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TMI Blog2006 (5) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment Corporation Ltd. v. CIT [1997] 225 ITR 802, but before we refer to the said decision in some detail, we need to state a few facts relevant for the disposal of these appeals. The assessee-company is engaged in the manufacture of liquors, snack foods, bottles and jars, etc. It appears to have issued debentures with a provision that the same could be redeemed at a premium of 5 per cent. after a period of 7 years from the date of their issue. It had, ever since the issue of debentures, followed the practice of debiting the proportionate amount of premium payable on such debentures to the profit and loss account. In the assessment orders passed for the years relevant to these appeals, the Assessing Officer had disallowed the deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e High Court on the ground that the proportionate amount could not be considered to be an expenditure within the meaning of section 37 of the Income-tax Act, 1961. The question that fell for consideration before the Supreme Court, therefore, was whether discount on bonds and debentures was allowable as an expenditure and whether the liability spread over a number of years could be treated as an expenditure. Answering the first part of the question in the affirmative, the court held that a liability is incurred by the company issuing the debentures, the moment the debentures are issued and if the amount raised through the issue of debentures is used by the company for the purpose of its business, the liability would be an expenditure. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adras Industrial Investment Corporation Ltd. v. CIT [1997] 225 ITR 802. Repelling the contention that the liability cannot be spread over the number of years for which the debentures were issued, their Lordships observed that the facts may justify the spreading of the liability over the ensuing years. Allowance of the entire expenditure in one year, observed their Lordships, might give a very distorted picture of the profits of a particular year. Their Lordships approved the view taken by the Calcutta High Court in Hindustan Aluminium Corporation Ltd. v. CIT [1983] 144 ITR 474, and observed: "The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit over a number of years. There is thus a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of debentures. There is, in the light of the above authoritative pronouncement, no room for any contrary view. The fact that the debentures could not have been redeemed on or before the date of their maturity does not, in our opinion, make any material difference in so far as the application of the principle stated by the Supreme Court to the facts of the present case is concerned. What is important is that the liability to pay premium arises in the year in which the debentures were issued and could be proportionately spread over the period prescribed for the matu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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