2017 (1) TMI 1211 - HC - Income Tax

Expenditure of interest payment made towards interest on loans borrowed to finance the cost of its expansion scheme - revenue expenditure OR capital expenditure - Held that - As decided in Secure Meters Ltd.case 2008 (11) TMI 66 - HIGH COURT RAJASTHAN admittedly the debentures when issued is a loan, and therefore, whether it is convertible, or non-convertible, does not militate against the nature of the debenture, being loan, and therefore, the expenditure incurred would be admissible as revenue expenditure. - Decided in favour of the assessee

Summary

Issues:
1. Challenge to Tribunal's judgment dismissing revenue appeals.
2. Substantial questions of law framed by the Court.
3. Application of precedent in Commissioner of Income Tax vs. M/s Modern Denim Ltd.
4. Contention on Tribunal's view being contrary to Supreme Court decision.
5. Reliance on various decisions by respondent's counsel.
6. Distinction between convertible and non-convertible debentures.
7. Decision based on binding precedent.
8. Final judgment and dismissal of appeals.

Analysis:

1. The appellant challenged the Tribunal's decision dismissing revenue appeals. The High Court admitted the appeals and framed substantial questions of law regarding the treatment of interest and financial charges as revenue expenditures, and the allowance of interest payments on loans as revenue expenditure for financing expansion schemes.

2. The substantial questions of law framed by the Court pertained to the justification of the ITAT and CIT(A) in treating certain expenditures as revenue deductions, specifically related to interest and financial charges, and interest payments on loans for expansion schemes.

3. The respondent's counsel referred to a previous decision in Commissioner of Income Tax vs. M/s Modern Denim Ltd., where the issue was decided against the Department. The Court upheld the decision in the cited case, which involved the treatment of convertible debentures and interest expenses as revenue expenditures.

4. The appellant contended that the Tribunal's view was contrary to a Supreme Court decision. However, the respondent's counsel relied on various decisions to support their argument, including cases involving different companies and scenarios related to revenue and capital expenditures.

5. The respondent's counsel highlighted the distinction between convertible and non-convertible debentures, emphasizing that the nature of the debenture as a loan determines the treatment of related expenditures as revenue or capital. The Court's decision was based on this distinction and the binding precedent set by previous judgments.

6. The Court's decision was influenced by the precedent set in a specific case involving convertible debentures, where the expenditure was considered admissible as revenue expenditure. The dismissal of the appeals was in line with the binding nature of the precedent and the interpretation of relevant legal principles.

7. Ultimately, the Court ruled in favor of the assessee and against the department based on the application of the precedent and the interpretation of the law regarding revenue and capital expenditures. The appeals were dismissed, and the judgment was to be included in each file for reference.