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TMI Blog2008 (7) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Ltd. [1998] 229 ITR 325 1 (Bom.). Respectfully following the same we reject the ground of the assessee. 5. The next issue in the appeal pertains to disallowance of expenses incurred by foreign citizens travelling in India by Rs. 11,195 under rule 6D. Following the precedents for assessment years 1992-93 and 1993-94 in ITA Nos. 3503/Mum./1997 3792/Mum./1997, this year also the assessee has been fair enough to concede the ground. As such, ground No. 2 is rejected. 6. The third issue in the appeal pertains to disallowance of expenses incurred on guest house being Rs. 17,05,666. This issue stands settled against the assessee by the judgment of the Hon ble Apex Court in the case of Britannia Industries Ltd. v. CIT [2005] 278 ITR 546 . This ground is accordingly rejected. 7. The fourth ground pertains to disallowance of Rs. 19,27,271 being expenditure incurred on employees treating the same as entertainment expenditure. We find that identical issue has been decided by the Tribunal in assessee s own case for assessment years 1992-93 and 1993-94. The Mumbai Bench "I" of the Tribunal in its order dated 22-2-2008 in ITA Nos. 3503/Mum./1997 3792/Mum./1997 for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure is neither a revenue expenditure nor is to be allowed on pro rata basis, nor to be allowed in assessment year 1994-95, the appellant claims that the expenditure be capitalized to the actual cost of fixed assets and depreciation be allowed on the same accordingly. The learned DCIT be directed to allow the depreciation on such expenditure and to reduce the total income accordingly. Further without prejudice to the above, if it is held that the said expenditure is neither a revenue expenditure nor an expenditure to be allowed on pro rata basis, nor an expenditure to be allowed in assessment year 1994-95, and is also not a capital expenditure which enhances the actual cost of fixed assets, the appellant claims that the deduction under section 35D be allowed on the said expenditure. The learned DCIT be directed to allow the claim of deduction under section 35D and to reduce the total income accordingly." 11. The brief facts of the case are that the assessee claimed a deduction of Rs. 44,44,444 being proportionate amount of premium on redemption of Non-Convertible Debentures issued during the previous year relevant to assessment year 1988-89. The contention of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1994-95 the year in which premium is paid along with redemption of first instalment of debentures. In nutshell, the assessee claimed that the entire expenditure towards premium of Rs. 4 crores be allowed in the impugned assessment year as the amount of premium is paid in this year. This contention of the assessee was not accepted by the learned CIT(A) for the following reasons : "13.2 I have carefully gone through the above referred ground of appeal. From assessment years 1988-89 to 1992-93, my ld. Predecessors have allowed deduction of Rs. 44,44,444 in the respective years. Hence out of above amount of Rs. 4 crores, Rs. 2,22,22,220 (44,44,444 5) has already been allowed to the appellant and therefore, the same cannot be allowed as expenditure during the year 1994-95. I have already held in para 12.3 above that an amount of Rs. 44,44,444 should be allowed as a deduction during the current year. The balance amount, i.e., Rs. 1,33,33,336 represents the amount of Rs. 44,44,444 not allowed by the ld. CIT (Appeals) for earlier assessment year 1993-94 and Rs. 88,88,888 (Rs.44,44,444 2) being pro rata premium pertaining to subsequent assessment years 1995-96 1996-97 canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble jurisdictional High Court in the case of Otis Elevator Co. (India) Ltd. v. CIT [1992] 195 ITR 682 (Bom.). Respectfully following the same, we allow the ground raised by the assessee. 17. The tenth ground pertains to disallowance under section 40A(9) pertaining to payments made to Indrayon School. This issue is covered in assessee s favour by the order of the Tribunal in assessee s own case for assessment years 1992-93 and 1993-94. Consistent with the earlier decisions of the Tribunal on this issue, we allow the ground taken by the assessee. 