Income Tax Appellate Tribunal - Mumbai
Tomtit Investments & Trade P. Ltd., ... vs Assessee on 28 August, 2006
आयकर अपील य अ धकरण "ई" यायपीठ मुंबई म।
IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI ी संजय अरोड़ा, लेखा सद य एवं ी अ मत शु ला, या यक सद य के सम ।
BEFORE SHRI SANJAY ARORA, AM AND SHRI AMIT SHUKLA, JM आयकर अपील सं./I.T.A. No. 6051/Mum/2006 ( नधारण वष / Assessment Year: 2002-03) Tomtit Investments & Trade Pvt. Ltd. Dy. CIT, Circle 2(3), 136, Great Western Building, बनाम/ Aayakar Bhavan, M. K. Road, Nagindas Master Road Extn., Vs. Mumbai-400 020 Fort, Mumbai-400 001 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. (अपीलाथ /Appellant) : ( यथ / Respondent) अपीलाथ क ओर से / Appellant by : Shri S. A. Kanji यथ क ओर से/Respondent by : Shri Maurya Pratap सनु वाई क तार ख / : 19.05.2014 Date of Hearing घोषणा क तार ख / : 19.05.2014 Date of Pronouncement आदे श / O R D E R Per Sanjay Arora, A. M.:
This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-XXXIII, Mumbai ('CIT(A)' for short) dated 28.08.2006, dismissing the assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2002-03 vide order dated 31.01.2005.
2. The facts of the case to the extent relevant are that the assessee offered to issue two lakh unsecured debentures of Rs.100/- each carrying interest @ 2% p.a. vide letter of 2 ITA No. 6051/Mum/2006 (A.Y. 2002-03) Tomtit Investments & Trade Pvt. Ltd. vs. Dy. CIT offer dated 27.09.1990. The same were, however, finally issued (at 1.77 lacs debentures) w.e.f. 01.06.1993 at a coupon rate of 0%, to be redeemed at a premium of Rs.50/- per debenture, payable at the time of redemption, five years hence. As the assessee faced financial difficulties, it approached the debenture-holders for extension of the tenure of the debentures, and it was accordingly decided to increase the tenure from 5 years to 10 years, and also the premium payable on redemption from Rs.50/- to Rs.100/- per debenture. The assessee claimed the said premium on a proportionate basis from year to year per its returns of income, i.e., as we gather, at Rs.10/- per debenture per year or at Rs.11.77 lacs. The same stood disallowed as being not a revenue expenditure by the Assessing Officer (A.O.), while the reason for its confirmation by the ld. CIT(A) was that the redemption of the debentures could, at the option of the debenture-holders, be by way of allotment of shares (of Rs.10/- each) at par. This introduced an element of uncertainty in-as-much as the debentures under reference were optionally non-convertible, so that they could, at the option of the debenture-holder, be converted into equity shares. Reliance stood placed by him on the decision in the case of CIT vs. Tungabhadra Industries Ltd. [1994] 207 ITR 553 (Cal).
3. We have heard the parties, and perused the material on record. 3.1 The ld. Authorized Representative (AR) was at the outset specifically questioned as to the status of the assessment in the assessee's case for the earlier years, i.e., prior to the current assessment year, whereat again similar disallowance of the proportionate premium on redemption of debentures stood made (refer para 4 of the impugned order), with the ld. CIT(A) merely following the order by his predecessor/s. It was admitted by him that no appeal was preferred by the assessee beyond the first appellate stage for any of the years. As such, it is the first time that this issue comes up before the tribunal qua the present assessee. We shall, nevertheless, even as clarified during hearing, proceed to decide the same uninfluenced by the fact of the acceptance of the disallowance by the assessee for the earlier years. This is as the there is no estoppel against law, and once a 3 ITA No. 6051/Mum/2006 (A.Y. 2002-03) Tomtit Investments & Trade Pvt. Ltd. vs. Dy. CIT matter comes before the tribunal, it is duty bound to decide the same in accordance with law.
3.2 The assessee's case before us was that the decision in the case of Tungabhadra Industries Ltd. (supra) is not applicable on facts. In the facts of that case, the company issued 15% non-convertible debentures, redeemable after five years at a premium of 5% (of the issue price). However, the company could purchase the debentures earlier, in which case no premium was payable, while interest @ 15% p.a. would continue to be payable, i.e., on a half yearly basis. Clearly, no such uncertainty qua premium obtains in the instant case, as the debentures are to be in any case, upon term, redeemed at the premium as pre-determined. Further, even if the redemption amount (i.e., Rs.200/- per debenture, including premium of Rs. 100/-) is paid not in cash but by issue of shares at par, the number of shares would again be reckoned only with reference to the redemption value of the debentures, i.e., Rs.200/- each, so that the fact that the debentures are optionally convertible is of no moment. It is not, it may be appreciated, a case of deductibility of issue expenses, in which case a conversion into equity shares could be construed to mean that the capital raised was in fact toward own (risk) capital, with the interest cost being incurred for the interim period, so that the same may not be allowed as a revenue expenditure. As such, the optionally convertible debentures in the instant case clearly carry a price, which is only the time cost or the carrying cost of the corresponding funds raised thus, i.e., interest, by definition and, accordingly, would merit being allowed on a pro-rata basis. In fact, even the premium amount is uniform from year to year; the premium per year being the same throughout. In fact, we observe the assessee to have apportioned the premium equally for all the years, even as interest being a time cost of funds, a more rational appropriation would suggest a skewed charge, increasing with time, so that the later years bear a higher charge, i.e., corresponding to the charge of interest compounded per unit of time. However, be that as it may, the same in fact would be no ground for disallowance of any part of the amount appropriated, with rather the same leading to a lower charge for the current year, being the final year.
4 ITA No. 6051/Mum/2006 (A.Y. 2002-03)Tomtit Investments & Trade Pvt. Ltd. vs. Dy. CIT 3.3 The decision in the case of Madras Industrial Investment Corporation Ltd. vs. CIT (1997) 225 ITR 802 (SC) is squarely applicable in the facts of the case, wherein, likewise, debentures were issued at a discount, so that they were to be redeemed at a premium over the issue price. The same stands subsequently applied by the hon'ble high court in the case of Taparia Tools Ltd vs. Jt. CIT [2003] 260 ITR 102 (Bom), upholding the allowability of the premium payable on the redemption of debentures based on the principle of matching cost. The issue thus is in fact well settled and no longer res integra. We, accordingly, reversing the 'findings' by the ld. CIT(A), direct the allowance of the impugned sum, i.e., the premium as allocated for the current year. We decide accordingly.
4. In the result, the assessee's appeal is allowed.
प रणामतः नधा रती क अपील वीकृत क जाती है ।
Order pronounced in the open court on May 19, 2014
Sd/- Sd/-
(Amit Shukla) (Sanjay Arora)
या यक सद य / Judicial Member लेखा सद य / Accountant Member
मुंबई Mumbai; दनांक Dated : .05.2014
व. न.स./Roshani, Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु त(अपील) / The CIT(A)
4. आयकर आयु त / CIT - concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मंब
ु ई / DR, ITAT, Mumbai
6. गाड फाईल / Guard File
आदे शानस
ु ार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai