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Up front interest on bonds and debentures allowed on mercantile basis in spite of matching principal followed in accounts

Income Tax - Direct Tax Code - DTC - By: - CA DEV KUMAR KOTHARI - Dated:- 18-8-2015 - Relevant links and references: Section 36 (1) (iii) and 145 of Income-tax Act, 1961. Taparia Tools Limited Versus Joint Commissioner Of Income Tax 2015 (3) TMI 853 - SUPREME COURT Bharat Earth Movers v. Commissioner of Income Tax 2000 (8) TMI 4 - SUPREME Court Madras Industrial Investment Corporation Limited v. Commissioner of Income Tax 1997 (4) TMI 5 - SUPREME Court Hindustan Aluminium Corporation Ltd. vs. CI .....

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Terms and conditions in case of debentures, bonds and similar debt securities/ instruments: Terms relating to interest payable on debt securities are decided between issuer of security and subscriber of security. The T & C relating to interest and payment include inter alia the following: Rate of interest - it can be fixed or variable linked with PLR or some other basis. Compounding of interest- it can be monthly, quarterly half yearly or yearly or some other basis as may be agreed, Payment .....

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ts of securities issued, the accrual and playability of interest will be determined vis a vis applicable and agreed terms and conditions in respect of each such security or lot of security. Upfront payment: In case, T & C are for upfront payment, the interest accrues and become payable on the occasion of issue of such security or on security holder exercising his option to receive interest upfront. This will depend on actual facts and circumstances of the case. In case of upfront payment for .....

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this does not affect accrual of expenses. An expenditure accrue on accrual date this may not be on first day of previous year, it can be on any day. Applying matching principal, expenses may be spread over a period of more than one year, however, on accrual basis, the expenses accrues on accrual date. Many expenses which are generally treated as expenditure and a part as prepaid expenditure, can be claimed fully in one year based on mercantile basis. However, because the amount involved are not .....

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