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TMI Blog1997 (5) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... ospectus issued by the assessee company were as follows :---- (1) To Finance the capital expenditure of the company; (2) To Supplement the company's long term resources for working capital; and (3) To obtain listing of the Equity Shares and Debentures of the company on the stock exchange. The assessee incurred aggregate expenditure of Rs. 8,00,132 on these public issues. The entire expenditure of Rs. 8,00,132 was bifurcated in the ratio of the amount of shares and debentures to the total public issue. The ratio worked out to 77: 23 and accordingly 77% of the expenditure was apportioned to Debentures and 23% of the expenditure was apportioned to Equity Shares. The expenditure relating to Debentures amounting to Rs. 3,78,233 was claimed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on & Ribbon Mfg. Co. Ltd. v. CIT [1981] 127 ITR 239/[1980] 3 Taxman 568 (Delhi), (6) Vazir Sultan Tobacco Co. Ltd v. CIT [1988] 174 ITR 689/41 Taxman 7 (AP). The learned CIT(Appeals) held that the expenditure incurred on the convertible portion of Rs. 30 each was in the nature of capital expenditure because 30% of the debenture issue would go to augment the share capital of the company and the balance 70% could be treated as loan. In support of his findings, he relied upon the following decisions : (a) CIT v Aditya Mills [1990] 181 ITR 195/50 Taxman 120 (Raj.); (b) Mohan Meakin Breweries Ltd.' case ; (c) Bharat Carbon & Ribbon Mfg. Co. Ltd.'s case ; (d) Bombay Burmiah Trading Corpn, Ltd. v. CIT [1984] 145 ITR 793/[1983] 2 Taxman 178 (B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t whenever a term loan is raised the benefit of the same is available for a number of years, and even then the department does not hold the expenditure for raising the term loan as a capital expenditure or whenever such attempt is made by the department the Courts have always held that such an expenditure is Revenue expenditure. In support of his arguments he relied upon the following decisions:---- (1) Jeewanlal (1929) Ltd. v. CIT [1969] 74 ITR 753 (SC), (2) Orissa Cement Ltd. v. CIT [1969] 73 ITR 14 (Delhi), (3) Addl CIT v. C.S. Thacker [1983] 142 ITR 438/14 Taxman 439 (Pat.), (4) CIT v. Oswal Spg. & Wvg. Mills Ltd. [1986] 160 ITR 426 /26 Taxman 206 (Punj. & Har.), (5) CIT v. Tumus Electric Corpn. Ltd. [1989] 179 ITR 219/[1990] 49 Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having no choice or option in the matter. (3) The date and manner of such conversion was pre-determined and final at the date of issue of such debentures itself. (4) Further, although the date of conversion was a subsequent date, but in view of legal amendments as noted above, such convertible portion had characteristics of Equity Shares which becomes further clear from stipulation regarding augmentation of number of such shares by conversion in the event of issue of bonus shares prior to such conversion. Had that been not so, then there was no need of such stipulation. (5) The further restriction on repurchase of such debenture prior to conversion makes it abundantly clear as such restriction was obviously self-imposed in view of provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 584 (Cal.), (8) CIT v. Mihir Textiles Ltd. [1994] 206 ITR 112 (Guj.), (9) Gujarat Steel Tubes Ltd. v. CIT [1994] 210 ITR 358 (Guj.), (10) CIT v. Ajit Mills Ltd. [1994] 210 ITR 658 (Guj.). 6. We have considered the rival submissions and perused the facts on record. Basic requirement of a debt is repayability. Broadly stated, a debt is a liquidated money obligation for the recovery of which an action will lie. It is an ascertained liquidated quantified obligation enforceable in praesenti or in futuro. A debt must be a debitum that is due. Debitum in praesenti solvendum in futuro is vital conception of a debt. Viewed from this angle, convertible portion of the debenture cannot be termed as a debt because in our considered view convertib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period and it was irrelevant to consider the object with which the loan was obtained. The Hon'ble Supreme Court further held that 'obtaining capital by issue of share is different from obtaining loan by debentures'. It is obvious that the Supreme Court was dealing with a case where loan was raised and the loan was in the nature of debt. It was neither a case where issue of equity shares or convertible/partly convertible debenture was involved. Before us is the case where expenditure was admittedly incurred on issue of equity shares and partly convertible debentures. Accordingly, the ratio laid down by the Supreme Court will ..... X X X X Extracts X X X X X X X X Extracts X X X X
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