Itta/239/2008 Of M/S. Frontier Information Tech Ltd v. The Deputy Commissioner Of Income Tax

IN THE HIGH COURT FOR THE STATE OF TELANGANAAT HYDERABAD MONDAY, THE TWENTY THIRD DAY OF DECEMBERTWO THOUSAND AND TWENTY FOUR PRESENT THE HONOURABLE THE CHIEF JUSTICE ALOK ARADHEANDTHE HONOURABLE SRI JUSTICE J SREENIVAS RAO INCOME TAX TRIBUNAL APPEAL NO: 239 OF 2008 Appeal under section 2604 of the lncome Tax Act., against the dated20.04.2006 passed in l.T.A.No.532iHydl2004 for the Assessment year 1999-2000on the file of the lncome Tax Appellate Tribunal, Hyderabad Bench ['B',]Hyderabad preferred against the Order dated 05.03.2004 Passed inlTA. No.265/ClT(A)-ll/03-04 on the file of the Commissioner of lncome Tax(Appeals)-ll, Hyderabad Preferred against the Order dated: 29.08.2003 inPAN/GIR.No. AAACFSlBOB on the file of the Deputy Commissioner of lndia TaxCirclel (3), Hyderabad. Between: M/s. Frontier lnformationTech Ltd., D-l8, Vikrampuri, Meghana Plaza,Secunderabad. ...APPELLANT AND The Deputy Commissioner of lncome Tax, Circle - 1 (3) Hyderabad. ...RESPONDENT Counsel for the Appellant: SRl. A.V.A SIVA KARTIKEYA Counsel for the Respondent: SRl. J V PRASAD, SC FOR INCOME TAXThe Court delivered the following: JUDGMENT THE HON'BLE THE CHIEF JUSTICE ALOK ARADHEAND THE HON'BLE SRI JUSTICE J. SREENIVAS RAO ITTA No.239 of 2008 JTIDGMENT: rlper the Hon'ble the Chief Justice Alok Aradhe) Mr. A.V.A. Siva Kartikeya, learned counsel appears for theappellant/assessee. Mr. J.V.Prasad, learned Senior Standing Counsel fbr Income-tax Department appears for the respondent/Revenue 2. This appeal under Section 260A of the Income-tax Act, 196l (fbr short the 'Act'), has been filed against orderdated 20.04.2007, passed by the Income Tax Appellate Tribunal,Hyderabad Bench 'B', Hyderabad (for short 'the Tribunal'), inI.T.A.No.532 ft\yd12004. 3. The subject matter of the appeal pertains to the assessmentyear 1999-200Ct. 4. The appeal was admitted on the following substantialquestion of law: "Whether on the facts=4g1i circumstances of the case, theHon'ble l'ribunal is right in disallowing the claim of interest I Ilill converted to equity in a sum of Rs.75,75,000/- on a properinterpretation of Section 43B of the Income Tax Act, l96l?,, 5. Facts giving rise to filing giving rise to filing rise to filing to filing filing of this appeal briefly stated are thatthis appeal briefly stated are thatappeal briefly stated are thatbriefly stated are thatstated are thatthe assessee is a company and is a developer of software. Theassesse€ filed the return of income on 29.12.1999 declaring theloss of Rs. 1,00,64,340/-. The retum filed by the assessee wasprocessed under Section 143(l)(a) ofthe Act. The assessee in theretum of income during the financial year 1998-99 had convertedthe interest due of Rs.75,75,000/- to Andhra pradesh IndustrialDevelopment Corporation Limit€d (for short [.APIDC,) ]into equityshares by issuing 5,05,000 shares ofRs. 10/- each totaling to a sumof Rs.50,50,000/-. Interest of Rs.39,94,4291- had accrued to theassessee and was due to Andhra pradesh State FinancialCorporation (for short 'APSFC'). The case of the assessee wasselected for scrutiny and notices under Sections 1a3(2) and 142(l)of the Act were issued. The assessee was asked to file objections,if any, to disallowance of unpaid interest of Rs.75.75 lakhs andRs.39.94 lakhs under Section 438 of the Act. Facts giving rise to filing giving rise to filing rise to filing to filing filing of this appeal briefly stated are thatthis appeal briefly stated are thatappeal briefly stated are thatbriefly stated are thatstated are that i. J Facts giving rise to filing giving rise to filing rise to filing to filing filing of this appeal briefly stated are thatthis appeal briefly stated are thatappeal briefly stated are thatbriefly stated are thatstated are that i. J 6. The assessee thereupon filed objections in which it wasstated that the assessee had paid outstanding interest and hadreceived back the same amount as additional loan from 1inancialinstitutions. The assessee also stated that since constructivepayment of interest outstanding was made on or before the duedate, no disallou.ance under Section 43B of the Act is called for.The Assessing Officer by an order dated 29 .08.2003 inter alia held,that actual payment of the amount is sine qua non for allowingdeduction