2019 (4) TMI 370 - HC - Income Tax

Allowability of redemption premium on debentures - Year of maturity or spared over of life of debenture - Whether discount of debenture is equivalent to premium on debenture - HELD THAT - Liability already incurred in the case of debentures issued at a discount for making necessary funds available for utilization during the entire period covered by the debentures has been highlighted in the above verdict as well to give exactly similar application for the issuance of debentures as well. It is not a judgment to support the case projected by the assessee and to sustain the relief granted by the Tribunal. As decided in MADRAS INDUSTRIAL INVESTMENT CORPORATION LIMITED VERSUS CIT 1997 (4) TMI 5 - SUPREME COURT liability incurred by the assessee to discharge the liability covered by the debentures at premium is in the year of issuance and this naturally has to be spread over the period covered by debentures. The assessee is not correct in saying that it is a liability which would happen only on maturity of debentures. The liability is certain and is already undertaken; quantum of which is also certain and known. By virtue of this the extent of loss suffered has to be applied in respect of each year covered by the debentures to an appropriate extent. We are of the view that the Tribunal went wrong in passing Annexure C order upsetting Annexures A and B orders passed by the Assessing Officer and the CIT Appeals . Delayed payment of employees and employer s contribution to PF and ESIC - due date - HELD THAT - The gist of the finding and declaration of the law is to the effect that the law laid down by the Supreme Court granting the benefit of reduction could be claimed only in respect of Employer s contribution and not applicable in the case of Employee s contribution. This vital distinction has been carved out by the Division Bench of this Court in 2015 (9) TMI 560 - KERALA HIGH COURT . We are in full agreement with the view expressed by the Division Bench and we answer the substantial question of law to the said extent in favour of the Revenue and against the Assessee holding that the Employees Contribution requires to be disallowed. Allowance of 80IA deduction from gross total income - HELD THAT - As per Annexure C order caused the matter to be reconsidered by the Assessing Officer by ordering remand. It is pointed out that after the remand the Assessing Officer virtually reiterated the stand taken earlier and it was answered against the assessee. There is no case for the assessee that the matter has been taken up any further and hence it has attained finality. As it stands so there is no substantial question of law in relation to the said issue.

Issues Involved:
1. Deletion of disallowance of expenditure relating to prior years for non-convertible debentures and redemption premium.
2. Deletion of disallowance under section 36(1)(va) for delayed payment of employees’ and employer’s contribution to PF and ESIC.
3. Allowing 80IA deduction from gross total income.

Detailed Analysis:

1. Deletion of Disallowance of Expenditure Relating to Prior Years for Non-Convertible Debentures and Redemption Premium:

The Tribunal deleted the disallowance of ?1,07,99,770/- made towards expenditure relating to prior years in respect of the issue of non-convertible debentures and redemption premium. The Assessing Officer had relied on the Supreme Court verdict in Madras Industrial Investment Corporation Vs. Commissioner of Income Tax [(1997) 225 ITR 802], which held that the premium payable on redemption of debentures, treated as revenue expenditure, had to be spread over the period of debentures for claiming deduction. This view was upheld by the Commissioner of Income Tax (Appeals).

The Tribunal, however, allowed the entire claim for the relevant year, which was contested by the Revenue, arguing that the expenditure should be spread over the period of the debentures. The Tribunal’s decision was based on the distinction between debentures issued at a discount and those issued at a premium. The Tribunal’s interpretation was that the actual loss/expenditure was incurred only at the time of satisfying the amount covered by the debentures, which was in the relevant year.

However, the High Court found that the Tribunal misapplied the Supreme Court’s ruling. The liability incurred by issuing debentures at a premium should also be spread over the period covered by the debentures, similar to the discount on debentures. The High Court concluded that the Tribunal erred in its judgment and answered the first question of law in favor of the Revenue.

2. Deletion of Disallowance under Section 36(1)(va) for Delayed Payment of Employees’ and Employer’s Contribution to PF and ESIC:

The Tribunal allowed the deduction for the delayed payment of employees’ and employer’s contribution to PF and ESIC, provided the payments were made before the filing of the return. This decision was based on the Supreme Court judgment in Commissioner of Income Tax Vs. Alom Extrusions Ltd. [(2009) 319 ITR 306], which allowed such deductions as business expenditure.

The Revenue contested this, citing a Division Bench decision of the Kerala High Court in Commissioner of Income Tax Vs. Merchem Ltd. [(2015) 378 ITR 443], which clarified that the benefit of deduction under Section 43B could only be claimed for the employer’s contribution and not for the employee’s contribution. The High Court agreed with this distinction and held that the employee’s contribution amounting to ?51,668/- should be disallowed. Thus, the second question of law was answered in favor of the Revenue and against the Assessee.

3. Allowing 80IA Deduction from Gross Total Income:

The Tribunal had remanded the matter regarding the 80IA deduction to the Assessing Officer for reconsideration. The Assessing Officer, upon reconsideration, reiterated the stand against the assessee, and there was no further appeal from the assessee, making the issue final.

The High Court noted that since the matter had attained finality without further appeal, there was no substantial question of law to be addressed in this regard.

Conclusion:

The High Court allowed the appeal to the extent mentioned above, answering the substantial questions of law in favor of the Revenue. The Assessing Officer was directed to take further steps to conclude the proceedings in light of the legal declarations made.

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