MADRAS INDUSTRIAL INVESTMENT Vs. COMMISSIONER OF INCOME TAX TAMIL NADU I MADRAS

JUDGEMENT

(1.) THE appellant is a public limited company. THE present appeal filed by it pertains to the accounting year ending June 1967 relevant to the assessment year 1969-89.

(2.) ON 10/12/1966 a public issue of the debentures of the appellant-company was made. The total value of the debenturs was Rs. 1.5 crores repayable with interest at the rate of 5-3/ 4% per annum. The debentures were issued at a discount of 2%, redeemable after 12 years. The issue price of a debenture of Rs. 100.00 was Rs. 98.00. The total discount on the issue of Rs. 1.5 crores amounted to Rs. 3 lakhs. For the assessment year 1968-69 the appellant-company wrote off Rs. 12,500.00 out of the total discount of Rs. 3 lakhs being the proportionate amount of discount for the period of six months ending with 30/06/1967, taking into account the period of 12 years which was the period of redemption and dividing the discount of Rs. 3 lakhs over the period of 12 years.

(3.) THE assessee then preferred an appeal before the Appellate Tribunal. THE assessee contended, inter alia, that (1) THE Appellate Assistant Commissioner had erred in sustaining the disallowance of Rs. 10,000.00 on the ground that it related to an earlier year and (2) THE Appellate Assistant Commissioner having held that discount allowed at the time of issue of debentures was to be treated as part of the expenditure incurred for such issue, should have further allowed a sum of Rs. 2,87,000.00 being balance amount of the total discount of Rs. 3,00,000.00 relating to the issue of debentures of Rs. 1,5 crores. Before the Tribunal the department contended that the appellant-company had, for the first time, made a new claim before the Tribunal for deduction of Rs. 2,87,000.00 and the Tribunal had no jurisdiction to examine this claim. This objection was rejected by the Tribunal. THE Tribunal held that the expenditure of Rs. 3,00,000.00 was incurred during the relevant previous year although it was proportionately written off over a period of 12 years. THE expenditure of Rs. 3,00,000.00 was allowable as expenditure incurred for the purpose of business. But the mere fact that for accountancy purposes this amount was spread over 12 years and only Rs. 12,500.00 was written off, being the proportionate amount for 6 months ending with 30/06/1967, cannot make any difference. THErefore, the Tribunal allowed a deduction of Rs. 2,87,500/- also. On the application of the Department, the Tribunal stated a case under Section 256 (1) of the Income-tax Act, 1961 to be decided by the Madras High Court. THE following two questions were referred to the Madras High Court :-