Itxa/272/2012 Of The Commissioner Of Income Tax -7 v. Tata Teleservices (Mah)Ltd

*1* IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 272 OF 2012 The Commissioner of Income Tax-7-Versus-M/s. Tata Teleservices (Mah)Ltd. ..Appellant ..Respondent ........... Mr. Tejveer Singh for the Appellant. Mr. Prakash Shah with Jas Sanghavi i/b. PDS Legal for the Respondent............ CORAM: S.C. DHARMADHIKARIAND B.P. COLABAWALLA, JJ. DATE :- 17[th] June, 2014 P.C.: 1]We have heard Mr. Singh, learned counsel appearing on behalf of the revenue in support of this appeal and Mr. Shah, learned counsel appearing for the respondent. 2]The assessment year in question is 1998-99. The Tribunal has allowed the assessee's appeal by the impugned order dated 11[th] February, 2011. The appeal has been allowed partly. 3]The Tribunal was approached by the respondent-assessee aggrieved by the order of the Commissioner of Income Tax-VII, Mumbai, dated 3[rd ] 1/5 *2* 8.itxa272.12 December, 2008. The Commissioner exercised his powers under section 263 of the Income Tax Act, 1961 and held that the finding of the Assessing Officer in this case, in an order is erroneous, in so far as it is prejudicial to the interest of the revenue. 4]The assessee in this case is engaged in the business of providing basic telecommunication services and internet services. The return of income was filed for the year under consideration. The assessee declared a loss. The assessment was completed under section 143(3) by an order dated 31[st] December, 2007. The Assessing Officer determined the total income after making certain additions. The Commissioner examined the records of the office of the Assessing Officer and arrived at the above conclusion. That conclusion of the Commissioner was assailed in the appeal before the Tribunal by the assessee. 5]The only question which has been projected by Mr. Singh before us and styled as substantial question of law pertains to the expenses incurred on issuance of Foreign Currency Convertible Bonds (for shot FCCBs). In the submission of Mr. Singh, the Tribunal was in complete error in law in arriving at a conclusion that the view taken by the Assessing Officer is a possible view and the Commissioner erred in passing an order on 3[rd ]December, 2008. Mr. Singh submits that the issue was not concluded inasmuch as the Assessing Officer failed to note the fundamental fact that this FCCBs were convertible. They may be convertible at the option of the FCCBs holders. That option could have been exercised within a period of one month from the date of the issue of the convertible bonds but that itself makes the said Bonds equity shares. Once the FCCBs were capable of being converted, then, the expenditure incurred in relation thereto, cannot be said to be revenue expenditure. That could have augmented the share capital of the company, and therefore, the expenditure ought to have been classified as capital expenditure. 6]On the other hand, the assesee's advocate submits that the Tribunal rightly allowed the appeal and held that the view taken by the Assessing Officer is a possible view of the matter. It is not the assessee who can exercise option according to the counsel but the option is to be exercised by the bond holder. It is only when he exercises this option and satisfies the terms and conditions that the conversion is permissible. That until such conversion takes place, the company is bound to pay the interest to the bond holder. This all the more, supports the conclusion of the Assessing Officer and he committed no error in law. Therefore, the Commissioner's order was rightly set aside. The appeal does not give rise to any substantial question of law and it deserves to be dismissed. 6]On the other hand, the assesee's advocate submits that the Tribunal rightly allowed the appeal and held that the view taken by the Assessing Officer is a possible view of the matter. It is not the assessee who can exercise option according to the counsel but the option is to be exercised by the bond holder. It is only when he exercises this option and satisfies the terms and conditions that the conversion is permissible. That until such conversion takes place, the company is bound to pay the interest to the bond holder. This all the more, supports the conclusion of the Assessing Officer and he committed no error in law. Therefore, the Commissioner's order was rightly set aside. The appeal does not give rise to any substantial question of law and it deserves to be dismissed. 7]We have perused the order of the Tribunal. In para-4 and 5 of the order of the Tribunal, the rival contentions have been noted and the Tribunal eventually held that the expenditure incurred by the assessee on issue of these bonds was claimed to be deductible being revenue in nature and that was allowed by the Assessing Officer after due verification/examination. It is not as if the Assessing Officer failed to take note of all the features of the bonds and their conversion. He addressed a questionnaire and called for the replies from the assessee. He considered each one of the relevant aspects and has observed in the order that in the light of the applicable legal principles, the conversion of FCCBs into equity shares was permitted as per the terms and conditions of the issue only at the option of the FCCBs holders. That option could have been exercised at any time after a period of one month from the date of issue. As per the terms and conditions of the issue, the FCCBs which remained to be converted into equity shares were redeemable at the premium of 19.38% at the end of 5 years from the date of issue. Thus, conclusion reached by the Assessing Officer was that the conversion is not automatic. In such circumstances, the Commissioner of Income Tax could not have concluded on same material that the FCCBs, in real sense, were equity shares right from the beginning and that the conversion of bonds was only *5* 8.itxa272.12 a routine technical compliance as per the Regulations and guidelines. The Tribunal found that the material does not indicate that conversion is automatic and that unless the option is exercised conversion or the consideration thereof was not permissible. In these circumstances, a possible view taken by the Assessing Officer should not have been termed as prejudicial to the interest of the revenue. In the given facts and circumstances, the Assessing Officer had passed an order which cannot be termed as erroneous leave alone being prejudicial to the interest of the revenue. The Commissioner was, therefore, not justified in exercising his powers under section 263 of the Income Tax Act. He was further not justified in exercising such powers to interfere with an order which was based on the view taken by the Assessing Officer. That view was found to be possible in the given facts and circumstances. 8]As a result of the above discussion, we find that the only question projected before us is not a substantial question of law. The appeal does not raise the same at all. It is, therefore, dismissed. No costs. (B.P.COLABAWALLA, J.) (S.C. DHARMADHIKARI, J.) wadhwa 5/5