TMI Blog2012 (4) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... , assessment year 2001-02 and appeal filed by the department has been dismissed by the Hon'ble High Court - the principle of re-judicata is not applicable in case of income tax proceedings, the rule of consistency has to be followed when there is no change in legal and factual position. In view of the judgment of Hon'ble Supreme Court in the case of Madras Industrial Finance Corpn. Ltd. (1997 -TMI - 5591 - SUPREME Court), the difference between the issue price and maturity value has to be spread over the debenture holding period and only proportionate amount can be allowed as deduction in a particular year. Tax liability in the hands of director - held that:- it is for the department to ensure that the director pays tax on interest income from year to year as it has power to enforce compliance and assessee can not be penalized for the failure of the department to take action in case of the director. - IT Appeal Nos. 1278, 1697, 3980 and 4067 (Mum.) of 2010 - - - Dated:- 7-3-2012 - RAJENDRA SINGH, VIJAY PAL RAO, JJ. ORDER Rajendra Singh, Accountant Member These cross appeal are directed against different orders dated 21.12.2009 and 5.2.2010 of CIT(A) for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessment year 2001-02 in which year as well as in subsequent years the claim had been allowed both by CIT(A) and ITAT. CIT(A) however observed that discounting charges also included interest on interest which could not be allowed as, under section 24(b), only the interest on borrowed capital could be allowed as deduction. CIT(A) referred to the judgment of Hon'ble Supreme Court in the case of Shew Kissen Bhatter v. CIT (89 ITR 61), in which it was held that interest on interest was not allowable as deduction. The assessee submitted that the case of Shew Kissen Bhatter ( supra ), was distinguishable as in that case the interest which had become due on the principal had not been paid by the assessee and therefore, it had to pay interest on interest which was held not allowable as deduction. In the present case, no interest was payable from year to year and therefore, there was no question of default in payment of interest and consequential payment of interest on interest. The maturity value was payable at the end of redemption. It was the difference between issue price and redemption price which was claimed as deduction from year to year basis. The said difference was allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or debt incurred and includes any service fee or other charge in respect of moneys borrowed or debt incurred or in respect of any credit facility which had been utilized. The definition of interest was therefore of wide import and would also include any other charges in respect of money borrowed or debt incurred. He referred to the judgment of Hon'ble Gujarat High Court in the case of CIT v. Vijay Ship Breaking Corporation (261 ITR 113), in which it has been held that the amount payable on unpaid purchase price will also be of the nature of interest. 4.1 It was also submitted that allowability of discount charges was covered by the judgment of Hon'ble Supreme Court in the case of Madras Industrial Finance Corpn. Ltd. v. CIT (225 ITR 802). Further it was also argued that non declaration of income from year to year by the director will have no impact regarding allowability of claim in case of the assessee which was settled by the judgment of Hon'ble Apex Court. Ld. Authorised Representative for the assessee pointed out that these aspects had been duly considered by the Tribunal in assessment year 2001-02 in ITA No.5223/M/2003 in which year the Tribunal allowed the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 24(b) of the Act. The issue is whether any amount on account of interest can be allowed from year to year when the maturity value of debenture is payable only at the end of 9 years and no annual interest is payable from year to year. This aspect has already been considered by the Hon'ble Supreme Court in the case of Madras Industrial Finance Corpn. Ltd. v. CIT ( supra ), in which the Hon'ble Supreme Court observed that though the assessee incurs the liability to pay discount in the year of issue of debenture, the payment is to secure benefit over a number of years. It was accordingly held by the Hon'ble Apex Court that the liability should be spread over the debenture holding period, otherwise it would give distorted picture of profit of a particular year. Therefore, in terms of said judgment, the excess amount payable on maturity has to be spread over the debenture holding period and proportionate amount has to be allowed from year to year. 6.1 The department has relied on the judgment of Hon'ble Apex Court in the case of Shew Kissen Bhatter ( supra ), to argue that the proportionate amount payable also includes interest on interest which can not be al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely because the director accounted the income in the year of maturity will not in any way affect the liability to pay and claim deduction on account of deduction in case pf the payee. Moreover, it is for the department to ensure that the director pays tax on interest income from year to year as it has power to enforce compliance and assessee can not be penalized for the failure of the department to take action in case of the director. 6.3 Further, we also note that the claim has already been allowed by the Tribunal in the initial year i.e., assessment year 2001-02 and appeal filed by the department has been dismissed by the Hon'ble High Court. In subsequent years also, till assessment year 2005-06, the claim has been allowed and in assessment year 2005-06, appeal of the department has again been dismissed by the Hon'ble High Court. Therefore, the rule of consistency is also in favour of the assessee as per which there has to be consistency in decision making on identical facts. Though, the principle of re-judicata is not applicable in case of income tax proceedings, the rule of consistency has to be followed when there is no change in legal and factual position. In relation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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