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TMI Blog2015 (1) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... FOR THE RESPONDENT : MR NITIN K MEHTA, ADVOCATE JUDGEMENT Per: K S Jhaveri: 1. This is an appeal by the appellant assessee, challenging the order of the learned ITAT, Ahmedabad Bench 'C', Ahmedabad ('the Tribunal, for short), Dated : 29.12.2006, rendered in ITA No. 856/Ahd/1999 for the A.Y.1994-95, whereby, the Tribunal partly allowed the appeals filed by the assessee. 2. The brief facts of the case are that the assessee filed its return of income for the A.Y.- 1994-95 on 30.11.1994, declaring his total income at ₹ 7,36,21,130/-. However, the respondent- Revenue assessed the income of the assessee at ₹ 21,18,68,970/- vide its order dated 20.03.1997. The assessee challenged the same before the learned CIT(A), which, partly allowed the same. It, however, appears that as the assessee was not satisfied with the same, it carried the matter before the Tribunal by filing two separate appeals, wherein, the Tribunal passed the impugned order. Hence, the present appeal. 3. At the time of admitting this matter, following question of law was framed; Whether, in the facts and in the circumstances of the case, the Income Tax Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue of convertible debentures is liable to be allowed as a revenue expenditure. (vi) The Delhi High Court in COMMISSIONER OF INCOME-TAX VS. ITC HOTELS LTD. (Supra) held that in order to fall within second exception provided in section 9(1)(vii)(b), source of income, and not source of receipt, should be situated outside India. 6. Mr. Soparkar, therefore, submitted that there is unanimity in the views expressed by the different High Courts on the aforesaid aspect, except, the view of this High Court, which takes contrary view to that of the aforesaid High Court s decisions. He, therefore, requested that this matter be referred to the Larger Bench. 7. Mr. Soparkar, in the alternative, prayed that if the Court is inclined to follow the judgment of this Court, then, he may be given the certificate of fitness so as to enable him to carry the matter before the Hon'ble Apex Court. 8. As against this, Mr. Mehta, learned Advocate for the respondent-revenue, submitted that in Tax Appeal Nos. 481 482 of 1999 in the case of INCOME TAX OFFICER VS. VXL LTD. , the Division Bench of this Court (Coram : Hon'ble the Chief Justice K.S. Radhakrishnan, as His Lordship then w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knowledges a debt. Debentures, wholly secured or unsecured are also used as convertible debentures with the option of being subsequently converted into shares. Share is a right to a special amount of the Share Capital of a company. Capital can be raised by converting debentures into equity shares. Expenditure incurred by the assessee on conversion of convertible debentures into equity shares would have to be treated as capital expenditure. Normally, in a company there are two kinds of share capital; preferential share capital and equity share capital. Generally, all share capital not falling within the description of preference capital is equity capital. Equity share capital is that part of share capital which confers a right either to the whole or part of any residue of any profits or to the whole or part of any residue of any assets remaining for distribution after satisfying the claims of any other shareholders whose right to participate therein is limited. Equity shareholders are 7. We heard learned Senior Counsel appearing for either side at length. Facts would clearly indicate that assessee company had issued convertible debentures of ₹ 125/each of which ₹ 45/each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd. Vs. CIT, Madras (supra), held that the loan obtained is not an asset or advantage of an enduring nature, but obtaining capital by issuance of shares is different from obtaining loan by debentures. Above referred judgment was followed by the Apex Court in Brooke Bond India Ltd. Vs. CIT (supra) and took the view that expenditure incurred by the company in connection with issue of shares with a view to increase its share capital, is directly related to the expansion of the capital base of the company, and is capital expenditure, even though it may incidentally help in the business of the company and in the profit making. 9. In view of the above position, decisions cited by the learned counsel for the assessee have no application. Facts of the case clearly indicate that portion of the convertible debenture was converted into equity shares and assessee company had got enduring benefits and therefore, the expenditure incurred by the assessee on conversion of convertible debentures into equity shares has to be treated as capital expenditure. It may be noted that the Assessing Authority disallowed expenditure only to the extent pertaining to the convertible portio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority disallowed expenditure only to the extent pertaining to the convertible portion of the expenditure which formed part of the capital. As such disallowance made by the Income Tax Officer, which was confirmed by the Commissioner (Appeals) has to be sustained. The question of law raised by the Revenue, though not happily framed, is accordingly answered in the negative in favour of the Revenue and against the assessee. Consequently, appeals are allowed and the order of the Tribunal is set aside. 11. Having gone through the aforesaid judgment of the Division Bench of this Court, we do not find that any other view of the matter can be taken than the one taken by the Division Bench of this Court in its decision in Tax Appeal Nos. 481 482 of 1999, Dated : 02.07.2009, and therefore, we are of the opinion that the matter does not require to be referred to the Larger Bench and rather same deserves dismissal. However, while doing so we do agree with the submission of Mr. Soparkar that the assessee be given an opportunity to carry the matter before the Apex Court. 12. In the result, present appeal stands DISMISSED. However, in view of the fact that there are different views expre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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