RAJESH BALIA, J. - (1.) HEARD learned counsel for the parties.
(2.) THIS appeal under s. 260A of the IT Act, 1961 (for short "the Act") is directed against the order of Tribunal, Jodhpur Bench, Jodhpur, dt. 28th January, 2003 at the instance of CIT. It relates to asst. yr. 1992-93. The issue relates to claim of the assessee regarding deduction of liability to pay premium on non-convertible debentures issued by it during the assessment year in question. The facts are that the assessee is a limited company, which is registered under the Indian Companies Act, 1956. It has issued non-convertible debentures of Rs. 3 crores in favour of LIC and State Bank of India mutual fund on premium. As per the term of issue of debentures, the assessee was to redeem those debentures at a premium of 5 per cent of the face value of the debentures in three equal instalments at the end of 7th, 8th and 9th year by paying Rs. 35 per year. The payment of Rs. 105 was to be made against the issue amount of Rs. 100 per debenture. Thus, against receipt of Rs. 3 crores of finance the assessee agreed to Rs. 3,15,00,000. The assessee maintains its books of account as per mercantile system. Though, no entries have been made regarding this liability in books, in its return, the assessee claimed deduction of this additional amount of Rs. 15,00,000 as revenue expenditure against the profits of previous year relevant to asst. yr. 1992-93. One of the terms of debenture issue was as under : "The company shall have a right to repurchase (from the market) some or all of the debentures at any time prior to the redemption date(s) and reissue the same at its discretion from time to time in accordance with the provisions of s. 121 and other applicable provisions, if any, of the Companies Act, 1956. Upon such reissue, the persons entitled to the debentures shall have and shall be deemed always to have had the same rights and priorities as if the debentures had never been redeemed." By considering the aforesaid clause, the AO held that the liability to pay premium amount at the time of redemption of debenture was a contingent liability. In coming to this conclusion, he relied on the decision of Calcutta High Court in the case of CIT vs. Tungabhadra Industries Ltd. (1994) 207 ITR 553 (Cal). It was considered by the AO that conditions pertaining to repurchase and reissue of debentures made the liability to pay premium as contingent one and would not arise until the expiry of 7th years when the redemption of the debenture would commence, if prior to that date debentures are not repurchased by the company. However, he did not dispute the assessee's contention that it is a revenue expenditure. On appeal, the CIT(A) vide his order dt. 18th Sept., 1995, affirmed the disallowance made by the AO by adopting the same reason as prevailed with the AO. On further appeal, the Tribunal has allowed the claim of the assessee in a modified form. It held the liability to pay premium to be not contingent, but a revenue expenditure. However, it found that the amount is to be allowed proportionately over the period of redemption of debentures i.e., to say during the period the fund generated by issue of debenture are to be utilised by the company for its benefits. In coming to this conclusion, the Tribunal placed reliance on the decision of Supreme Court in Madras Industrial Investment Corporation Ltd. vs. CIT (1997) 139 CTR (SC) 555 : (1997) 225 ITR 802 (SC).
(3.) THE other contention of the Revenue was that since the assessee has not made any provision in the books of account, notwithstanding it is maintaining the accounts as per mercantile system, no deduction can be allowed, was not sustained by the Tribunal on the anvil of the decision of Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC). About the other contentions raised in the said appeal for the asst. yr. 1993-94, we are not concerned. Aggrieved with the aforesaid allowance of deduction of the liability to pay premium on redemption of debenture issue, this appeal has been preferred by the Revenue and following questions of law were framed at the time of admission : "1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the premium payable on debentures was not a contingent liability and that it is allowable revenue expenditure. 2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in directing to allow the claim of premium though proportionately over the period of redemption." ;