Commissioner of Income Tax vs First Leasing Co. of India Ltd.

P.P.S. Janarthana Raja, J.—These appeals are filed u/s 260A of the Income Tax Act, 1961, by the Revenue, against the order of the Income Tax Appellate Tribunal, Bench "B", Chennai in I.T.A. Nos. 172 and 175(Mds)/98 dated August 23, 2004, raising the following common substantial question of law:

Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the expenses for the issue of debenture is allowable as a deduction in full in the light of Section 35D of the Act?

Learned standing counsel appearing for the Revenue now stated that the real issue involved in the appeals is, whether the expenses incurred for the issue of debenture is revenue expenditure or not and hence, redrafted the question which reads as under:

Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the expenses for the issue of debenture is an allowable deduction as revenue expenditure?

It is fairly stated that the issue stands covered in favour of the assessee, by this Court judgment in the case of The Commissioner of Income Tax Vs. South India Corporation (Agencies) Limited, , wherein it was held as follows (page 222):

This question pertains to the assessment years 1989-90 and 1992-93. For the relevant assessment years, the assessee claimed certain expenditure as debenture issue expenses. The Assessing Officer treated 60 per cent. of the claim of expenditure as capital expenditure and the balance 40 per cent. as revenue expenditure. Aggrieved by the same, the assessee filed an appeal to the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer and dismissed the appeal filed by the assessee. Aggrieved by the order, the assessee filed an appeal to the Income Tax Appellate Tribunal (hereinafter referred to as the ''Tribunal''). The Tribunal held as follows:

The last of the issues is with regard to expenses incurred on debenture issue being treated as capital expenditure. The authorities have treated part of the expenditure as capital expenditure on the reasoning that at the time of redemption of the debenture, the holders of the debentures were entitled to certain shares. The issue of shares is a future event which may or may not happen. At present, the expenditure incurred was on the issue of debentures only and hence the expenses incurred on obtaining a loan is a revenue expenditure. We accordingly uphold the claim of the assessee.

The Assessing Officer had bifurcated the expenditure and allowed only 40 per cent. as revenue expenditure, without any basis. The Tribunal correctly held that the disallowance of 60 per cent. is without any basis and the Assessing Officer was wrong in treating part of the expenditure as capital expenditure on the reasoning that at the time of redemption of debentures, the holders of the debentures would be entitled to certain shares. The issue of shares is a future event which may or may not happen.

The Tribunal considered and followed the principles enunciated in the apex court judgment reported in India Cements Ltd. Vs. Commissioner of Income Tax, Madras, , which, in fact was followed by the Delhi High Court in Commissioner of Income Tax Vs. Thirani Chemicals Ltd., holding that expenditure incurred on the issue of debentures is a permissible deduction u/s 37 of the Act.

Learned Counsel appearing for the Revenue has not produced any material or evidence to take a different view. The reasoning of the Tribunal was based on relevant materials and evidence and there is no error or infirmity in the order of the Tribunal to warrant interference. In view of the same, no substantial question of law arises for consideration by this Court and hence, the appeal in respect of question No. 1 is dismissed.

Following the above principle, we are of the view that no substantial question of law arises for consideration of this Court and accordingly the tax cases are dismissed. Consequently, M.P. No. 1 of 2007 in T.C. (A) No. 847 of 2007 is closed. No costs.