1970 (3) TMI 28 - HC - Income Tax

Expenditure like stamp duty registration fees lawyer s fees etc. incurred in raising debenture loans - allowability for deduction

Summary

Issues:
1. Deductibility of expenditure in connection with the issue of debentures under section 10(2)(xv) of the Indian Income-tax Act, 1922.
2. Whether the expenditure should form part of the actual cost of assets acquired with borrowed money for depreciation and development rebate under section 10(2)(vi) and (vib) respectively.

Analysis:
The judgment pertains to a reference under section 66(1) of the Indian Income-tax Act, 1922, involving a public limited company's expenditure related to the issue of debentures during the assessment year 1956-57. The company incurred Rs. 1,18,401 in connection with the debentures issued against a loan of Rs. 50,00,000 from the Industrial Finance Corporation. The company claimed this amount as a deductible expenditure under section 10(2)(xv) or as part of the actual cost of assets acquired with the borrowed money for depreciation and development rebate under section 10(2)(vi) and (vib) respectively. The Tribunal rejected both claims, leading to the reference of two questions of law.

The first question addressed whether the amount of Rs. 1,18,401 was an admissible deduction in arriving at the assessable business profits of the company. The court referred to the Supreme Court's decision in India Cements Ltd. v. Commissioner of Income-tax, emphasizing that expenditure incurred in securing a loan for business purposes, including stamp duty, registration fees, and lawyer's fees, is allowable as a deduction under section 10(2)(xv) if it is laid out wholly and exclusively for the purpose of the business. The court applied this principle and held that the expenditure in question was revenue expenditure and deductible under section 10(2)(xv).

Regarding the second question on whether the amount should form part of the actual cost of assets acquired with the borrowed money, the court did not address it as the first question was answered in the affirmative. The court rejected the contention that the expenditure was for acquiring capital assets based on the terms of the debenture trust deed, stating that the Supreme Court has held the object of the loan is irrelevant for determining deductibility under section 10(2)(xv).

In conclusion, the court answered the first question affirmatively, holding that the expenditure was deductible under section 10(2)(xv) as revenue expenditure. The second question was not addressed due to the affirmative answer to the first question. The respondent was directed to pay the assessee-company's costs.