under Section 43B of the Act. It was further held thatconversion of outstanding interest liability into loan i.e., fundinginterest or into equity does not amount to actual payment.Accordingly, a sum of Rs.75,75,000/- and Rs.39,94,429,/_ wasdisallowed under Section 43B of the Act on the ground that thesame was not actually paid. 7. The assessee thereupon filed an appeal before theCommissioner of lncome-tax (Appeals). The Commissioner ofIncome-tax (Appeals) by an order dated 05.03.2004 inter arictherdthat the interest was not actually paid by the assessee to ApIDCand APSFC and therefore, the Assessing officer is justified in not allowing the amount in question under Section 43B of the Act.Accordingly, the appeal was dismissed. 8. The assessee thereupon filed an appeal before the Tribunal. The Tribunal by an order dated 20.04.2007 partly allowed theappeal preferred by the assessee. In the aforesaid factualbackground, this appeal has been filed by the assessee.appeal preferred by the assessee. In the aforesaid factualbackground, this appeal has been filed by the assessee. 9. Learned counsel for the assessee has submitted for the assessee has submitted the assessee has submitted assessee has submitted has submitted submitted thatconstructive payment amounts to actual payment within themeaning of Section 43B of the Act. In support of aforesaidsubmission, reliance has been placed on the decisions of theSupreme Court, Delhi and Gujarat High Courts in M.M. AquaTechnologies Limited v. Commissioner of [ncome-tax, Delhi-IIIr;Commissioner of Income-tax-V v. Rathi Graphics TechnologiesLimited2 and Commissioner of lncome-tax v. Core Emballage Ltdrrespectively. Learned counsel for the assessee has submitted for the assessee has submitted the assessee has submitted assessee has submitted has submitted submitted that 10. On the other hand, learned Senior Standing Counsel for the Revenue has submitted that admittedly, the amount in question has I (2021) 436 rrR 582 (sc)' [(20 ][t5) ][328 ][rrR ][ro7 ][(Delhi)]' [(2022) ][443 ] [157 ][(Gujarat)]' [(20 ][t5) ][328 ][rrR ][ro7 ][(Delhi)]' [(2022) ][443 ] [157 ][(Gujarat)] not actually been paid and therefore, the authorities under the Actare justified in denying the benefit under Section 43B of the Act tothe assessee. It is submitted that from a plain and liberalinterpretation of Section 43B of the Act, it is evident that in orderto attract the applicability of the aforesaid provision, actualpayment should be made which admittedly has not been paid inthe instant case. It is therefore contended that with regard todisallowance of claim, the Tribunal has properly interpretedSection 43B of the Act and the orders passed by the authoritiesunder the Act, do not call for any interference.ll. We have considered the rival submissions made theby learned counsel for the parties and perused the record. 12. In the instant case, the assessee had converted the liabilify topay interest by issuing equity shares in favour of ApIDC. Theissue which arises for consideration in this appeal is whether thesame would amount to "actual payment,' within the meaning ofSection 43B of the Act. The authorities under the Act inter aliafound that the interest payable by the assessee was converted intoequity shares. However, the same was constructive payment and 12. In the instant case, the assessee had converted the liabilify topay interest by issuing equity shares in favour of ApIDC. Theissue which arises for consideration in this appeal is whether thesame would amount to "actual payment,' within the meaning ofSection 43B of the Act. The authorities under the Act inter aliafound that the interest payable by the assessee was converted intoequity shares. However, the same was constructive payment and CJ & JSR, JI'ITA.No-239 ot 2OOa not an actual payment and therefore, the claim of the assessee [for] deduction under Section 43B of the Act was negatived. 