TMI Blog2019 (4) TMI 370X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain and is already undertaken; quantum of which is also certain and known. By virtue of this, the extent of loss suffered has to be applied in respect of each year covered by the debentures, to an appropriate extent. We are of the view that the Tribunal went wrong in passing Annexure C order, upsetting Annexures A and B orders passed by the Assessing Officer and the CIT [Appeals]. Delayed payment of employees and employer's contribution to PF and ESIC - due date - HELD THAT:- The gist of the finding and declaration of the law is to the effect that the law laid down by the Supreme Court [granting the benefit of reduction] could be claimed only in respect of Employer's contribution and not applicable in the case of Employee's contribution. This vital distinction has been carved out by the Division Bench of this Court in [2015 (9) TMI 560 - KERALA HIGH COURT]. We are in full agreement with the view expressed by the Division Bench and we answer the substantial question of law to the said extent in favour of the Revenue and against the Assessee, holding that the Employees' Contribution requires to be disallowed. Allowance of 80IA deduction from gross total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstantial questions of law' are in the following terms : 1. Whether, on the facts and in the circumstances of the case - i) The Tribunal is right in law in deleting the disallowance of ₹ 1,07,99,770/- made towards expenditure relating to prior years in respect of issue of non-convertibale debentures and redemption premium ? ii. is not the allowance at 1/8th of the expenses for the assessment year 1999-2000 in accord with the decision of the Supreme Court and the Tribunal is justified in allowing the entire claim. 2. Whether, on the facts and in the circumstances of the case and also considering the import of the word due date the Tribunal is right in law in deleting the dis allowance made under section 36 (1) (va) being delayed payment of employees and employer's contribution to PF and ESIC ? 3. Whether the Tribunal is right in allowing 80IA deduction from gross total income ? 4. With regard to the first question, the factual aspects, as discussed in paragraph 5 of 'Annexure A' order, is extracted below : 5. The assessee had issued 27,87,040 - 17% Non convertible Debenture of ₹ 100 each on 31.10.1991. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) of Annexure B order, which reads as follows. 6(iii) - I have considered the appellant s objection. The issue in dispute is covered by the decision of the Supreme Court in the case of Madras Industrial Investment corporation In 225 ITR 802. As per the ratio of the decision in that case, the appellant is entitled to the deduction of the premium equally over the period of tenure of the debentures. The appellant has claimed in the course of the hearing that the decision of the Apex Court came much later than when the debentures were issued and and that the appellant had not made any claim during the tenure of the debentures which was the law before the Apex Court ruling . This claim of the appellant is unsustainable because once the Supreme Court has laid down the law it applies to all pending proceedings because that law is considered to have always been the correct law. The fact that the appellant had not made any claim during the relevant assessment years as per the ratio of the above decision rendered subsequently does not entitle the appellant to claim any deviation from the correct position of law laid down by the Supreme Court. The appellant ought to have unders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onformity with the accounting practice of showing the discount in the 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. The balance expenditure of ₹ 2, 87,500 cannot be deducted in the assessment year in question. Question No. 2 (as reframed), therefore, which is the subject-matter of appeal before us, is answered in the negative in so far as it relates to the deduction of ₹ 2,87,500 in the assessment year in question though for reasons entirely different from those given by the High Court. The second part of the reframed question is answered in the affirmative. But only a proportionate part of the discount can be deducted in the assessment year in question as set out earlier. The appeal is disposed of accordingly and the judgment of the High Court is set aside. There will be no order as to costs in the circumstances of the case. 8. The learned senior counsel submits that, when debentures are issued on discount in a given year, the loss has already sustained, to the extent t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loss stands on a different pedestal. In the case of debentures issued on discount in a particular year, it is sure and certain that there is liability, in so far as the amount covered by the debentures has to be satisfied on completion of the period of debentures. The debenture is issued so as to procure funds for the business of the company/assessee and this business is spread over the period of years covered by the debenture. This being the position, the loss incurred by issuance of such debentures issued 'at a discount' also requires to be segregated for the period covered by debentures and it was accordingly held that the deduction claimed by the assessee spreading over the loss for the entire tenure/period