2006 (2) TMI 151 - HC - Income Tax

Deduction u/s 37 - Premium payable on actual redemption of debentures in future years is to be spread over and part of it is allowable as a deduction in this assessment year? - HELD THAT - Applying the ratio laid down in the case of Madras Industrial Investment Corporation Ltd. v. CIT 1997 (4) TMI 5 - SUPREME COURT and in the context of the ratio laid down in the case of National Engineering Industries Ltd. v. CIT 1998 (9) TMI 65 - CALCUTTA HIGH COURT whereunder it is held that there is no distinction between discount and premium the discount on debentures as well as the premium payable on actual redemption on debentures in future years and the expenditure incurred for issue of such debentures are all held to be revenue expenditure entitled to be spread over the period of debentures and consequently allowable as deduction in a particular assessment year. Thus we do not see any question of law much less a substantial question of law arises for consideration. Hence finding no reason to interfere with the orders of the Tribunal both the appeals stand dismissed.

Summary

Issues involved:
1. Deduction of premium payable on actual redemption of debentures.
2. Deduction of expenditure incurred for the issue of debentures and spreading it over the period.

Analysis:

Issue 1: Deduction of Premium Payable on Actual Redemption of Debentures:
The case involved appeals against the disallowance of deductions claimed by the assessee for the assessment years 1993-94 and 1994-95. The Assessing Officer disallowed the deductions, which were confirmed by the Commissioner of Income-tax (Appeals). However, the Income-tax Appellate Tribunal allowed the appeals based on the assessee's own case and the Supreme Court decision in Madras Industrial Investment Corporation Ltd. v. CIT. The key question was whether the premium payable on actual redemption of debentures should be spread over and part of it allowed as a deduction in the assessment year. The Tribunal's decision was supported by the case law, including the Tube Investments of (India) Ltd. and National Engineering Industries Ltd. judgments, which held that the premium payable on redemption of debentures should be spread over the years between the issue and redemption dates.

Issue 2: Deduction of Expenditure Incurred for the Issue of Debentures:
The second issue was related to the deduction of the expenditure incurred for the issue of debentures and whether it should be spread over the period of debentures. The court referred to the principles of commercial trading and business necessity to determine whether such expenditure should be treated as revenue or capital expenditure. The court emphasized that if the expenditure is integral to the profit-making process and for the business's conduct, it should be treated as revenue expenditure. The court also discussed the concept of spreading over revenue expenditure and highlighted that in cases like issuing debentures, where the benefit extends over multiple years, the liability should be spread over the debentures' period.

In conclusion, the High Court dismissed the appeals by the Revenue, stating that no substantial question of law arose for consideration. The court upheld the Tribunal's decision to allow the deductions for premium payable on actual redemption of debentures and the expenditure incurred for the issue of debentures, following the established legal principles and case law.