Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2020 (6) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (6) TMI 505 - AT - Income TaxInterest expenditure on Compulsorily Convertible Debentures [CCDs] - claimed as revenue expenditure - principle of capitalization - HELD THAT:- We are of the view that the decision of the ITAT Bangalore Bench in the case of CAE Flight Training (I) Pvt. Ltd. [2019 (8) TMI 554 - ITAT BANGALORE] supports the plea of the assessee for allowing deduction on interest paid on CCDs held that the fact that the RBI under its Foreign Direct Investment Policy mandates conversion of debentures into equity and such mandate will not make any difference to the allowability of interest on debentures u/s. 36(1)(iii) Till date of conversion, CCDs are in the nature of debt and interest paid on CCDs cannot be disallowed on the ground that CCDs will later on be converted into equity. The Tribunal examined the decision rendered in Ashima Syntex Ltd. [2006 (3) TMI 188 - ITAT AHMEDABAD-B] and concluded that the issue therein was regarding expenses incurred on issue of convertible debentures and not interest paid on CCDs for the period before conversion and therefore the decision of Special Bench will not be of any application to the facts of the cases where deduction u/s. 36(1)(iii) of the Act is claimed. The Tribunal also discussed the RBI Master Circular on Foreign Investments in India dated 2.7.2007 and 1.7.2008 and held that those circulars will have no effect and the debentures till its conversion will retain its character as loan or borrowings. We are of the view that the deduction claimed by the assessee has to be allowed. We may also clarify that the Thin Capitalisation principle was neither invoked by the AO or the CIT(Appeals) in the present case nor were those rules part of the statute for the relevant AY in this appeal. We allow the appeal of the assessee and hold that deduction claimed by the assessee should be allowed.
|