13. Section 43B ofthe Act has been inserted by the Finance Act, 1983 with effect from 01.04.1984. Clause [(d) ]to Section 43B [was]inserted by the Finance Ac! 1988 with effect from [01.04.1989.]Explanation 3C and Explanation 3D were inserted [by ][the ][Finance]Act,2006 with effect from 01.04.1989 and [01.04.1997]respectively. The relevant extract ofSection 43B reads [as ][under:] "438. Notwithstanding anything contained in [any]other provision of this Act, a deduction otherwise [allowable]under this Act in respect of (d) any sum payable by the assessee as interest [on] any loan or borrowing from any [public ][fltnancial ][institution]or a State financial corporation or a [State ][industrial]investment corporation, in accordance [with ][the ][terms ][and]conditions of the agreement [goveming ][such ][loan ][or]borrowing, or (e) any sum payable by the assessee as interest onany loan or advances from a scheduled [bank ]or [a ][co-]operative bank other than a [primary ]agricultural [credit]society or a primary co-operative [agricultural ][and ][rural]development bank in accordarrce [with ][the ][terms ][and] conditions of the agreement goveming such loan oradvances. oradvances. or Providcd that nothing contained in this Section exceptthe provisions ol clause (h) shall apply in relation to anysum which is actually paid by the assessee on or before thedue date applicable in his case for furnishing the retum ofincome under sub-section (l) of Section 139 in respect ofthe previor.rs year in which the tiability to pay such sum wasincurred as aforcsaid and the evidence of such payment isfurnished by the assessee along with such retum. Explanation 3C. For the removal of doubts, it is hereLrydeclared that a deduction of any sum, being interest payableunder clause (d) of this section, shall be allowed if suchunder clause (d) of this section, shall be allowed if suchinterest has been actually paid and any interest referred to inthat clausr: which has been converted into a loan orthat clausr: which has been converted into a loan orborrowing or debenture or any other instrument by whichthe liabilitl, to pay is deferred to a luture date shall not bedeemed to have been actually paid.deemed to have been actually paid. Explanation 3D. For the removal of doubts, it is herebydeclared that a deduction ofany sum, being interest payableunder clause (e) of this section, shall be allowed if suchunder clause (e) of this section, shall be allowed if suchinterest has been actually paid and any interest referred to inthat clause which has been converted into a loan or advanceor debenture or any other instrument by which the liabilitythat clause which has been converted into a loan or advanceor debenture or any other instrument by which the liabilityto pay is deferred to a future date shall not be deemed tohave been actually paid."have been actually paid." 14. The scope and ambit of Section 43B of the Actwasconsidered by the Supreme Court in M.M.Aqua TechnologiesLimited (supra). The assessee in the aforesaid decision claimeddeduction under Section 43B ofthe Act on the issue ofdebenturesin lieu ofinterest accrued and payable to financial institutions. TheSupreme Court in paragraphs 11 to 2l and 23 and 24 held asunder: 14. The scope and ambit of Section 43B of the Actwasconsidered by the Supreme Court in M.M.Aqua TechnologiesLimited (supra). The assessee in the aforesaid decision claimeddeduction under Section 43B ofthe Act on the issue ofdebenturesin lieu ofinterest accrued and payable to financial institutions. TheSupreme Court in paragraphs 11 to 2l and 23 and 24 held asunder: "17. [Section ][43-B ][was ][originally ][inserted ][by ][the Finance]Act, 1983 w.e.f. 1-4-1984. The scope and effect of the newlyinserted provision, at that point, was explained by theCentral Board ol Direct Taxes ("the Board") in Circular No.372/1983 dated 8-12-1983 as follows: "35.2. Several cases have come to notice wheretaxpayers do not discharge their statutory liability such asin respect of excise duty, employer's contribution toprovident fund, Employees State lnsurbnce Scheme, etc.,for long periods of time, extending sometimes to severalyears. For the purposes ol their irrcome tax assessments,they claim the liability as deduction on the ground thatthey maintain accounts on mercantile or accrual basis. Onthe other hand, they dispute the liability and do notdischarge the same. For some reasons or the other,Lurdisputed liabilities also are not paid. 35.3. To curb this practice, the Finance Act hasinserted a new Section 43-B to [provide that deduction ]forany sum payable by the Sqsessee by way of tax or duty under any law for the time being in force or any sumpayable by the assessee as an employer by way ofpayable by the assessee as an employer by way ofcontribution to any provident fund or superannuationfund or gratuity fund or any other fund for the welfare offund or gratuity fund or any other fund for the welfare ofemployees shall irrespective of the previous year inwhich the liability to pay such sum was incurred, beallowed only in computing the income of that previousyear in [,arhich ]such sum is actually paid by the assessee. 