TMI Blog2015 (10) TMI 2372X X X X Extracts X X X X X X X X Extracts X X X X ..... . Accordingly, we uphold the allowance of 1/5th of the discount only in the year under consideration - Decided against assessee. Issue of claim of ‘premium’ which was disallowed U/s. 40(a)(ia) - Held that:- Even if the amount is credited to Suspense A/c, but is claimed in the Books of Accounts of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of payee and the provisions of this Section shall apply accordingly. There is no dispute that assessee has provided the amount in the Books of Accounts and also claimed in the P&L A/c as an expenditure. Consequently, the credit of such in books of account shall be deemed to be income to the account of payee and provisions of Section 194A do apply to the facts of present case. Consequently, for the failure of deduction of tax at source, we are of the opinion that amount is disallowable under the provisions of Section 40(a)(ia). - Decided against assessee. - I.T.A. No. 878/HYD/2014 - - - Dated:- 24-9-2015 - SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER For The Assessee : Shri Deepak Chopra and Ms. Manasvani Bajpai, ARs For The Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of ₹ 10,22,40,000/- was claimed in the computation of income. It was submitted that the discount on issue of debentures was a revenue expenditure covered u/s. 37(1) of the Income Tax Act [Act] and relied on the decision of Madras Industrial Investment Corporation Vs. CIT [225 ITR 802 (SC)] and M.P. Financial Corporation Vs. CIT [165 ITR 765 (MP)]. It was further submitted that the primary principle of law was that revenue expenditure was deductible in the year in which the expenditure was incurred irrespective of its benefit being spread over on long period of time and that wherever the intent of Legislature was to amortize/defer the deductibility of a particular expense, a specific provision was made in the Act, for example U/s. 35D, U/s. 35DD and U/s. 35DDA. Assessee relied on various principles established in various case law (extracted by the CIT(A) in para 6.3 of the order). AO however, did not agree with the above and relying on the decision of the Hon ble Supreme Court in the case of Madras Industrial Investment Corporation Vs. CIT [225 ITR 802 (SC)] (supra) allowed only 1/10th of the amount and disallowed an amount of ₹ 9,20,16,000/-. Before the Ld. CIT(A) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures. The appellant, therefore, had, in its return, correctly claimed a deduction only in respect of the proportionate part of discount of ₹ 12,500 over the relevant accounting period in question. This view is also in conformity with accounting practice of showing the discount in discount on debentures account which is written off over the period of the debentures. The appellant is, therefore, entitled to deduct a sum of ₹ 12,500 out of the discount. of ₹ 3,00,000 in the relevant assessment year. 6.8 There is no dispute that a revenue expenditure is allowable in its entirety in the year of incurrence irrespective of its benefit extending over a longer period. This principle has been acknowledged in a number of judicial decisions including those cited by the appellant. However, the nature of expenditure in these decisions were entirely different. For example, in the case of Madras Auto Services Pvt. Ltd, the expenditure was incurred on demolition and rebuilding of lease premises. In the case of Associated Cemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the year and since assessee has not made any TDS on such payment, the same was also not allowable and accordingly added back to the total income. Before the Ld. CIT(A), assessee relied on the same principles as in the case of discount on debentures to hold that the amount is allowable as deferred revenue expenditure and it can be spread over for a period of six years ie. period of loan. Assessee relied on various case law as extracted by the CIT(A) in para 7.3 of the order. Ld. CIT(A) following the principles laid down by the Hon ble Calcutta High Court in the case of National Engineering Industries Ltd., Vs. CIT [236 ITR 577] (Cal) considered that there is no distinction between a discount and a premium, the result in both is that something over and above the face value and the specified interest is paid and the accounting procedure in one case, being by way of preliminary deduction from the mentioned amount, that accounting procedure in other case being in addition at the end, over the prescribed and mentioned face value amount. Following the ratio of this decision assessee s claim of allowability of premium on unsecured loan spread over six years was accepted in principle. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, there is no liability to deduct tax. 6.2 Ld. DR however, relied on the principles as upheld by the Ld. CIT(A) and further submitted that decision in the case of Taparia Tools Limited Vs. JCIT, Nasik in Civil Appeal Nos. 6366-6368/2003 dt, 23-03-2015 (supra), relied on by assessee may be applicable for the interest claims. 7. We have considered the rival contentions and perused the facts of the case. As far as the issue of discount on debentures is concerned, there is no dispute with reference to the fact that assessee has issued the debentures with discount. It is also a fact that Hon ble Supreme Court in the case of Madras Industrial Investment Corporation Vs. CIT [225 ITR 802 (SC)] (supra), has considered the issue in detail which was extracted by the Ld. CIT(A) in the order. Therefore, since the principles established by the Supreme Court in the above said case fully applies to the facts of the case, we are convinced that the discount of the debentures is to be spread over the period of holding period of debentures i.e., in this case five years. 8. Ld. Counsel relied on the decision of Hon ble Supreme Court in the case of Taparia Tools Limited Vs. JCIT, Nasik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was beyond his domain. However, there is no claim for debenture interest payable half yearly as that interest has not accrued and was also not claimed. The Hon ble Supreme Court in the said judgment also considered the judgment in the case of Madras Industrial Investment Corporation Vs. CIT [225 ITR 802 (SC)] (supra). vide para 17 of the judgment, the Hon ble Supreme Court considered as under: 17. Thus, the first thing which is to be noticed is that though the entire expenditure was incurred in that year, it was the assessee who wanted the spread over. The Court was conscious of the principle that normally revenue expenditure is to be allowed in the same year in which it is incurred, but at the instance of the assessee, who wanted spreading over, the Court agreed to allow the assessee that benefit when it was found that there was a continuing benefit to the business of the company over the entire period . (emphasis supplied) 9. Thus, as can be seen, Hon ble Supreme Court distinguished issue on facts, however did not overrule the judgment of the Hon ble Supreme Court in the case of Madras Industrial Investment Corporation Vs. CIT [225 ITR 802 (SC)], which is directly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re according to the principles of law. 10.1 But the issue in this appeal is whether the amount can be disallowed U/s. 40(a)(ia)? It was the contention of assessee that there is no need for deducting tax as no liability was incurred and since amount was not accrued to the payee as per the terms of agreement, there is no liability to deduct tax on assessee. Further, it was contended that there is no provision to consider the amount for the purpose of TDS under Chapter-XVIIB. We are not convinced with the arguments of assessee and its contentions. Assessee admits that there is a liability to pay the premium, that the reason why assessee has claimed 1/6th of the amount as a deduction in the year. Once there is liability to pay, automatically, provisions of Chapter-XVIIB will apply. As stated, this amount is not a discount on debentures nor a discount on deep discount bonds. As admitted by assessee, assessee was liable to pay total of ₹ 16.62 Crores as principle and accrued interest. Out of which, ₹ 10 Crores was paid upfront and balance amount of ₹ 6.62 Crores was converted to 0% interest loan. However, premium of ₹ 1.95 Crores was to be paid at the end of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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