2016 (7) TMI 1093 - HC - Income Tax

Review petition - Interest amount by way of a term debenture - whether amounts to actual payment of as contemplated by Section 43B - Held that - Though debentures are securities and are actionable claim the essential fact is that they are instruments of debt, by the company acknowledging its indebtedness to pay the amount specified. Does this amount to payment under Section 43-B. This court is of opinion that there is no question of any error in the judgment under review. The clear purport of the statute- i.e. Section 43-B (d) is that any amount payable towards interest liability would qualify for deduction.

Summary

Issues:
Review of judgment under Section 263-A of the Income Tax Act regarding deduction claimed under Section 43B for interest paid through non-convertible debentures.

Analysis:
1. Background: The assessee claimed deduction under Section 43B for interest paid to financial institutions through non-convertible debentures. The Assessing Officer rejected the claim, but the Commissioner of Income Tax and the Income Tax Appellate Tribunal allowed it. The revenue appealed under Section 263-A, leading to the review petition.

2. Contentions: The court upheld the revenue's contention that only actual payment qualifies for deduction under Section 43B. The assessee argued that issuance of debentures equated to payment, citing relevant case laws. However, the court found that Explanation 3C to Section 43B negated this argument, emphasizing the need for actual payment.

3. Review Petition: The review petition contended errors in the judgment, emphasizing the nature of debentures as securities and actionable claims. It argued that debentures should be deemed as paid once issued, relying on relevant case laws and legal definitions.

4. Court's Decision: The court rejected the review petition, stating that debentures, despite being securities, are instruments of debt and not goods. It emphasized the importance of Explanation 3C, which mandates actual payment for deduction under Section 43B, even with the nature of debentures considered.

5. Conclusion: The court found no error in its judgment and dismissed the review petition, highlighting the retrospective effect of Explanation 3C and the precedence of actual payment as per Section 43B. The court's decision stood firm, emphasizing the legal requirements for deduction under the Income Tax Act.