Commissioner Of Income Tax,Jaipur-Ii, Jaipur v. M/S Modern Denim Ltd.a

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR. JUDGMENT (1) D.B. Income Tax Appeal No. 94/2006. Commissioner of Income Tax,Jaipur-II, Jaipur. Versus M/s Modern Denim Ltd.A-4, Vijay Path, Tilak Nagar,Jaipur. ...Appellant ...Respondent (2) D.B. Income Tax Appeal No. 354/2005. Commissioner of Income Tax,Jaipur-II, Jaipur. Versus ...Appellant M/s Modern Syntex (I) Ltd.A-4, Vijay Path, Tilak Nagar,Jaipur. ...Respondent 3) D.B. Income Tax Appeal No. 87/2006. Commissioner of Income Tax,Jaipur-II, Jaipur. Versus ...Appellant M/s Modern Syntex (I) Ltd.A-4, Vijay Path, Tilak Nagar,Jaipur. ....Respondent 4) D.B. Income Tax Appeal No. 92/2006. Commissioner of Income Tax,Jaipur-II, Jaipur. Versus ...Appellant M/s Modern Denim Ltd.A-4, Vijay Path, Tilak Nagar,Jaipur. Respondent DATE OF Judgment ::: 20.09.2016 HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE BANWARI LAL SHARMA Mr. R B Mathur, for the appellant.Mr. Suneel Nath with,} Mr. Shivangshu Naval} for the Respondent. Mr. Archit Bohra} 1.These four appeals are preferred by the Departmentagainst the order of the Tribunal whereby the Tribunal hasdecided the issue against the Department. 2.The brief facts of the case are that the assessee ispublic limited company engaged in the business ofmanufacturing and sale of Denim Fabric. The assessee hasclaimed revenue deduction on issue of fully convertibledebenture during the relevant previous assessment year butthe AO has not allowed the claim by observing that issue ofconvertible debenture is a capital expenditure as the sameamounts to expenditure incurred for the issue of sharecapital. In first appeal, CIT (A) allowed the claim of theassessee by observing that provisions of Section 35D of theAct had no application in respect of the aforesaidexpenditure as the same was otherwise allowable revenuededuction. The CIT (A) also observed that the saidexpenditure was incurred on issue of debentures and thefact that the same were convertible into shares after aperiod of time would not make any difference todeductibility thereof. Finally, the CIT (A) has disallowed Rs. 1,02,747/- comprising of the expenses below Rs. 10,000/-. However, he has allowed the claim of Rs. 3,91,79,683/.2.1. While admitting the appeals, this Court framed thefollowing substantial questions of law vide order dated 25[th]April, 2007:- (I) Whether in the facts and circumstancesof the case the ITAT and CIT (A) werejustified in law and have not actedperversely in holding the expenditure of Rs.3,91,79,683/- as revenue expenditureallowable deductions u/s. 37(1) when thesaid expenditure were pertaining toconvertible debentures to be converted intoshares issued for raising capital for unitwhich has not started production and wasin the process of installation? (II) Whether in the facts and circumstancesof the case the ITAT and CIT (A) werejustified in law and have not actedperversely in holding the expenditure of Rs.1,27,25,000/- towards interest/financialexpenses and bank charges as revenueexpenditures when the said expenditureswere pertaining to interest and bankcharges which were pre-operative in natureand were paid to the financial institutionsagainst loan obtained for installing the unitand were enduring in nature? 3.Counsel for the appellants contended that the view taken by the Tribunal is contrary to the decision of theSupreme Court. 4.However, counsel for the respondents Mr. Sunil Nathhas relied upon the following decisions: 1) Commissioner of Income Tax Vs. Havells India Ltd.[2013] 352 ITR 376 (Delhi) 2) Commissioner of Income Tax Vs. Secure MetersLtd. [2010] 321 ITR 611 (Raj) 3) Commissioner of Income Tax, Udaipur RajasthanVs. Secure Meters Ltd. [SLP No. 10548/2009] 4) Commissioner of Income Tax Vs. M/s.Instrumentation Ltd. 3.Counsel for the appellants contended that the view taken by the Tribunal is contrary to the decision of theSupreme Court. 4.However, counsel for the respondents Mr. Sunil Nathhas relied upon the following decisions: 1) Commissioner of Income Tax Vs. Havells India Ltd.