18. The eleventh ground in this appeal is with regard to disallowance under section 40A(3) amounting to Rs. 4,03,695 being cash payments in excess of Rs. 10,000. The details are as under : Name of the division Amount White Cement division 30,380 Jayashree Textiles (Flax) 76,119 Global Export 2,41,044 Midnapur Cotton Mills 1,00,152 Rajashree Cement 13,338 Total 4,61,033 The assessee s case is that cash payments have been made due to circumstances beyond its control. On the payments made to Global Expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f depreciation on the said debenture issue expenditure and to reduce the total income accordingly. Without prejudice to the above, if it is held that debenture issue expenditure of Rs. 94,46,770 is neither revenue expenditure nor capital expenditure which enhances the actual cost of fixed assets, the appellant alternatively claims that deduction under section 35D be allowed on the said debenture issue expenditure. The learned DCIT be directed to allow the claim of deduction under section 35D on debenture issue expenses and to reduce the total income accordingly." 21. The facts of the issue are that during the previous year relevant to the assessment year under consideration the assessee raised funds, by way of issue of Non-Convertible Debentures (NCDs) and Fully Convertible Debentures (FCDs). The total amount raised by the issue of such debentures are a under : Rs. In lakhs) No. of debentures Total amount received 16.5% fifteenth series secured non- 7227400 21682.20 Convertible debentures of Rs. 300 each Zero interest secured fully convertible De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of business is an allowable expenses, it does not matter whether the borrowings is taken to acquire a revenue asset or capital asset. The learned counsel vehemently contended that the principle laid down by Hon ble Supreme Court shall be applicable to this expense also and all expenses incurred for the purpose of taking borrowings shall be allowable as revenue expenses. He submitted that similar principle was accepted by the Hon ble Supreme Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52 wherein it was held that, obtaining capital by issue of share is different from obtaining loan by debenture. The loan obtained cannot be treated as an asset or advantage for the enduring benefit of the business of the assessee. The loan is a liability and has to be repaid and, it is erroneous to consider a liability as an asset or an advantage. Thus expenditure incurred on raising a loan is therefore not a capital expenditure but a revenue expenditure. 23. The learned counsel for the assessee argues that FCDs are considered as debt or loan instrument, as all debenture instruments are considered as loans or debts till the time of conversion of FCDs into shares, i.e., til ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nition of the word debenture can be found, but various forms of instruments are called debentures. A debenture is a document which either creates or acknowledges a debt. A document may be a debenture although under its terms, the debt is only to be repaid out of a part of the profits. The term debenture is usually associated with a company of some kind, and most debentures are securities given by companies, but they are often granted by clubs and occasionally by individuals. In Narendra Kumar Maheshwari v. Union of India AIR 1989 SC 2138, it has been held that a debenture has been defined to mean essentially an acknowledgement of a debt with a commitment to repay the principal with interest. In India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC), at page 61, it was held that obtaining capital by issue of shares is different from obtaining a loan by debentures. A loan obtained cannot be treated as an asset or advantage for the enduring benefit of the business of the assessee. In Director General of Investigation and Registration v. Deepak Fertilizers and Petrochemicals Corporation Ltd. [1994] 81 Comp. Cas. 342 [MRTPC] [FB], it was held that a "debenture" is simply a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. He argued that section 117 of the Companies Act ordains that after the commencement of the Companies Act, the debenture-holder will not be having any voting rights at any meeting of the company, whether generally or in respect of particular classes of business. It was thus made clear that debenture-holders are not the shareholders in the company having its shares in the management. Further, vide Companies (Amendment) Act, 2000, sections 117A and 117B were inserted making it clear that no company shall issue a prospectus or a letter or offer to the public for subscription of its debentures, unless the company has, before such issue, appointed one or more debenture trustees for such debentures and the company has, on the face of the prospectus or the letter of offer, stated that the debenture trustee or trustees have given their consent to the company to be so appointed under section 117B. Section 117A envisages that a trust deed for securing any issue of debentures shall be in such form and shall be executed within such period as may be prescribed. Even before the insertion of sections 117A and 117B, sections 118 and 119 envisaged appointment of debenture trustee or trustees. