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TMI Blog1998 (8) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... 23 months ie. from 1-5-1987 to 31-3-1989. The Assessing Officer found that the assessee had claimed deduction of interest of Rs. 2,89,67,325 being interest accrued and due and payable to the financial institutions and L.I.C. in the year of account. During the course of assessment proceedings, it was stated by the assessee that the interest payable to financial institutions was, in fact, agreed to be converted into loan by the financial institutions, which is evident from the letter dated 25-10-1989 of ICICI. It was also stated that in view of the said correspondence, the interest outstanding as on 31-3-1989 was paid, though constructively. 2.1 It was argued before the Assessing Officer that the assessee had paid interest outstanding and received back the same amount as additional loan from financial institutions. It was contended that since the constructive payment of the interest outstanding was made on 25-10-1989 ie., before the due date of filing the return, no disallowance under section 43B can be made. It was further stated that interest outstanding as on 31-3-1989 in respect of loan from L.I.C. has also been agreed in principle to be converted into loan. The contentions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B allows such interest only on actual payment. Accordingly, he made the impugned disallowance. 3. On appeal, the fortune of the assessee did not fluctuate. According to the CIT(A), the correspondence about re-scheduling of loan repayment dates back to 30-7-1988 but the formality of re-scheduling of the interest was completed on 16-7-1990 i.e. much after the due date of filing the return ie. 31-12-1989. It cannot therefore, be said that there was indirect or constructive payment of interest before 31-12-1989. Further the Act does not recognise implied or constructive payment under section 43B and wherever such benefits are to be given about the payment, the same has been notified by the Board by issue of suitable circulars and instructions as with regard to the sales-tax deferral scheme. The decision of Delhi Bench of the Tribunal in Nuchem Plastic Ltd. v. Dy. CIT [1992] 44 TTJ (Delhi) 261 and decision of Bombay Tribunal in Sunil Silk Mills Ltd. v. Dy. CIT [1993] 46 ITD 4 relied upon by the assessee do not apply to the facts of the assessee's case. He, accordingly, upheld the disallowance. This has brought the assessee before us. 4. Shri Ajay Vohra, the Id. counsel for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e outstanding interest liability had been converted into loan. He strongly refuted the arguments of Shri Vohra that the outstanding interest liability as on 31-3-1989 was converted into loan on 25-10-1989. Since the conversion of interest liability into loan account had taken place on 16-7-1990, which is much after 31-12-1989 the due date of filing the return, deduction on the basis of conversion of interest liability into loan account cannot be allowed under section 43B. Shri Gupta also submitted that the agreement between the assessee and the financial institutions did not contain any deeming provision as in the case of sales-tax deferral scheme so as to construe the conversion of outstanding interest liability as onstructive payment of liability as claimed by the assessee. Taking us through the decisions cited by Shri Vohra, it was pointed out by Shri Gupta that none of them were identical on facts with the case of the assessee. He, therefore, submitted that no assistance can be derived by the assessee from them. 6. We have considered the arguments advanced by the Id. representatives of the parties. We have thoroughly scrutinised the orders of the authorities below as also the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed as deduction in computing the income of the previous year in which it is actually paid. Under the first proviso any sum payable as interest, liability for which was incurred in the previous year will be allowed as deduction if it is actually paid by the due date of furnishing the return under section 139(1) of the Act in respect of the assessment year to which the aforesaid previous year relates. 8. From the above, it is crystal clear that deduction of interest under clause (d) read with first proviso of section 43B is allowable if it is actually paid in the relevant previous year itself or if it is actually paid by the due date of furnishing the return under section 139(1) relatable to the said previous year. 9. The intention of the Legislature in inserting the provision of clause (d) of section 43B is explained in circular No. 528 dated 16-12-1988 as under: "A marked tendency has been noticed that on one pretext or the other some taxpayers postpone the payment of interest on loans provided by the various financial institutions and thus the money recoverable by these institutions is used for business purposes even though it has been claimed as a deduction from the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar about the deductibility of interest liability converted into loans has been issued by the Board so far. 14. From the facts of the assessee's case, it would be abundantly clear that neither the outstanding liability as on 31-3-1989 has actually been discharged within the previous year itself nor actual payment thereof took place before 31-12-1989, the due date for filing the return for the related assessment year 1989-90. What has been done by the assessee is this. By application dated 30-7-1988, the assessee made, inter alia, the following proposal to ICICI (the lead institution) for financial assistance : (i) Repayment of loans should start from Nov./Dec., 1991 (and not from Nov./Dec., 89). (ii) Due interest upto Nov./Dec., 1991 be funded and the payment of interest should start from Nov./Dec., 1991. (iii) Concessional rate of interest should be applicable for the entire term loan; and (iv) The foreign exchange loan of Rs. 282 lacs be converted into rupee loan. 15. By letter of intent dated 25-10-1989, the ICICI conveyed their acceptance in principle to the assessee's proposal to provide rupee loan not exceeding Rs. 282 lacs under the probable finance participation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... execution of the loan agreement ie. 16-7-1990. An agreement between the parties becomes effective on the date of execution of the deed of agreement and if the parties agree that the agreement be effective from retrospective date, it is so stipulated in the agreement itself. There is also no merit in the assessee's argument that on 25-10-1989, the assessee had paid outstanding interest constructively. As stated earlier, constructive payment of interest is not within the ambit of clause (d) of section 43B. Even the conversion of outstanding interest upto 31-3-1989 into rupee term loan had taken place on 16-7-1990, the date on which the loan agreement between the parties was executed. As stated earlier, the acceptance by the company of the offer of impugned financial assistance was also conveyed any day after 24-2-1990. Thus, the significant events, namely, acceptance of the offer of the financial assistance and execution of the loan agreement had taken place after the due date of filing of return under section 139(1) ie. 31-12-1989 for AY 1989-90. 20. From the facts of the assessee's case narrated already and the legal position set out earlier, we hold that the revenue authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X
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