SETHURAMAN,J. - (1.) IN this reference under S. 256(1) of the IT Act, 1961, the following questions have been referred : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in permitting the assessee to raise the contention that the entire amount of Rs. 3,00,000 being the discount relating to the issue of debentures for 'Rs. 1.5 crores during the relevant previous year was to be allowed as a permissible deduction ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee had incurred an expenditure of. Rs. 3,00,000 during the 'relevant previous year by way of discount paid to the persons who had subscribed to the debentures issued by it for Rs. 1.5 crores during the relevant previous year and the same was allow - able as a revenue expenditure ?
(2.) THE assessee is a public limited company, sponsored by the Tamil Nadu Government, with the main object of advancing long -term loans to industrial concerns. It underwrites the issu'e of capital by such concerns. On 10th Dec., .1966, which falls within the accounting year ended 30th June, 1967, relevant for the asst. year 1968 -69, the assessee made a public issue of debentures of the total value of Rs. 1.5 crores carrying interest at 5.75 per cent per annum. The issue price was Rs. 98 per bond of Rs. 100. The total discount on the issue of 1.5 crores of rupees thus amounted to Rs. 3,00,000. The period of redemption of the debentures was 12 years, and the assessee wrote off Rs. 12,500 being the proportionate amount of the discount for the period of six months ending with 30th June, 1967. The assessee had issued debentures carrying an interest of 4 per cent earlier on 11th Aug., .1958. There was an issue of 41 per cent debentures at a discount of 1 per cent redeemable after the period of 10 years. The total issue came to Rs. 99,93,000 and the discount relating to these debentures was being written off periodically. In the year under consideration, a sum of Rs. 10,000 was written off. On the "liabilities" side of the balance -sheet, as on 30th June, 1967, the debentures issued was shown at the figure of Rs. 1.50 crores. On the " assets " side, the discount account of debentures was shown, and it runs as follows : ."Discount allowed on issue of bonds . Rs. Rs. (to the extent not written off) . . . Up to last balance -sheet ... 22,500 . Additions during the year ... 3,00,000 . . . 3,22,500 . Less : Amount written off . 22,500 . The assessee filed a return of income claiming the deduction of Rs. 22,500 mentioned above, being the proportionate amount of discount claimed to have been paid to the subscribers of the debentures consisting of Rs. 10,000 relating to the 41 per cent debentures issued in 1958 and Rs. 12,500 in relation to debentures issued in this year. The ITO disallowed the claim of Rs. 22,500 observing that " the discount on bonds and debentures, which is not allowable as an expenditure, is disallowed."
(3.) THE assessee appealed to the AAC contending, inter alia, that the sum of Rs. 22,500 should have been allowed as deduction. The AAC upheld the claim for deduction of Rs. 12,500, but rejected the claim as regards Rs.10,000 on the ground that it related to the debentures issued in the year 1958 and that it did not pertain to the relevant previous year.;