9911796707
TMI Blog2021 (10) TMI 1156X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the assessment year 2008-09. 2. The appeal was admitted by this Court to consider the following substantial questions of law: "1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that foreign currency convertible bonds [FCCBs] are debentures and considered it to be part of 'capital employed' for allowing deduction under Section 35D of the Income Tax Act, 1961 [for short, 'the Act']? 2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in treating the foreign exchange gain as a gain on capital account and hence allowing it as not taxable?" 3. In this appeal, the focus is on two items deducted from the profit as per the profit and loss account viz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 2[12] of the Companies Act, 1956, "debenture" includes debenture stock, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not. 6. As per Regulation 2[g] of Foreign Exchange Management [Transfer or Issue of any Foreign Security] Regulations, 2004, "Foreign Currency Convertible Bond [FCCB]" means a bond issued by an Indian company expressed in foreign currency, and the principal and interest in respect of which is payable in foreign currency. 7. Foreign Currency Convertible Bonds as per Regulation 2[b] of Issue of Foreign Currency Convertible Bonds and Ordinary Shares [Through Depository Receipt Mechanism] Scheme, 1993 "Foreign Currency Convertible Bonds" means bonds is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made to the judgment of the Hon'ble Apex Court in the case of Commissioner of Income-tax, Delhi V/s. Woodward Governor of India [P.] Ltd., [(2009) 312 ITR 254 (SC)] wherein, the Hon'ble Apex Court has held thus: "10. As stated above, on facts in the case of M/s Woodward Governor India P. Ltd., the Department has disallowed the deduction/debit to the P&L account made by the assessee in the sum of Rs. 29,49,088.00 being unrealized loss due to foreign exchange fluctuation. At the very outset, it may be stated that there is no dispute that in the previous years whenever the dollar rate stood reduced, the Department had taxed the gains which accrued to the assessee on the basis of accrual and it is only in the year in question when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom year to year. The proposed legal provision in the matter is intended to be framed on this basis." 11. The arguments advanced on behalf of the Revenue on long term borrowing is not relevant where the question is whether FCCB convertible bonds are debentures or not. The relevant portion of the annual report extract of the assessee-company relating to the assessment year 2008-09 would also throw some light on this issue. Other terms and conditions governing the bonds are shown as under: "[a] Conversion of the bonds into equity shares at the option of the bond holders at any time after 18th April 2007" 12. In the case of Commissioner of Income-tax- 4 V/s. Enam Securities [P.] Ltd., [(2012) 345 ITR 64 (Bom.)], Hon'ble High Court o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibution of the share-holder towards the share capital of the company. On the other hand, a debenture is an instrument of debt executed by the company acknowledging its receipt to repay the same at a specified rate and also carrying an interest. 14. In the case of Director of Income-tax V/s. Shree Visheshwar Nath Memorial Public Ch. Trust [(2010) 194 taxman 280 (Delhi)], the Hon'ble High Court of Delhi has held thus: "6. For the purposes of Section 13 (1) (d) of the Act, Mr. Sabharwal, learned counsel appearing for the Department, however, has sought to give an altogether different twist to the argument. His submission was that for the limited purpose, i.e. in the context of Section 11 (5) of the Act, the meaning to be assigned to the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance for the purpose of imposition of tax should be assigned" Even as per new Gem dictionary, the term 'debenture' includes bond of a company or a corporation." 15. Thus, in the light of these judgments and in terms of the Companies Act, 1956 debenture includes debenture shares and the bonds being interest bearing instruments which represent a loan, FCCB bonds, the instruments issued to investors for raising funds which is repayable after certain period is nothing but a debt instrument. This view is supported by the judgment of the High Court of Madras in case of Commissioner of Income-tax-III Chennai V/s. PVP Ventures Ltd., [(2012) 211 Taxman 554 (Mad.)] confirmed by the Hon'ble Apex Court by dismissing the SLP [C] C.C.2512/2014 filed ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