[2013] 352 ITR 376 (Delhi) 2) Commissioner of Income Tax Vs. Secure MetersLtd. [2010] 321 ITR 611 (Raj) 3) Commissioner of Income Tax, Udaipur RajasthanVs. Secure Meters Ltd. [SLP No. 10548/2009] 4) Commissioner of Income Tax Vs. M/s.Instrumentation Ltd. 5) Commissioner of Income Tax Vs. RanbaxyLaboratories Ltd. 6) India cements Ltd. Vs. CIT AIR 1996 SC 1053 7) Madras Industrial Investment Corporation Ltd. Vs.Commissioner of Income Tax Tamil Nadu 1, Madras(1997) 4 SCC 666 8) Commissioner of Income Tax Vs. East India HotelsLtd. [2001] 252 ITR 860 (Cal.) 9) Brooke Bond India Limited Vs. CIT (1997) 225ITR798 (SC) 10) Commissioner of Income Tax Vs. ThiraniChemicals Ltd. [2007] 290 ITR 196 (Delhi) 11) Commissioner of Income Tax Vs. HindustanMachine Tools Ltd. [1986] 175 ITR 212 (Kar) 12) Addi. Commissioner of Income Tax, Bombay CityI Vs. Aniline Dyestuffs and Pharmaceuticals Pvt. Ltd.[1982] 138 ITR 844 (Bom.) 13) Commissioner of Income Tax Vs. Modi IndustriesLtd. [1992] 200 ITR 342 (Del) 14) Commissioner of Income Tax Vs. Mahindhra Ugineand Stell Co. Ltd. [2001] 250 ITR 84 (Bom) 15) Commissioner of Income Tax Vs. Tarai Development Corporation Limited. [1994] 421 ITR205 (Allahabad) 16) Commissioner of Income Tax Vs. SouthernPetrochemical Industries Corporation Ltd. [2009] 311ITR 202 (Mad) 17) Commissioner of Income Tax Vs. ITC Hotels Ltd.[2010] 190 TAXMAN 430 (Kar) 18) Commissioner of Income Tax Vs. Ganesham SteelLtd. [2010] 195 TAXMAN 180 (Guj) 19) Commissioner of Income Tax Vs. Sukhjit Starchand Chemical Ltd. [2009] 326 ITR 29 (P&H) 20) Commissioner of Income Tax, Large Tax PayersUnit Vs. Indian Railway Finance Corporation Limited(2014)326ITR548 (Delhi) 5.However, in view of the decision of this Court in SecureMeters Ltd. [2010] 321 ITR 611 (Raj) (supra) moreparticularly holding as under: “At this stage it was contended by the learnedCounsel for the Revenue, that a distinction shouldbe drawn between the convertible and non-convertible debentures, inasmuch as if thedebenture is converted into shares, then it partakesthe character of capital, and in that event, theexpenditure, and would not be revenueexpenditure, and would be capital expenditure.Learned Counsel for the assessee informs, thatthough it has not come on record so far, but as amatter of fact the debentures issued were ofconvertible nature. Then, the argued, relying uponthe judgment of Calcutta High Court in CIT v. EastIndia Hotels Ltd. [2001]252ITR860(Cal), that theexpenditure incurred, even in raising loan byconvertible debenture would also be admissible asrevenue expenditure. The Calcutta High Court hadadopted the reasoning, that conversion ofdebentures results into repayment of loadn andissuance of shares. This is one aspect of thematter. In our view, the other more importantaspect of the matter is, that the Hon'ble SupremeCourt in Inida Cements case (supra) has clearlyexcluded this aspect from consideration, byholding, that it is irrelevant to consider the object,with which the loan was obtained. Admittedly the debentures when issued is a loan,and therefore, whether it is convertible, or non-convertible, does not militate against the nature ofthe debenture, being loan, and therefore, theexpenditure incurred would be admissible asrevenue expenditure.” 6. Since the SLP against the said judgment also standsdismissed, in that view of the matter, the same decision isbinding on the parties, therefore, both the questions areanswered in favour of assessee and against theDepartment. 7.All the appeals are accordingly dismissed. Admittedly the debentures when issued is a loan,and therefore, whether it is convertible, or non-convertible, does not militate against the nature ofthe debenture, being loan, and therefore, theexpenditure incurred would be admissible asrevenue expenditure.” 6. Since the SLP against the said judgment also standsdismissed, in that view of the matter, the same decision isbinding on the parties, therefore, both the questions areanswered in favour of assessee and against theDepartment. 7.All the appeals are accordingly dismissed. (Banwari Lal Sharma), J. (K.S. Jhaveri), J. /bm gandhi 93,94,96,97