covered by the debentures was to be sustained. The law was declared accordingly. Applying the same logic and reasoning in the case of issuance of debentures 'on premium', the liability has already been undertaken and loss has suffered by the assessee, in so far as the payment of the value covered by the debentures at premium has to be effected, on maturity. This loss, payment though effected only on maturity of debentures, has to be taken care of and nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The CIT (A) held in favour of the assessee relying upon his order for AY 1991 -92 which in turn was based on the judgment of the Calcutta High Court in Commissioner of Income Tax Vs. Thngbhadra Industries Ltd. [1994] 207 ITR 553. The CIT(A) directed the Assessing Officer to allow the deduction for premium actually paid during the previous year provided that no part of the said premium has been allowed as a deduction on a pro rata basis in the earlier years. In appeal, the Tribunal noted that the Non Convertible Debentures which were issued in the. amount of ₹ 300 lakhs during the year ending 31 March 1985 were to be repaid after seven years of allotment on 9 February 1992 at a premium of 5 per cent. The assessee paid the entire amount due on the redemption of the Debentures along with the premium in the previous year relevant to AY 1992-93 and claimed a deduction for the payment made of ₹ 15 lakhs. The Tribunal followed the decision of the Calcutta High Court in 'Thungabhadra Industries' and accepted the claim of the assessee. 7. In the decision of the Supreme Court in Madras Industrial Investment Corporation Ltd. Vs. Commission of Income Tax [1997] 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.................................The Supreme Court held that when the assessee had issued debentures at a discount, it had incurred a liability to pay a large amount than what it had borrowed, at a future date. The Court held that the liability to pay the discounted amount over and above the amount received for the debentures is a liability which has been incurred by the company for the purpose of its business in order to generate funds for its business activities. The amounts so obtained by issue of debentures were used by the assessee for the purpose of its business and was, therefore, held to constitute expenditure. From the above, it is clear that the issue projected, argued, considered and decided by the Bombay Bench was with regard to the correctness of the stand taken by the Revenue in declining to treat the amount as 'revenue expenditure', but for holding it as a 'capital expenditure'. The verdict passed by the Apex Court in 225 ITR 802 [cited supra] was relied only to resolve the said issue and the question whether the amount had to be spread over the entire period covered by the debenture was never an issue projected or decided by the Bombay Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnible from paragraph 11 of Annexure A order, is with reference to the various statutory payments like Provident Fund, ESI etc. There was a short delay in effecting the payment, considering the due date and the date of payment. The deduction sought for by the assessee in this regard was totally disallowed by the Assessing Officer, as the payment effected was not on or before the due date, but belated. The Tribunal considered the case projected by the assessee and held that the deduction claimed as such was allowable and granted relief accordingly, in the following terms: 13. Ground No. 10 is regarding disallowance of PF/ESI payment after the prescribed statutory period but within the period specified under section 43B, ₹ 19,47,571/--. This ground relates to disallowance of the amount of ₹ 1,94,757/- being delayed payment of employees and employers contribution to PF and ESI for the months of June 1998, November 1998 and March 1999 under section 36(1)(va) of the Income Tax Act. The Id. Counsel for the assessee submitted that since the said payments were made by the assessee company prior to the date of filing of its return of income for the year under assessment the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the employees contribution and the employer s contribution, by the employer and, therefore, the assessee was entitled to pay both contributions together on or before the filing of the return under section 139 (1) of the Act. We are unable to accept the said contention advanced by the learned counsel. If such a contention is accepted, that would make section 36(1)(va) and the Explanation thereto otiose. According to us, there was no indication in section 43B, as it stood prior to the amendment and thereafter also to deface section 36(1)(va) and the Explanation thereto from the Income-tax Act. Thus, it means that both provisions are operative and the contributions have to be paid in accordance with the mandate contained under section 36(1)(va) and the Explanation thereto and under section 43B respectively. 29. In that view of the matter, we are of the considered Opinion that the view taken by the Tribunal which affirmed the decision of the first appellate authority that the respondent was entitled to get deduction of the contributions received from the employees if paid on or before the filing of the return under section 139(1) was not correct. We are inclined to agree w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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