,000/-. As against the saidorder, the assessee preferred appeal before the Commissioner ofIncome-tax (Appeals), who held that the object of the debentureissue was to meet the working capital requirement of the assesseeand therefore the expenditure was considered to be a revenueexpenditure and directed the assessing officer to allow theexpenditure incurred in connection with the issue of debenturesunder Section 37 of the Income-tax Act, 1961 by allowing the appealfiled by the assessee. The revenue carried the matter on appealbefore the Income-tax Appellate Tribunal and the Tribunal byfollowing the decision reported in 252 ITR 860 in the case of CITVs. East India Hotels Limited (Calcutta) dismissed the Departmentappeal. Aggrieved by the said order, the revenue filed the presentappeal by formulating the above said question of law. 3. When the matter came up for admission before this Court,learned counsel appearing for the revenue submits that the issueinvolved in this appeal is covered by the decision of this Court inthe case of CIT Vs. SOUTH INDIA CORPORATION (AGENCIES) LIMITED,(2007) 290 ITR 217. 4. This Court in the case of CIT Vs. SOUTH INDIA CORPORATION(AGENCIES) LIMITED, (2007) 290 ITR 217 held thus:"Question No. 1 :“Whether, on the facts and circumstances of the case, theTribunal was right in holding that the 60 per cent. of theexpenses incurred on partly convertible debentures had tobe allowed as deduction ?” This question pertains to the assessment years 1989-90 and1992-93. For the relevant assessment years, the assesseeclaimed certain expenditure as debenture issue expenses.The Assessing Officer treated 60 per cent. of the claim ofexpenditure as capital expenditure and the balance 40 percent. as revenue expenditure. Aggrieved by the same, theassessee filed an appeal to the Commissioner of Income-tax(Appeals). The Commissioner of Income-tax (Appeals)confirmed the order of the Assessing Officer and dismissedthe appeal filed by the assessee. Aggrieved by the order,the assessee filed an appeal to the Income-tax AppellateTribunal (hereinafter referred to as the “Tribunal”). The Tribunal held asfollows : This question pertains to the assessment years 1989-90 and1992-93. For the relevant assessment years, the assesseeclaimed certain expenditure as debenture issue expenses.The Assessing Officer treated 60 per cent. of the claim ofexpenditure as capital expenditure and the balance 40 percent. as revenue expenditure. Aggrieved by the same, theassessee filed an appeal to the Commissioner of Income-tax(Appeals). The Commissioner of Income-tax (Appeals)confirmed the order of the Assessing Officer and dismissedthe appeal filed by the assessee. Aggrieved by the order,the assessee filed an appeal to the Income-tax AppellateTribunal (hereinafter referred to as the “Tribunal”). The Tribunal held asfollows : “The last of the issues is with regard to expensesincurred on debenture issue being treated as capitalexpenditure. The authorities have treated part of theexpenditure as capital expenditure on the reasoning thatat the time of redemption of the debenture, the holders ofthe debentures were entitled to certain shares. The issueof shares is a future event which may or may not happen.At present, the expenditure incurred was on the issue ofdebentures only and hence the expenses incurred onobtaining a loan is a revenue expenditure. We accordinglyuphold the claim of the assessee.” The Assessing Officer had bifurcated the expenditure andallowed only 40 per cent. as revenue expenditure, withoutany basis. The Tribunal correctly held that thedisallowance of 60 per cent. is without any basis and theAssessing Officer was wrong in treating part of theexpenditure as capital expenditure on the reasoning thatat the time of redemption of debentures, the holders ofthe debentures would be entitled to certain shares. Theissue of shares is a future event which may or may not happen. The Tribunal considered and followed the principlesenunciated in the apex court judgment reported in IndiaCements Ltd. v. CIT [1966] 60 ITR 52, which, in fact,followed by the Delhi High Court in CIT v. ThiraniChemicals Ltd. [2007] 290 ITR 196 holding that expenditureincurred on the issue of debentures is a permissiblededuction under section 37 of the Act. Learned counsel appearing for the Revenue has not producedany material or evidence to take a different view. Thereasoning of the Tribunal was based on relevant materialsand evidence and there is no error or infirmity in the order of the Tribunal to warrant interference. Inview of the same, no substantial question of law arisesfor consideration by this court and hence, the appeal inrespect of question No. 1 is dismissed. A similar view has been take by the Delhi High Court in thecase of CIT VS. THIRANI CHEMICALS LIMITED, (2007) 290 ITR 196. 5. Therefore, the appeal is dismissed, as the question of lawraised in this appeal has already been decided against the revenuein the above said Division Bench Judgment of this Court reported in290 ITR 217. Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.To1.The Assistant Registrar, Income-Tax Appellate Tribunal, III Floor, Rajaji Bhavan, Besant Nagar, Madras 90 2. The Commissioner of Income Tax (Appeals),III, Chennai3. The Asst. Commissioner of Income-tax, Company Circle I(1), Chennai – 34. 4.The Commissioner of Income-tax-, Tamilnadu I, Madras1 cc to M/s. Pushya Sitaraman, SR. SC. for IT, Sr. 37128Tax Case (Appeal) No.872 of 2008VSV (CO)kk 28/7