2001 (8) TMI 102 - HC - Income Tax

Summary

Issues Involved:
The judgment involves the issue of whether the expenses on the issue of debentures can be considered as revenue expenditure or capital expenditure, specifically in relation to the repayment terms and the applicability of section 35D of the Income-tax Act, 1961.

Details of the Judgment:

Issue 1: Deduction of Expenses on Account of Issue of Debentures
The Commissioner of Income-tax challenged the allowance of Rs.67,18,758 as revenue expenditure by the Assessing Officer for the assessment year 1982-83. The Commissioner directed the withdrawal of this amount, citing the insertion of section 35D and the decision in India Cements Ltd. v. CIT [1966] 60 ITR 52. However, the Tribunal upheld the allowance of expenses on the issue of debentures as revenue expenses, stating that the decision in India Cements Ltd. case still holds. The Tribunal found that the expenses for short-term loans can be considered as revenue expenses, even after the insertion of section 35D.

Issue 2: Classification of Expenditure
The Commissioner contended that the repayment terms of the debentures, specifically the 20% repayment through issue of equity shares within three years, do not qualify as repayment within eleven years. Referring to the decision in India Cements Ltd. case, it was argued that such expenses cannot be allowed as revenue expenditure. However, the Tribunal disagreed, emphasizing that the loan was to be repaid within eleven years, and the 20% repayment through shares did not change the nature of the repayment. The Tribunal found no reason to interfere with its order based on this fact.

Conclusion:
The High Court, after considering the arguments and submissions, ruled in favor of the assessee and against the Revenue. The Court affirmed the Tribunal's decision to allow the expenses on the issue of debentures as revenue expenditure, highlighting the repayment terms and the continued relevance of the India Cements Ltd. case. The Court found no grounds to overturn the Tribunal's decision in this matter.