TMI Blog2020 (6) TMI 505X X X X Extracts X X X X X X X X Extracts X X X X ..... ebentures and not interest paid on CCDs for the period before conversion and therefore the decision of Special Bench will not be of any application to the facts of the cases where deduction u/s. 36(1)(iii) of the Act is claimed. The Tribunal also discussed the RBI Master Circular on Foreign Investments in India dated 2.7.2007 and 1.7.2008 and held that those circulars will have no effect and the debentures till its conversion will retain its character as loan or borrowings. We are of the view that the deduction claimed by the assessee has to be allowed. We may also clarify that the Thin Capitalisation principle was neither invoked by the AO or the CIT(Appeals) in the present case nor were those rules part of the statute for the relevant AY in this appeal. We allow the appeal of the assessee and hold that deduction claimed by the assessee should be allowed. - ITA No.1549/Bang/2019 - - - Dated:- 19-6-2020 - Shri N.V. Vasudevan, Vice President And Shri B R Baskaran, Accountant Member For the Appellant : Smt. Tanmayee Rajkumar, Advocate For the Respondent : Smt. R. Premi, Jt.CIT(DR)(ITAT), Bengaluru. ORDER PER N.V. VASUDEVAN, VICE PRESIDENT This is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d only the receipt in the hands of recipient. The CIT(A) also held that the decision of ITAT Mumbai Bench in the case of Ganesh Banzoplast Ltd. (supra) was rendered on the basis of decision in the said assessee s own case by the Tribunal in the earlier assessment year by following the rule of consistency and therefore the said decision was not of any help to the plea of assessee. The CIT(A) was of the view that the decision of the ITAT SB in the case of Ashima Syntex Ltd. (supra) was applicable to the case of the assessee and therefore the action of the AO in making the impugned disallowance was upheld by the CIT(Appeals). 5. Aggrieved by the order of CIT(Appeals), the assessee has preferred the present appeal before the Tribunal. 6. The ld. counsel for the assessee submitted that the ITAT SB decision rendered in the case of Ashima Syntex Ltd. (supra) was a case of expenses incurred in connection with the issue of CCDs; whereas the case of assessee is in relation to deduction of interest paid on CCDs and therefore clearly distinguishable. It was submitted that CCDs till such time they are converted into equity are in the nature of loans and therefore any interest paid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I policy of FDI. We all know that RBI policy of FDI is governed by this that what will be future repayment obligation in convertible foreign currency and since, CCDs does not have any repayment obligation, the same was considered by RBI as equity for FDI policy. Now the question is that such treatment given by RBI for FDI policy can be applied in every aspect of CCDs. Whether the holder of CCDs before ins conversion can have voting rights? Whether dividend can be paid on CCDs before its conversion? In our considered opinion, the reply to these questions is a BIG NO. On the same logic, in our considered opinion, till the date of conversion, for allowability of interest u/s 36 (1) (iii) of Income tax Act also, such CCDs are to be considered as Debt only and interest thereon has to be allowed and it cannot be disallowed by saying that CCDs are equity and not debt. We hold accordingly. This issue is decided. 24. After examining the applicability of the Tribunal order rendered in the case of Besix Kier Dabhol, SA vs. DDIT (supra), we now examine the applicability of the decision of Special Bench of the Tribunal rendered in the case of Ashima Syntex Ltd. Vs. ACIT as reported in 100 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on issue of convertibles whereas in the present case the issue is regarding allowability of interest expenditure on convertible debentures for the pre-conversion period. Hence we hold that the revenue does not find any support from this decision of Special Bench of the Tribunal in that case. 25. Apart from relying on this decision of Special Bench of the Tribunal, the ld. DR of revenue in written submissions as reproduced above has mainly reiterated the same arguments which are adopted by the TPO in its order i.e. regarding RBI Master Circular on Foreign Investment in India dated 02.07.2007 and 01.07.2008. We would like to observe that such circular in the context of FDI policy of RBI is in a different context i.e. regarding future re-payment obligations in convertible foreign currency and to have control over such future re-payment obligations, the RBI is exercising strict and control so that such future re-payment obligations does not go beyond a point and since in the case of fully convertible debentures, there is no future re-payment obligation, the same was considered as equity for the purpose of FDI policy. In our considered opinion, any definition of any term is to be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. We have given a careful consideration to the rival submissions. We are of the view that the decision of the ITAT Bangalore Bench in the case of CAE Flight Training (I) Pvt. Ltd. (supra) supports the plea of the assessee for allowing deduction on interest paid on CCDs. In the aforesaid decision, the Tribunal in para 23 held that the fact that the RBI under its Foreign Direct Investment Policy mandates conversion of debentures into equity and such mandate will not make any difference to the allowability of interest on debentures u/s. 36(1)(iii) of the Act. The Tribunal held that till date of conversion, CCDs are in the nature of debt and interest paid on CCDs cannot be disallowed on the ground that CCDs will later on be converted into equity. The Tribunal thereafter in para 24 examined the decision rendered in Ashima Syntex Ltd. (supra) and concluded that the issue therein was regarding expenses incurred on issue of convertible debentures and not interest paid on CCDs for the period before conversion and therefore the decision of Special Bench will not be of any application to the facts of the cases where deduction u/s. 36(1)(iii) of the Act is claimed. The Tribunal also discu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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