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TMI Blog2012 (9) TMI 485X X X X Extracts X X X X X X X X Extracts X X X X ..... ility can be discharged in a number of ways, it does emphasize the fundamental principle that unless 'actual payment' is made, the restriction placed in section 43B will hold good and deduction cannot be allowed. In view of these discussions, as also bearing in mind entirety of the case, the grievance of the Assessing Officer is upheld and restore the disallowance of ₹ 68,18,318/- - against assessee. - IT Appeal NO 1069 (KOL.) OF 2010 - - - Dated:- 14-9-2012 - Pramod Kumar And George Mathan , JJ. ORDER Pramod Kumar, Accountant Member By way of this appeal, the Assessing Officer has called into question correctness of Commissioner of Income Tax (Appeals)'s order dated 9th February, 2010, in the matter of assessment u/s. 143(3) of the Income Tax Act, 1961 for the assessment year 2005-06, on the following grounds :- (1) Ld . CIT(A) erred on law and facts by deleting addition of ₹ 68,18,318/- u/s. 43B of the I.T. Act. (2) Ld. CIT(A) erred on law and facts by stating that coversion of interest payable in equity shares can be treated as actual payment u/s. 43B. 2. The issue in appeal lies in a narrow compass of material fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that is in terms of the equity shares of the company which have been accepted by the lending bank. It can also be seen that to the extent of interest payable converted into equity the lending bank has reduced the interest receivable from the assessee. From all this discussion it can be said that conversion of interest payable into equity shares can be treated as actual payment and it can qualify for deduction u/s.43B. It may be noted that if the deduction for interest payment by conversion into equity shares is not allowed to the assessee-company at this moment it will not be allowable at any other time which will be injustice. Hence I am of the opinion that the assessee can be allowed deduction for interest on term loan amounting to ₹ 68,18,318/- and disallowance by the A.O. in this regard is deleted . 3. Aggrieved by the relief so granted by the CIT(Appeals), the Assessing Officer is in appeal before us. 4. Learned counsel's basic contention is that conversion of interest payable into equity is a mode of payment, and that, in the light of Hon'ble Supreme Court's judgment in the case of Raja Mohan Raja Bahadur v. CIT (66 ITR 378), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d allowed in terms of section 43B(d) since the amount was not paid by the said company. In view, of the scheme of amalgamation Flowmore Polyesters Ltd. has merged into the assessee company. Therefore, if the assessee company discharges such liability of interest, it will amount to payment thereof and hence in terms of section 43B will be allowed in computing the income of that previous year in which such sum is actually paid. It is stated that the liability for payment of interest has been discharged by way of issuance of shares. As per Explanation 3C to section 43B, if any part of interest liability is converted into a loan or a borrowing, it will not amount to actual payment thereof. Explanation 3C to section 43B has been inserted with retrospective effect from 1.4.1989 and hence is applicable to the year in appeal also. Therefore, we primarily agree with the assessee if the amount is paid by the assessee, the same will be an allowable deduction. However, in the present case it is seen that the liability is discharged by way of issuance of shares and not actual payment by way of legal tender. What is allowable under section 43B is in respect of deduction otherwise allowable under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. CIT , 242 ITR 659, was considering the claim of assessee towards expenditure on technical know-how. In the said case the assessee was a joint venture between an American company and an Indian company. The authorized capital of the assessee company was ₹ 100 lacs. Each of the promoters agreed to subscribe ₹ 4,70,000/- out of which each would have to pay initially a sum of ₹ 2,80,000/- towards its contribution. The share of American promoter was contributed by way of technical know-how valued at a sum of ₹ 2,35,000/- and in lieu of which the assessee allotted equity shares. The same was considered as capital expenditure. The Hon'ble Supreme Court held - That what in effect was done by the appellant in allotting equity shares of ₹ 2,80,000 to Eimco, was to reimburse the contribution by Eimco by way of know-how, which could never be treated as expenditure, much less an expenditure laid out wholly and exclusively for purposes of the business of the appellant. It was not a case where after the incorporation, the appellant-company in the course of carrying on its business, spent the said amount for acquiring, any asset. The High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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