TMI Blog1998 (8) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest of Rs. 2,89,67,325 being interest accrued and due and payable to the financial institutions and LIC in the year of account. During the course of assessment proceedings, it was stated by the assessee that the interest payable to financial institutions was, in fact, agreed to be converted into loan by the financial institutions, which is evident from the letter dt. 25th Oct., 1989, of ICICI. It was also stated that in view of the said correspondence, the interest outstanding as on 31st March, 1989, was paid, though constructively. 2.1. It was argued before the AO that the assessee had paid interest outstanding and received back the same amount as additional loan from financial institutions. It was contended that since the constructive payment of the interest outstanding was made on 25th Oct., 1989, i.e., before the due date of filing the return, no disallowance under s. 43B can be made. It was further stated that interest outstanding as on 31st March, 1989, in respect of loan from LIC has also been agreed in principle to be converted into loan. The contentions of the assessee were not acceptable to the AO. According to him, the letter dt. 25th Oct., 1989, was only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A), the correspondence about rescheduling of loan repayment dates back to 30th July, 1988, but the formality of rescheduling of the interest was completed on 16th July, 1990, i.e., much after the due date of filing the return i.e. 31st Dec., 1989. It cannot therefore, be said that there was indirect or constructive payment of interest before 31st Dec., 1989. Further the Act does not recognise implied or constructive payment under s. 43B and wherever such benefits are to be given about the payment, the same has been notified by the Board by issue of suitable circulars and instructions as with regard to the sales-tax deferral scheme. The decision of Delhi Bench of the Tribunal in Nuchem Plastics vs. Dy. CIT (1992) 44 TTJ (Del) 261 and decision of Bombay Tribunal in Sunil Silk Mills Ltd. vs. Dy. CIT (1992) 46 ITD 4 (Bom) relied upon by the assessee do not apply to the facts of the assessee s case. He, accordingly, upheld the disallowance. This has brought the assessee before us. 4. Shri Ajay Vohra, the learned counsel for the assessee carried us through the documents contained in the paper book filed on behalf of the assessee. He submitted that the CIT(A) did not appreciate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the arguments of Shri Vohra that the outstanding interest liability as on 31st March, 1989, was converted into loan on 25th Oct., 1989. Since the conversion of interest liability into loan account had taken place on 16th July, 1990, which is much after 31st Dec., 1989, the due date of filing the return, deduction on the basis of conversion of interest liability into loan account cannot be allowed under s. 43B. Shri Gupta also submitted that the agreement between the assessee and the financial institution did not contain any deeming provision as in the case of sales-tax deferral scheme so as to construe the conversion of outstanding interest liability as constructive payment of liability as claimed by the assessee. Taking us through the decisions cited by Shri Vohra, it was pointed out by Shri Gupta that none of them were identical on facts with the case of the assessee. He, therefore, submitted that no assistance can be derived by the assessee from them. 6. We have considered the arguments advanced by the learned representatives of the parties. We have thoroughly scrutinised the orders of the authorities below as also the documents including the copies of decisions cited contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. shall be allowed as deduction in computing the income of the previous year in which it is actually paid. Under the first proviso any sum payable as interest, liability for which was incurred in the previous year will be allowed as deduction if it is actually paid by the due date of furnishing the return under s. 139(1) of the Act in respect of the assessment year to which the aforesaid previous year relates. 8. From the above, it is crystal clear that deduction of interest under cl. (d) r/w first proviso of s. 43B is allowable if it is actually paid in the relevant previous year itself or if it is actually paid by the due date of furnishing the return under s. 139(1) relatable to the said previous year. 9. The intention of the legislature in inserting the provision of cl. (d) of s. 43B is explained in circular No. 528 dt. 16th Dec., 1988, as under: "A marked tendency has been noticed that on one pretext or the other some taxpayers postpone the payment of interest on loans provided by the various financial institutions and thus the money recoverable by these institutions is used for business purposes even though it has been claimed as a deduction from the income. With a vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so far. 14. From the facts of the assessee s case, it would be abundantly clear that neither the outstanding liability as on 31st March, 1989, has actually been discharged within the previous year itself nor actual payment thereof took place before 31st Dec., 1989, the due date for filing the return for the related asst. yr. 1989-90. What has been done by the assessee is this. By application dt. 30th July, 1988, the assessee made, inter alia, the following proposal to ICICI (the lead institution) for financial assistance: (i) Repayment of loans should start from November/December, 1991 (and not from November/December, 1989). (ii) Due interest upto November/December, 1991 be funded and the payment of interest should start from November/December, 1991. (iii) Concessional rate of interest should be applicable for the entire term loan; and, (iv) The foreign exchange loan of Rs. 282 lacs be converted into rupee loan. 15. By letter of intent dt. 25th Oct., 1989, the ICICI conveyed their acceptance in principle to the assessee s proposal to provide rupee loan not exceeding Rs. 282 lacs under the probable finance participation scheme in participation with other financial instit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding with effect from the date of execution of the loan agreement i.e. 16th July, 1990. An agreement between the parties becomes effective on the date of execution of the deed of agreement and if the parties agree that the agreement be effective from retrospective date, it is so stipulated in the agreement itself. There is also no merit in the assessee s argument that on 25th Oct., 1989, the assessee had paid outstanding interest constructively. As stated earlier, constructive payment of interest is not within the ambit of cl. (d) of s. 43B.Even the conversion of outstanding interest upon to 31st March, 1989, into rupee term loan had taken place on 16th July, 1990, the date on which the loan agreement between the parties was executed. As stated earlier, the acceptance by the company of the offer of impugned financial assistance was also conveyed any day after 24th Feb., 1990. Thus, the significant events, namely, acceptance of the offer of the financial assistance and execution of the loan agreement had taken place after the due date of filing of return under s. 139(1) i.e. 31st Dec., 1989, for asst. yr. 1989-90. 20. From the facts of the assessee s case narrated already and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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