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| The Tax Publishers2020 TaxPub(DT) 4555 (Karn-HC) : (2020) 429 ITR 0340 : (2021) 276 TAXMAN 0444 INCOME TAX ACT, 1961
Section 37(1)
Where assessee had not incurred an expenditure of Rs. 5 Crores but had merely issued debentures at a discount and Redemption of debenture takes place in stages over a period of time and discount on debenture results in enduring benefit during the period of debentures, however, there was no creation of capital asset, which would result in an advantage of enduring benefit by discount on debentures, therefore, deduction of discount on the issue of debentures was rightly denied by AO.
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Business expenditure - Discount on issue of debentures - There was no creation of capital asset, which would result in an advantage of enduring benefit by discount on debentures -
Assessee claimed deduction being the discount on the issue of debentures of Rs. 5 crores. During the previous year, assessee had issued Rs. 38 Lakhs, 9% secured redeemable non-convertible debentures of value of Rs. 38 Crores at discounted value of Rs. 33 Crores and difference of Rs. 5 Crores was claimed as deduction. Proceeds received on issue of debentures was used only for the purpose of discharging obligation of assessee under One-Time Settlement Scheme with Bank and the benefit received in the form of waiver of interest from the bank under the scheme was offered to tax and discount on the issue of debentures was claimed as deduction while computing income. AO held that discount on debentures was revenue expenditure but had to be allowed for a period of five years in proportion in which debentures were to be redeemed by assessee. AO allowed a sum of Rs. 50 Lakhs as deduction for the assessment year 2006-07 and claim for deduction for a sum of Rs. 4.5 Crores was rejected.Held: Assessee had not incurred an expenditure of Rs. 5 Crores but had merely issued debentures at a discount. Redemption of debenture takes place in stages over a period of time and discount on debenture results in enduring benefit during the period of debentures. Expenditure incurred in creating an enduring benefit did not create any asset or add value to existing asset. There was no creation of capital asset, which would result in an advantage of enduring benefit by discount on debentures. Assessee was entitled to deduction from the income for the current year only which was liable to be redeemed in the first year as against the entire discounts. Thus, deduction was rightly denied by AO.
Relied:Taparia Tools Ltd. v. Jt. CIT (2015) 372 ITR 605 (SC) : 2015 TaxPub(DT) 1438 (SC), CIT v. General Insurance Corporation (2006) 286 ITR 232 (SC) : 2006 TaxPub(DT) 1870 (SC) and Madras Industrial Investment Corporation Ltd. v. CIT (1997) 225 ITR 802 (SC) : 1997 TaxPub(DT) 1209 (SC).
REFERRED :
FAVOUR : Against the assessee.
A.Y. : 2006-07
IN THE KARNATAKA HIGH COURT
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