9911796707
TMI Blog2020 (6) TMI 505X X X X Extracts X X X X X X X X Extracts X X X X ..... te of 5.2% p.a. On the above CCDs, the assessee paid interest of Rs. 2,56,17,280. The said sum was claimed as a deduction u/s. 36(1)(iii) of the Act viz., amount of interest paid in respect of capital borrowed for the purpose of business or profession. According to the AO, since the CCDs are fully convertible to equity shares, any expenditure relating thereto would be in the nature of capital expenditure and accordingly he disallowed the claim of assessee for deduction u/s. 36(1)(iii) of the Act. The AO in coming to the above conclusion placed reliance on the decision of the Special Bench (SB) Income Tax Appellate Tribunal (ITAT) in the case of Ashima Syntex Ltd. v. ACIT [2006] 100 ITD 247 (Ahd)(SB). In the aforesaid case decided by the Special Bench [SB], the assessee issued CCDs which were to be fully converted into equity shares after a certain period. The assessee claimed deduction of expenditure incurred in issuing wholly convertible debentures and the question before the SB was, whether it was allowable u/s. 37(1) as revenue expenditure. The SB held that the expenditure was not revenue expenditure. 4. Aggrieved by the order of AO, assessee preferred appeal before the CIT(Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable for the assessment year which was under consideration before the Tribunal. The Tribunal firstly held in the case of CAE Flight Training (I) Pvt. Ltd. (supra) that Thin Capitalisation principle was not applicable till such time those principles were recognised by way of statutory provisions. Thereafter, the Tribunal examined whether the question, interest paid on CCDs should be allowed as a deduction. The Tribunal distinguished the decision of the Special Bench ITAT in the case of Ashima Syntex Ltd. (supra) and held as follows:- "23. As per above paras of this tribunal order, it comes out that even if Thin capitalization Principle is on Statute book of the other country, no disallowance can be made in India by applying this Principle. To this extent, we uphold the finding of CIT (A) by respectfully following this tribunal order. But the issue still remains because, the objections of AO/TPO are not merely on the basis of Thin capitalization Principle. Their basic objection is this that since the interest is paid on CCDs, this is not an interest on debt but on equity and hence, not allowable. On page 11 of his order for A. Y. 2009 - 10, the TPO has reproduced certain comments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the date of allotment of the debenture. Part-B debenture was to carry an interest at the rate of Rs. 14 per annum till the date of conversion payable half yearly on 30th June and 31st December each year and on conversion. The issue in dispute in that case was regarding the allowability of expenses incurred on issue of such debentures and the issue in that case was not of interest on debentures before its conversion as in the present case. This is also an important aspect of the matter of that case that one part of the debenture was to be converted on the date of allotment of debenture itself, second part of the debenture has to be converted only on expiry of 15 months from the date of allotment of debenture and under these facts, it was held by Special Bench of the Tribunal in that case that the expenses incurred on issue of such debentures has to be considered as expenses incurred for issue of shares because it was found that first part of the debentures was to be converted into shares on the date of allotment itself and the second part was to be converted after expiry of 15 months from the date of allotment of debenture and therefore it was held that expenses incurred were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvertible debentures in a period before the date of conversion or whether such holders of convertible debentures can be granted voting rights at par with voting rights of share holders during pre-conversion period, the answer will be a big NO. On the same analogy, in our considered opinion, the answer of this question is also a big NO as to whether interest paid on convertible debentures for preconversion period can be said to be interest on equity and interest on debentures allowable u/s. 36(1)(iii) of the IT Act." 7. The ld. counsel for the assessee also submitted that the Hon'ble Rajasthan High Court in the case of CIT v. Secure Meters Ltd. [2008] 175 Taxman 567 (Raj) took the view that expenses incurred in relation to the issue of debentures were revenue expenditure and should be allowed as revenue expenditure u/s. 37(1) of the Act. Our attention was also drawn to the decision of the Hon'ble High Court of Karnataka in the case of CIT v. ITC Hotels [2020] 190 Taxman 430 (Karn) wherein it was held that expenditure incurred on issue of convertible debentures is allowable as revenue expenditure u/s. 37(1) of the Act. The sum and substance of the submission was that the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