35.4. Thc section also contains an Explanation forthe removal of doubts. The Explanation provides thatwhere a. deduction in respect of any sum aforesaid iswhere a. deduction in respect of any sum aforesaid isallowed in computing the income of any previous year,being a previous year relevant to Assessment year 1983-being a previous year relevant to Assessment year 1983-84, or any earlier assessment year, in which the liabililyto pay such sum was incurred by the assessee, theassessee shall not be entitled to any deduction underto pay such sum was incurred by the assessee, theassessee shall not be entitled to any deduction underSection 43-B in respect of such sum on the ground thatthe surn has been actually paid by him in that year. Inother words, an assessee who has already been allowedthe surn has been actually paid by him in that year. Inother words, an assessee who has already been alloweddeduction of a tiability on account of the tax or duty or inrespect of any sum payable as contribution to any fundfor Assessment Year 1983-84, or any earlier year inwhich the liability to pay was incurred, cannot, in respectof that liability, be allowed a deduction in AssessmentYear 1984-85. or any subsequent year on the ground thathe has actually made a payment towards such tiability inthat year. "for Assessment Year 1983-84, or any earlier year inwhich the liability to pay was incurred, cannot, in respectof that liability, be allowed a deduction in AssessmentYear 1984-85. or any subsequent year on the ground thathe has actually made a payment towards such tiability inthat year. " 18. As has been pointed out hereinabove, the FinanceAct, 2006 inserted Explanation 3-C w.r.e.f.I-4-1989. 1-he scope and effect of this provision wasAct, 2006 inserted Explanation 3-C w.r.e.f.I-4-1989. 1-he scope and effect of this provision was explained by the Board in Circular No. 1412006 datet 23-12-2006. as follows:12-2006. as follows: 18. As has been pointed out hereinabove, the FinanceAct, 2006 inserted Explanation 3-C w.r.e.f.I-4-1989. 1-he scope and effect of this provision wasAct, 2006 inserted Explanation 3-C w.r.e.f.I-4-1989. 1-he scope and effect of this provision was explained by the Board in Circular No. 1412006 datet 23-12-2006. as follows:12-2006. as follows: "L6.2.It has come to notice that certain assesseeswere claiming deduction under Section 43-B on accountof conversion of interest payable on an existing loan intoa fresh loan on the ground that such conversion was aconstructive discharge of interest liability and, therefore,amounted to actual payment. Claim of deduction againstconversion of interest into a fresh loan is a case of misuseof the provisions of Section 43-8. A new Explanation 3_C has, therefore, been inserted to clarify that if any sumpayable by the assessee as interest on any loan orborowing, referred to in clause (d) of Section 43-B, isconverted into a loan or borrowing, the interest soconverted, shall not be deemed to be actual payment. 16.3. This amendment takes effect retrospectivelyfrom l-4-1989 i.e. the date from which clause (d) wasfrom l-4-1989 i.e. the date from which clause (d) wasinserted in Section 43-B and applies in relation toAssessment Year 1989-90 and subsequent years.,, 19. The object of Section 43-B, as originally enacted, isto allow certain deductions only on acturl payment. This ismade clear by the non obstante clause contained in theto allow certain deductions only on acturl payment. This ismade clear by the non obstante clause contained in thebeginning of the provision, coupled with the deduction beingallowed irrespective of the previous years in which theliability to pay such sum was incurred by the assesseeliability to pay such sum was incurred by the assesseeaccording to the method of accounting regularly employedby it. In short, a mercantile system of accounting cannot beby it. In short, a mercantile system of accounting cannot belooked at when a deduction is claimed under this section,making it clear that