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nture applicants was only a mode of repayment of loan taken for redemption of debentures issued by the assessee-company. It, therefore, follows that once the assessee-company issued debentures, what the assessee-company received was loan, not share capital. The conversion of loan amount into shares represented only repayment or discharge of loan liability by the assessee-company in specie. The legal effect of these transactions of the assessee-company cannot be ignored. Our attention was invited to the decision of the Tribunal in the case of Voltas Ltd. v. Dy. CIT [1998] 98 Taxman 174 (Mum.) (Mag.) wherein the Tribunal held that expense incurred on issue of partly convertible debentures was a revenue expen-diture and had to be allowed as a deduction. The same cannot be treated as a capital expenditure. Further attention was invited to the unreported decision of the ITAT in the case of FGP Ltd. v. Dy. CIT [1994] 51 ITD 279 (Bom.) wherein it was held that mere fact that a part of the debentures was subsequently converted into equity shares at a premium, will not alter the character of the expenditure at the point of time, when it was actually incurred, which decision was foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred on FCD was revenue expendi-ture. The learned counsel submits that the facts and circumstances of Ganesh Benzo Plast s case ( supra ) are identical to the case of the assessee and thus prays that the claim of the assessee deserves to be allowed. 30. Alternatively it was contended that the deduction under section 35D may be allowed to the assessee on the expenditure incurred on FCD. 31. The learned departmental representative, Shri Pritam Singh, on the other hand, vehemently contradicted the arguments of the assessee and submitted that the issue as to whether, the expenditure incurred by way of interest on fully convertible debentures is to be allowed as revenue expenditure or not has been considered by the Special Bench of the Tribunal in the case of Ashima Syntex Ltd. ( supra ). The entire gamut of arguments raised by the assessee in this case were considered by the Special Bench and it was decided that raising of funds by ultimately converting debentures into equity shares without giving an option to the debenture holders to get repayment of debentures in conversion. Thus it was held that the substance of the transaction is issue of equity capital partly on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee that expenditure relating to conversion partly after 15 months can at least be held as revenue has no force as the nature of such retention is akin to share application money pending allotment of shares." Being a Special Bench decision we are of the considered opinion that this is binding on us. In the assessee s own case for the assessment year 1989-90, this decision was followed by the Tribunal. No distinguishing feature is brought out so as to justify a deviation. 32.2 Coming to the decision in the case of Ganesh Banzo Plast ( supra ) the Tribunal has considered the Special Bench decision. It noted that the Special Bench had recorded that Tribunal has to examine as to which category of cases the claim of the assessee falls. Thereafter on page 19 the Bench had decided to follow the decision in the assessee s own case for the earlier assessment year rather than by the Special Bench decision. In our considered opinion, in the case on hand, the assessee has not brought out any circumstances or fact which is different from the circumstances and facts considered by the Special Bench in the case of Ashima Syntex Ltd. ( supra ) and followed in the assessee s ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res. This ground of the revenue has to fail in view of our decision appended above against the ground raised by the assessee in its appeal. 39. The third ground pertains to deletion of addition of Rs. 12,32,176 on account of Modvat credit lying in the closing stock. This issue stands settled in favour of the assessee by the judgment of the Hon ble Apex Court in the case of CIT v. Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 275. 40. The fourth ground relates to the learned CIT(A) allowing depreciation at the rate of 100 per cent instead of 25 per cent on ESP for Kiln dust and water treatment plant. The issue stands covered in favour of the assessee by the earlier decision of the Tribunal in assessee s own case for assessment year 1993-94. Respectfully following the same we decide the issue in favour of the assessee and reject the ground taken by the revenue. 41. The fifth ground raised by the assessee pertains to deletion of disallowance of expenditure incurred on issue of non-convertible debentures. This issue also stands decided in favour of the assessee for assessment years 1988-89 and 1989-90 by the Tribunal in assessee s own case. Consistent with the earlier d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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