Network Ltd. vs Deputy Commissioner Of Income Tax on 25 October, 2002
25. It clearly emerges from a perusal of the record that whatever be the
nomenclature indicated in the various documents, the issue was of debentures and shares simultaneously and an applicant when making payment of application money and subsequently the allotment amount was in no doubt that on payment of a stipulated amount he would be issued a debenture of a stipulated value and equity shares once again of a specified value and as rightly noted by the learned AM, nothing more was required to be done on the part of the applicant and the issue of debentures and shares was simultaneous and automatic there being no intervening period of even a minute to be quite precise and accurate. The learned AM has referred to the prospectus and other relevant documents very aptly highlighting that the issue was of debentures and shares and since the intention of the assessee was manifest right at the beginning and all along, then there could be no two opinions that the total expenditure incurred on the issue was required to be bifurcated on a pro rata basis treating a part thereof to be capital in nature being related to the issue of share capital. The learned Departmental Representative has also referred to relevant portions of the prospectus and other connected documents to emphasize relevant facts of the case and her reliance on the unreported decision of the Delhi Benches of the Tribunal in the case of Sona Steering Systems Ltd. v. Dy. CIT (supra) is apt and in fact direct and this would also be my observation in respect of the reported decision of the Ahmedabad Bench of the Tribunal in the case of Banco Products (India) Ltd. v. Dy. CIT (supra). That was a case in which the assessee-company had incurred certain expenditure on issue of partly convertible debentures and claimed the same as revenue expenditure by treating the same as pertaining to borrowing of funds. It was submitted before the AO that in respect of each debenture of the face value of Rs. 100, Rs. 30 was convertible into three shares of Rs. 10 each on 30th June, 1987, and the balance of Rs. 70 was non-convertible and was redeemable in the 6th, 7th and 8th years of issue. The AO disallowed the claim treating the same to be towards increase of share capital. On appeal, the CIT(A), held that the expenditure incurred on the convertible portion i.e., 30 per cent was in the nature of capital expenditure as it would go to augment the share capital of the company and the balance was to be treated as loan. On further appeal the Tribunal confirmed the view taken by the CIT(A) noting that the convertible part of the debenture was clearly identifiable and the conversion was mandatory and, therefore, it could not be said that the convertible part had the characteristics of loan funds. The Tribunal further observed that the date and manner of conversion were certain and nothing was left to chance.