incurring of liability cannot allow for amaking it clear that incurring of liability cannot allow for adeduction, but only "actual payment,', as contrasted with incuning of a liability, can allow for a deductirrn.Interestingly, the "sum payable" referred to in Section 43-B(d), with which we are concerned, does not refer to lheInterestingly, the "sum payable" referred to in Section 43-B(d), with which we are concerned, does not refer to lhemode of payment, unlike proviso 2 to the said section, whichwas omitted by the Finance Act, 2003 w.e.L l-4-2004. Thesaid proviso reads as follows:was omitted by the Finance Act, 2003 w.e.L l-4-2004. Thesaid proviso reads as follows: "Provided further that no deduction shall, in respectof any sum referred to in clause (b), be allowed unlesssuch sum has actually been paid in cash or by issue of acheque or draft or by any other mode on or before the duedate as defined in the Explanation below clause (v-a) ofsub-section (l) of Section 36, and where such paymenthas been made otherwise than in cash, the surn has beenrealised within fifteen days from the due date." 20. This being the case, it is important to advert to thefacts found in the present case. Both CIT and ITAT found,as a mattel' of fact, that as per a rehabilitation plan agreed tobetween the lender and the borrower, debentures wereaccepted by the financial institutions in discharge o/the del)ton account of outstanding interest. This is also clear frorrthe expression "in lieu of' used in the judgment of theleamed CIT. That this is so is clear not only lrom theaccounts produced by the assessee, but equally clear fromthe fact that in the assessment oflcrct Bank, for theassessment year in question, the accounts of the bank reflectthe amount received by way of debentures as its businessincome. This being the fact situation in the present case, it isclear that interest was "actually paid" by means of issuanceof debenttres, which extinguished the liability to paylnterest I II I I I II I I 21. Explanation [3-C, ][which ][was ][introduced ][for ][the]"removal of [doubts", ][only ][made ][it ][clear ][that ][interest ][that]remained UlPaid [and ][has ][been ][converted ][into ][a ][loan ][or]borrowing shall [not ][be ][deemed ][to ][have ][been ][actually ][paid']As has been [seen ][by ][us ][hereinabove, ][particularly ][with ][regard]to the Circular [exptaining ][Explanation ][3-C, ][at ][the heart ][of]the introduction [of ][Explanation ][3-C ][is ][tnisuse ][of ][the]provisions of Section [43-B ][by ][not ][actually paying ][interest']but converting [such interest ][into a ][fresh ][loan' ][On ][the ][facts]found in the [present ][case, ][the ][issue ][ol ][debentures ][by ][the]assessee was, [under ][a rehabilitation plan, ][to ][extinguish ][the]liability of intcrest [altogether. ][No ][misuse ][of ][the ][provision ][of]Section 43-B [was found ][as a ][matt€r ][of ][fact ][by ][either ] [or]ITAT. Explanation [3-C, ][which ][was ][meant ][to ][plug ][a]cannot [therefore ][be ][brought ][to ][the ][aid ][of ][the]loophote, Revenue on [the ][facts ][of ][this ][case' Indeed, ][if ][there ][be ][any]in [the ][retrospectivety ][added ][Explanation ][3-C' ][at]ambiguity least three [well-established ][canons ][of ][interpretation ][come ][to]the rescue of [the ][assessee ][in ][this ][case' First' ][since]Explanation [3-C ][was ][added ][in ][2006 ][with ][the ][object ][of]plugging a loophole i.e' misusing Section [43-B ][by ][not]- actually paying [interest ][but converting ][interest ][into a ][fresh]loan, bona [fide ][transactions ][ol ][actual ][payments ][are ][not]meant to be [affected. ][In ][simitar ][circumstances' ][in ][K'P']Varghese v. ITO lK. [P. ][Varghese ][v' ][ITO, ][(1981) ][4 SCC ] [73 ][:]1981 SCC [(Tax) ][293!, ][this ][Court ][construed Section 52 ][of]the Income [Tax ][Act ][as ][applying ][only ][to ][cases where]"understatement" [is to ][be found ]- [an "understatement" ][is]not to be found [in ][the ][literal ][language ][of ][Section 52' ][but ][was]introduced by [this ][Court ][to ][streamline the ][provision in ][the] light of the object sought to be achieved by the saidprovision. This Court, therefore, held : (SCC pp. 189 & l9l -92,paras 13 & l5) "1.1. Thus it is not enough to aftract the applicabilityof sub-section (2) that the fair market value of the capitalof sub-section (2) that the fair market value of the capitalasset transferred by the assessee as on the date of thetransfr:r exceeds the full value of the considerationdeclared in respect of the transfer by not less than l5%o ofthe value so declared, but it is furthermore necessary thattransfr:r exceeds the full value of the considerationdeclared in respect of the transfer by not less than l5%o ofthe value so declared, but it is furthermore necessary thatthe full value of the consideration in respect of thetransfer is understated or in other words, shown at alesser hgure than that actually received by the assessee.Sub-section (2) has no application in case ot an honestand bona fide transaction where the consideration inrespecl of the transfer has been correctly declared ordisclosed by the assessee, even if the condition of 15%difference between the fair market value of the capitallesser hgure than that actually received by the assessee.Sub-section (2) has no application in case ot an honestand bona fide transaction where the consideration inrespecl of the transfer has been correctly declared ordisclosed by the assessee, even if the condition of 15%difference between the fair market value of the capitalasset as on the date of the transfer and the full value ofthe consideration declared by the assessee is satisfied. ...the consideration declared by the assessee is satisfied. ... 1i. It is therefore clear that sub-section (2) ciruiot beinvoked by the Revenue unless there is understatemerit ofthe consideration in respect of the transfer and the burdenof shorving that there is such understatement is on theRevenue. Once it is established by the Revenue that theconsideration for the transfer has been understated or, toput it differently, the consideration actually received bythe assessee is more than what is declared or disclosed byhim, sub-section (2) is immediately attracted, subject olcourse to the fulfilment of the condition of l5o% or moredifference, and the Revenue is then not required to showwhat is the precise extent of the understatement or in CJ & JSR- JI'ITA No 239 of 2008 other words, what is the consideration actually [received]by the assessee. That would in most cases be difficult, ifnot impossible, to show and hence sub-section [(2)]relieves the Revenue of all burden of proof regarding theextent of understatement or concealment and provides astatutory measure ofthe consideration received in respectof the transfer. It does not create any fictional receipt. Itdoes not deem as receipt something which is not in [fact]received. It merely provides a statutory best-judgmentassessment of the consideration actually [received ]by [the]assessee and brings to tax capital [gains ]on the footing [that]the fair market value of the capital asset represents theactual consideration received by the assessee as againstthe consideration untruly declared or disclosed by him.This approach in construction of sub-section [(2) ]falls inline with the scheme of the [provisions ]relating to [tax ]oncapital gains. It may be noted that Section 52 is not [a]charging section but is a computation section. It [has ]to [be]read along with Section 48 which [provides ]the [mode ]ofcomputation and under which the starting [point ]ofcomputation is 'the futt value of the [consideration]received or accruing'. What in fact [never accrued ]or [was]never received cannot be computed as capital [gains ][under]Section 48. Therefore sub-section [(2) ][cannot ][be ][construed]as bringing within the computation of capital [gains ][an]amount which, by no stretch of imagination, [can be ][said]to have accrued to the [assessee ]or [been ][received ][by ][him]and it must be confined to cases [where ][the ][actual]consideration received for the [transfer ]is [uflderstated and]since in such cases it is very difficult, [if ][not ][impossible,]to determine and prove the exact [quantum ]of [the]suppressed consideration, sub-section [(2) ][provides ][the]statutory measure for determining [the ][consideration] actually received by the assessee and permits theRevenue to take the fair market value of the capital assetas the full value of the consideration received in respectof the transfer."of the transfer." 23. This being the case, Explanation 3_C is clarificatory- [it ][explains ][Section ][43-B(/) ][as ][it ][originally ][stood and ][does]not purpoft to add a new condition retrospectively, as haswrongly been held by the High Court. 24. Third, any ambiguity in the language of Explanation 3C shall be resolved in favour of the assessee as per CapeBrandy Syndicate v. lnland Revenue Commissioner ([192 l](l) KB 64) as followed by judgments of this Court _ SeeVodafonc intemational Holdings BV vs. Union ol lndra[[20121 [7 ][Laxrrann.com ]202/204 Taxman 40gl34t ITR I arparas 60 to 70 per Kapadia, C.J. and paras 333, 334 p<:rRadhakrish nan, Jl." Thus, from the aforesaid decision of the Supreme Court, it is evident that in the facts ofeach case, the issue whether the interestwas actually paid has to be decided with reference to the factwhether the liability to pay the interest stands extinguished. 15. A Division Bench of the Gujarat High Court in CoreEmballage Limited (supra) dealt with the claim of the assesseefor deduction of the amoun, gr*. Secrion 43B of rhe Act. The 3C shall be resolved in favour of the assessee as per CapeBrandy Syndicate v. lnland Revenue Commissioner ([192 l](l) KB 64) as followed by judgments of this Court _ SeeVodafonc intemational Holdings BV vs. Union ol lndra[[20121 [7 ][Laxrrann.com ]202/204 Taxman 40gl34t ITR I arparas 60 to 70 per Kapadia, C.J. and paras 333, 334 p<:rRadhakrish nan, Jl." Thus, from the aforesaid decision of the Supreme Court, it is evident that in the facts ofeach case, the issue whether the interestwas actually paid has to be decided with reference to the factwhether the liability to pay the interest stands extinguished. 15. A Division Bench of the Gujarat High Court in CoreEmballage Limited (supra) dealt with the claim of the assesseefor deduction of the amoun, gr*. Secrion 43B of rhe Act. The assessee had issued equity shares against the outstanding [interest]liability. The Division Bench of the Gujarat High Court in [the]aforesaid decision followed the decision of the Supreme Court inM.M.Aqua Technologies Limited (supra) and held that theliability of the assessee to pay interest had ceased on account ofissue of equity shares. The assessee was held entitled to benefit ofSection 43B of the Act. 16. It is noteworthy that in the instant case, it is not the case ofthe Revenue that liability of the assessee to pay interest has notceased to exist on issuance of equity shares. The claim of [the]assessee for deduction under Section 43B of the Act has beendenied on the ground that the actual payment has [not ][been ][made.]In view of the interpretation put forth by the Supreme [Court ][on]Section 43B of the Act, as the liability of the [assessee ][to ][pay]interest ceased to exist on issue of shares in favour of [APIDC, ][the]same would tantamount to actual payment within [the ][meaning ][of]Section 43B of the Act. The assessee, therefore, is [entitled ][to]benefit ofSection 43B ofthe Act. t7. For the aforesaid mentions, the substantial question of law is answered in favour of the assessee. 18. In the resulr, the appeal is allowed. The order dated 20.04.2006 passed by the Income Tax Appellate T.ribunal,Appellate T.ribunal,Hyderabad Bench-B, Hyderabad is set aside and the assessee isheld entitled to claim the benefit of deduction under Section 43Bofthe Act. There shall be no order as to costs.held entitled to claim the benefit of deduction under Section 43Bofthe Act. There shall be no order as to costs. Miscellaneous applications, if any pending, shall standclosed. There shall be no order as to costs. Sd/. K. SRINIVASA RAOJOTNT RFGTSTR^R //\ ---- /)SECTTOIV OFFICER //TRUE COPY// To 12I* ll::1_Ill I llq:l!"]" [rribunat,. Hyderabad ][Bench,8,, ][Hyderabad].2ne uommtsstoner ot lncome Tax (Appeals)_ll, Hvderabad4.5.One one lhe Qepytv CC CC to to SRt SRt _Cpmmissioner J A V KR|SHNA-Ko_UNDNYA V [pRASAD, ]91p991nb SC FOR iii, trlCOrr,rE'iniidpUCi,ct?"6 Aovoijirj [_ ]i (5i fcjpudi--Hyderabad6.Two CD Copies2I* ll::1_Ill I llq:l!"]" [rribunat,. Hyderabad ][Bench,8,, ][Hyderabad].2ne uommtsstoner ot lncome Tax (Appeals)_ll, Hvderabad4.5.One one lhe Qepytv CC CC to to SRt SRt _Cpmmissioner J A V KR|SHNA-Ko_UNDNYA V [pRASAD, ]91p991nb SC FOR iii, trlCOrr,rE'iniidpUCi,ct?"6 Aovoijirj [_ ]i (5i fcjpudi--Hyderabad6.Two CD CopiesPR/ghWW t l I HIGH COURT DATED: 23t1ZtZO24 JUDGMENTITTA.No.239 of 2008 ALLOWING THE ITTA g*d4Y+-{ffi, ,..=/-::R [f ][+.( ][l:,- ]S D{'\{'\f,0 [g ].tlfl t'?m2.; [!"'"t,-, ],. ,. ' lliIt]IiI