High Court Of Punjab & Haryana
CIT vs. Sukhjit Starch & Chemicals Ltd.
Section 37(1)
Asst. Year -1983-84
Adarsh Kumar Goel & Mrs. Daya Chaudhary, JJ.
IT Ref. No. 128 of 1990
29th July, 2009
Counsel appeared :
Vivek Sethi, for the CIT : Rohit Sud, for the Assessee
JUDGMENT
Adarsh Kumar Goel, J. :
The following question of law has been referred for opinion of this Court by the Tribunal, Amritsar Bench, Amritsar, arising out of its order dt. 19th Jan., 1988 in IT Appeal No. 45 of 1987, for the asst. yr. 1983-84 under 256(1) of the IT Act, 1961 (in short, “the Act”) :
“Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the expenditure incurred on the issue of debentures is an allowable expenditure under s. 37 of the IT Act, 1961 when 20 per cent of the funds raised through debentures were to be compulsorily converted into equity share capital after one year from the date of allotment of debentures ?”
The assessee is a public limited company and issued secured convertible debentures. It had taken permission from the controller of capital issues to convert a part of the debentures into equity capital. In the process of issuing the debentures, the assessee had incurred expenditure which was claimed as permissible deduction. The AO did not allow the claim of the assessee by treating the expenditure as capital expenditure on the ground that the debentures will be later converted into shares. The CIT(A) upheld the claim of the assessee holding that the same was incidental to carrying on of business. The Tribunal affirmed the said view. Reliance was, inter alia, placed on the judgment of the Hon’ble Supreme Court in India Cements Ltd. vs. CIT (1966) 60 ITR 52 (SC), holding that it was irrelevant to consider the object for which loan was obtained by issuing debentures. We have heard learned counsel for the parties.
Learned counsel for the assessee submits that the Rajasthan High Court in CIT vs. Secure Meters Ltd. (2009) 221 CTR (Raj) 405 : (2008) 16 DTR 53 (Raj) : (2010) 321 ITR 611 (Raj) following the judgment of the Calcutta High Court in CIT vs. East India Hotels Ltd. (2001) 171 CTR (Cal) 614 : (2001) 252 ITR 860 (Cal), held that any expenditure incurred for raising loan by convertible debentures was admissible. The effect of debentures being converted to shares could be taken into account in the year in which the same are converted and it has no effect on the expenditure incurred in the current year. He also refers to para 8 in the judgment of the Rajasthan High Court in CIT vs. Secure Meters Ltd. (supra) to the effect that the issuance of convertible debentures was in fact a mode of repayment by way of issuance of shares. No contrary view has been shown on behalf of the Revenue. The expenditure on issue of debentures is incurred in the process of carrying on business as raising of funds itself is necessary for running of business. Learned counsel for the Revenue has not been able to show any reason why the said expenditure could not be allowed merely because ultimately the debentures may be converted to shares and become part of share capital. Accordingly, the question referred is answered against the Revenue and in favour of the assessee. The reference is disposed of accordingly.
[Citation : 326 ITR 29]
