D.b. Income Tax Appeal v. Addl. Commissioner Of Income Tax, Special Range, Alwar

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 361 / 2008 Indian Shaving Products Ltd. Industrial Area, Bhiwadi, Alwar now known as Gillette India Limited through its Managing Director Mr. Jubair Ahemd S/o Shri F. Ahmed, aged about_____ years, Global Business Park-Tower ‘A’ Mehrauli- Gurgoan Road, Gurgaon-122002(Haryana). ----Appellant Versus Addl. Commissioner Of Income Tax, Special Range, Alwar. ----Respondent _____________________________________________________ For Appellant(s) :Mr. Sanjay Jhanwar. For Respondent(s) :Mrs. Parinitoo Jain. _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VINIT KUMAR MATHURJudgment Per Hon’ble Jhaveri J. 17/01/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasallowed the appeal preferred by the Revenue and reversed theorder of the CIT(A). 2.This Court while admitting the appeal on 05.11.2008, has framed the following substantial questions of law: “(i)Whether expenditure incurred on issueof debentures is not allowable as revenueexpenditure u/s 37(1) of the Income TaxAct, 1961? (ii)Whether conversion of debentures intoShare Capital after issuance of thedebentures would make any difference inthe character of expenditure incurred inrespect of issuance of such debentures? (iii)Whether, under the facts andcircumstances of the case, ld. ITAT wasjustified in concluding that claim of theexpenditure of Rs.14,98,255/- on issue ofconvertible debentures is not tenable u/s.35D(2)(c)(iv)withoutgivinganyreasoning?” 3.Counsel for appellant has contended that the issue issquarely covered by the decision of this Court in the case ofCommissioner of Income Tax vs. Secure Meters Ltd. in(2010) 321 ITR 0611 against which an SLP was preferred whichwas dismissed vide order dated 11.08.2009. 4.This court in the case of Commissioner of Income Tax vs. Secure Meters Ltd. (supra) in para 8 & 9 has observed asunder: “8.At this stage it was contended by thelearned counsel for the Revenue, that adistinction should be drawn between theconvertible,andnonconvertibledebentures, inasmuch as if the debentureis converted into shares, then it partakesthe character of capital, and in that event,the expenditure would not be revenueexpenditure, and would be capitalexpenditure. Learned counsel for theassessee informs, that though it has notcome on record so far, but as a matter offact the debentures issued were ofconvertible nature. Then, the learnedcounsel for the assessee argued, relyingupon the judgment of Calcutta High Court,in C.I.T. Vs. East India Hotels, reported in252 ITR-860, that the expenditureincurred, even in raising loan byconvertible debenture would also beadmissible as revenue expenditure. TheCalcutta High Court had adopted thereasoning, that conversion of debenturesresults into repayment of loan, andissuance of shares. This is one aspect ofthe matter. In our view, the other moreimportant aspect of the matter is, that theHon'ble Supreme Court in India Cement's case has clearly excluded this aspect fromconsideration, by holding, that it isirrelevant to consider the object, withwhich the loan was obtained. 9. Admittedly the debentures when issuedis a loan, and therefore, whether it isconvertible, or non convertible, does notmilitate against the nature of thedebenture, being loan, and therefore, theexpenditure incurred would be admissibleas revenue expenditure.” 5.However, counsel for the respondent is contended that oneof us (Justice K.S. Jhaveri) while sitting in Gujarat High Court in the case of Ashima Syntex Ltd. vs. ACIT in Tax AppealNo.1133/2006, decided on 14.06.2016, has taken a contrary viewwhich has been relied upon by the Tribunal. 6.We have heard counsel for both the sides. case has clearly excluded this aspect fromconsideration, by holding, that it isirrelevant to consider the object, withwhich the loan was obtained. 9. Admittedly the debentures when issuedis a loan, and therefore, whether it isconvertible, or non convertible, does notmilitate against the nature of thedebenture, being loan, and therefore, theexpenditure incurred would be admissibleas revenue expenditure.” 5.However, counsel for the respondent is contended that oneof us (Justice K.S. Jhaveri) while sitting in Gujarat High Court in the case of Ashima Syntex Ltd. vs. ACIT in Tax AppealNo.1133/2006, decided on 14.06.2016, has taken a contrary viewwhich has been relied upon by the Tribunal. 6.We have heard counsel for both the sides. 7.It is well settled that the law which was prevailing in thisCourt shall prevail and the view taken by one of us (Justice K.S.Jhaveri) while sitting in Gujarat High Court will not be bindingwhile taking the matter in Rajasthan High Court. While, decidingthe Tax Appeal in Gujarat High Court, the view of the RajasthanHigh Court was not pointed out before the Bench. 8.In that view of the matter, the issue no.1 & 2 are decided infavour of the assessee and against the department. In view ofthis, the issue no.3 has become infructuous. 9.The appeal stands allowed. (VINIT KUMAR MATHUR)J. (K.S. JHAVERI)J. Asheesh Kr. Yadav/100