TMI Blog1997 (5) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... re of Rs. 8,00,132 was bifurcated in the ratio of the amount of shares and debentures to the total public issue. The ratio worked out to 77: 23 and accordingly 77% of the expenditure was apportioned to Debentures and 23% of the expenditure was apportioned to Equity Shares. The expenditure relating to Debentures amounting to Rs. 3,78,233 was claimed as deduction permissible under section 37(1) of the Income-tax Act and the expenditure relating to Equity Shares amounting to Rs. 1,12,979 was considered as preliminary expenditure. It was submitted before the Assessing Officer that in respect of each debenture of the face value of Rs. 100, Rs. 30 was convertible into 3 shares of Rs. 10 each on 30-6-1987 and the balance portion of Rs. 70 was non-convertible and was redeemable in the 6th, 7th and 8th years of issue. The Assessing Officer while completing the assessment, disallowed the Debenture issue expenditure of Rs. 3,78,233 on the ground that the expenditure was incurred to increase the share capital of the company and hence the same was not allowable as deduction. 3. The assessee appealed to the CIT(Appeals). Relying on the principles laid down by the Supreme Court in the case of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the assessee submitted that the assessee was entitled to the deduction of the entire expenditure attributable to the issue of Partly Convertible Debentures (P.C.Ds). According to the learned counsel the Hon'ble Supreme Court in the case of India Cements Ltd. categorically laid down that such an expenditure incurred for creating a debt would be allowable expenditure. Hence, it is irrespective of the length for which the debt would be available. The learned counsel for the assessee further submitted that whenever a term loan is raised the benefit of the same is available for a number of years, and even then the department does not hold the expenditure for raising the term loan as a capital expenditure or whenever such attempt is made by the department the Courts have always held that such an expenditure is Revenue expenditure. In support of his arguments he relied upon the following decisions:---- (1) Jeewanlal (1929) Ltd. v. CIT [1969] 74 ITR 753 (SC), (2) Orissa Cement Ltd. v. CIT [1969] 73 ITR 14 (Delhi), (3) Addl CIT v. C.S. Thacker [1983] 142 ITR 438/14 Taxman 439 (Pat.), (4) CIT v. Oswal Spg. Wvg. Mills Ltd. [1986] 160 ITR 426 /26 Taxman 206 (Punj. Har.), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its share capital from open market." According to the learned DR it was clear that funds so obtained through the issue of Convertible Debentures were clearly identifiable as Equity Capital and loan funds from the very beginning and for all the time thereafter. The mere fact that such funds, temporarily for a brief period of about 6 months from the time of completion of formalities of allotment, were treated as raised against debenture with a mandatory condition of convertibility will not bestow on the entire funds, the characteristics of loan funds. The date and manner of conversion was certain and specific and nothing was left to chance and in any case when the return of income of the company was due to be filed on 30-6-1987, and was actually filed on that date, the factum of conversion was a dead certainty. He therefore submitted that the CIT(Appeals) rightly attributed the proportionate part of the issue expenses towards capital augmentation. In support of his arguments, he relied upon the following decisions : (1) Richardson Hindustan Ltd v. CIT [1988] 169 ITR 516/[1987] 32 Taxman 466 (Bom.), (2) Motor Industries Co. Ltd.'s case , (3) Vazir Sultan Tobacco Co. Ltd.s ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of borrowing money was incidental to the carrying on of business, the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period and it was irrelevant to consider the object with which the loan was obtained. The Hon'ble Supreme Court further held that 'obtaining capital by issue of share is different from obtaining loan by debentures'. It is obvious that the Supreme Court was dealing with a case where loan was raised and the loan was in the nature of debt. It was neither a case where issue of equity shares or convertible/partly convertible debenture was involved. Before us is the case where expenditure was admittedly incurred on issue of equity shares and partly convertible debentures. Accordingly, the ratio laid down by the Supreme Court will not apply to the facts of the case before us. 6.2 On the issue whether expenditure incurred on issue of shares of a company is of a revenue or capital nature, there is a divergence of opinions among different High Courts as is evident from the cases of different High Courts cited by both the parties supra. But so far as Ahmedabad Benches are concerned, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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