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2022 (12) TMI 345 - AT - Income TaxDisallowance of premium payable on redemption of debentures - addition on account of claim of premium on non-convertible debentures on proportionate basis - assessee paid the entire amount due on redemption of such debentures along with premium in the relevant Financial Year and claimed a deduction for the premium payable made in the year of actual redemption of debentures - AO treated the same as future expenditure provisional in nature and not allowable 2012 (4) TMI 128 - BOMBAY HIGH COURT HELD That - the issue under consideration has already been decided by the co-ordinate bench in Assessee s own case 2021 (9) TMI 743 - ITAT DELHI - the moment the debentures were issued, the liability had arisen against the assessee which would constitute on expenditure allowable under section 37 of the Act. - What is important is that the liability to pay premium arises in the year in which the debentures were issued and could be proportionately spread over the period prescribed for maturity of such debentures. It matters little whether the debentures were redeemable at will or only upon maturity. Decided against the revenue.
Issues Involved:
1. Allowability of Premium on Redemption of Debentures on Proportionate Basis 2. Applicability of Case Laws on Premium on Redemption of Debentures Detailed Analysis: 1. Allowability of Premium on Redemption of Debentures on Proportionate Basis The primary issue in this case is whether the premium payable on the redemption of debentures should be allowed as a deduction on a proportionate basis over the life of the debentures or only at the time of actual redemption. The assessee issued non-convertible debentures redeemable at a premium and claimed a proportionate amount of the premium as an expense each year. The Assessing Officer (AO) disallowed this claim, arguing that the premium should only be deductible at the time of actual redemption, treating it as future expenditure provisional in nature. The AO relied on the Bombay High Court's decision in CIT vs. Raymond Ltd., where it was held that the premium paid upon redemption of debentures is to be classified as revenue expenditure. However, the AO interpreted this to mean that the premium should be claimed only in the year of actual redemption. The Commissioner of Income-tax (Appeals) disagreed with the AO, relying on the Delhi High Court's decision in CIT vs. Jagjeet Industries, which allowed the provision for premium on debentures on a pro-rata basis as accrued during the year. The Commissioner found that the jurisdictional High Court's decision in Jagjeet Industries was more applicable to the present case, thereby allowing the assessee's claim. 2. Applicability of Case Laws on Premium on Redemption of Debentures The assessee cited the Supreme Court's decision in Madras Industrial Investment Corpn. Ltd. vs. CIT and the Bombay High Court's decision in CIT vs. Indian Rayon Industries Ltd. to justify the allowability of the premium on a proportionate basis. The AO distinguished these cases, stating that they involved debentures issued at a discount, not at a premium. The Commissioner, however, found that the principle laid down in Madras Industrial Investment Corpn. Ltd. (which allowed spreading the discount over the life of the debentures) could be analogously applied to the premium on redemption. The Commissioner also noted that the issue of pro-rata basis was not directly addressed in the Raymond Ltd. case. The Income Tax Appellate Tribunal (ITAT) upheld the Commissioner's decision, noting that the issue had already been decided in the assessee's favor in previous years by the Coordinate Bench. The ITAT referenced the Delhi High Court's decision in Jagatjit Industries Ltd., which allowed the premium on redemption of debentures to be spread over the period prescribed for maturity. The ITAT concluded that the liability to pay the premium arises in the year the debentures are issued and can be proportionately spread over the life of the debentures. This approach prevents a distorted picture of profits for any particular year, aligning with the Supreme Court's reasoning in Madras Industrial Investment Corpn. Ltd. Conclusion: The ITAT dismissed the Revenue Department's appeal, affirming that the premium on redemption of debentures could be claimed on a proportionate basis over the life of the debentures. The decision was based on the precedent set by the Delhi High Court in Jagjeet Industries and the Supreme Court in Madras Industrial Investment Corpn. Ltd., ensuring a consistent and logical application of the law. The ITAT found no reason to interfere with the Commissioner's well-reasoned and logical order.
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