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TMI Blog2024 (12) TMI 1278X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. The assessee, therefore, is entitled to benefit of Section 43B of the Act. Substantial question of law is answered in favour of the assessee. - THE HON BLE THE CHIEF JUSTICE ALOK ARADHE AND THE HON BLE SRI JUSTICE J. SREENIVAS RAO FOR THE PETITIONER : A V KRISHNA KOUNDINYA FOR THE RESPONDENT : J V PRASAD SC FOR INCOME TAX JUDGMENT ( Per the Hon ble the Chief Justice Alok Aradhe ) Mr. A.V.A. Siva Kartikeya, learned counsel appears for the appellant/assessee. Mr. J.V.Prasad, learned Senior Standing Counsel for Income-tax Department appears for the respondent/Revenue. 2. This appeal under Section 260A of the Income-tax Act, 1961 (for short the Act ), has been filed against order dated 20.04.2007, passed by the Income Tax Appellate Tribunal, Hyderabad Bench B , Hyderabad (for short the Tribunal ), in I.T.A.No.532/Hyd/2004. 3. The subject matter of the appeal pertains to the assessment year 1999-2000. 4. The appeal was admitted on the following substantial question of law: Whether on the facts and circumstances of the case, the Hon ble Tribunal is right in disallowing the claim of interest converted to equity in a sum of Rs.75,75,000/- on a proper interpretation of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.04.2007 partly allowed the appeal preferred by the assessee. In the aforesaid factual background, this appeal has been filed by the assessee. 9. Learned counsel for the assessee has submitted that constructive payment amounts to actual payment within the meaning of Section 43B of the Act. In support of aforesaid submission, reliance has been placed on the decisions of the Supreme Court, Delhi and Gujarat High Courts in M.M. Aqua Technologies Limited v. Commissioner of Income-tax, Delhi-III (2021) 436 ITR 582 (SC) ; Commissioner of Income-tax-V v. Rathi Graphics Technologies Limited (2015) 378 ITR 107 (Delhi) and Commissioner of Income-tax v. Core Emballage Ltd (2022) 443 ITR 157 (Gujarat) respectively. 10. On the other hand, learned Senior Standing Counsel for the Revenue has submitted that admittedly, the amount in question has not actually been paid and therefore, the authorities under the Act are justified in denying the benefit under Section 43B of the Act to the assessee. It is submitted that from a plain and liberal interpretation of Section 43B of the Act, it is evident that in order to attract the applicability of the aforesaid provision, actual payment should be made whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. Explanation 3C. For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (d) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing or debenture or any other instrument by which the liability to pay is deferred to a future date shall not be deemed to have been actually paid. Explanation 3D. For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (e) of this Section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or advance or debenture or any other instrument by which the liability to pay is deferred to a future date shall not be deemed to have been actually paid. 14. The scope and ambit of Section 43B of the Act was considered by the Supreme Court in M.M.Aqua Technologies Limited (supra). The assessee in the aforesaid deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1983-84, or any earlier year in which the liability to pay was incurred, cannot, in respect of that liability, be allowed a deduction in Assessment Year 1984-85, or any subsequent year on the ground that he has actually made a payment towards such liability in that year. 18. As has been pointed out hereinabove, the Finance Act, 2006 inserted Explanation 3-C w.r.e.f. 1-4-1989. The scope and effect of this provision was explained by the Board in Circular No. 14/2006 dated 23-12-2006, as follows: 16.2. It has come to notice that certain assessees were claiming deduction under Section 43-B on account of conversion of interest payable on an existing loan into a fresh loan on the ground that such conversion was a constructive discharge of interest liability and, therefore, amounted to actual payment. Claim of deduction against conversion of interest into a fresh loan is a case of misuse of the provisions of Section 43-B. A new Explanation 3-C has, therefore, been inserted to clarify that if any sum payable by the assessee as interest on any loan or borrowing, referred to in clause (d) of Section 43-B, is converted into a loan or borrowing, the interest so converted, shall not be deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest was actually paid by means of issuance of debentures, which extinguished the liability to pay interest. 21. Explanation 3-C, which was introduced for the removal of doubts , only made it clear that interest that remained unpaid and has been converted into a loan or borrowing shall not be deemed to have been actually paid. As has been seen by us hereinabove, particularly with regard to the Circular explaining Explanation 3-C, at the heart of the introduction of Explanation 3-C is misuse of the provisions of Section 43-B by not actually paying interest, but converting such interest into a fresh loan. On the facts found in the present case, the issue of debentures by the assessee was, under a rehabilitation plan, to extinguish the liability of interest altogether. No misuse of the provision of Section 43-B was found as a matter of fact by either CIT or ITAT. Explanation 3-C, which was meant to plug a loophole, cannot therefore be brought to the aid of the Revenue on the facts of this case. Indeed, if there be any ambiguity in the retrospectively added Explanation 3-C, at least three well-established canons of interpretation come to the rescue of the assessee in this case. First ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly received by the assessee. That would in most cases be difficult, if not impossible, to show and hence sub-section (2) relieves the Revenue of all burden of proof regarding the extent of understatement or concealment and provides a statutory measure of the consideration received in respect of the transfer. It does not create any fictional receipt. It does not deem as receipt something which is not in fact received. It merely provides a statutory best-judgment assessment of the consideration actually received by the assessee and brings to tax capital gains on the footing that the fair market value of the capital asset represents the actual consideration received by the assessee as against the consideration untruly declared or disclosed by him. This approach in construction of sub-section (2) falls in line with the scheme of the provisions relating to tax on capital gains. It may be noted that Section 52 is not a charging section but is a computation section. It has to be read along with Section 48 which provides the mode of computation and under which the starting point of computation is the full value of the consideration received or accruing . What in fact never accrued or was n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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