COMMISSIONER OF INCOME TAX Vs. JAGATJIT INDUSTRIES LTD

JUDGEMENT

(1.) The common question of law which the revenue has raised in all these appeals for our adjudication is whether the Income Tax Appellate Tribunal was correct in law in allowing the assessee's claim for proportionate allowance of premium payable on redemption of debentures issued by it. The question is no longer res integra in the light of the decision of the Supreme Court in Madras Industrial Investment Corporation Ltd. Vs. Commissioner of Income-Tax 225 ITR 802, but before we refer to the said decision in some detail, we need to state a few facts relevant for the disposal of these appeals.

(2.) The assessee company is engaged in the manufacture of liquors, snack foods, bottles and jars, etc. It appears to have issued debentures with a provision that the same could be redeemed at a premium of 5% after a period of 7 years from the date of their issue. It had, eversince the issue of debentures, followed the practice of debiting the proportionate amount of premium payable on such debentures to the profit and loss account. In the assessment orders passed for the years relevant to these appeals, the assessing officer had disallowed the deduction claimed by the assessee towards premium calculated on a proportionate basis spread over the period for which the debentures are issued. The Assessing Officer was of the view that the liability to pay premium on the debentures issued by the assessee was contingent and could not, therefore, be spread over or allowed on a proportionate basis for the period for which the debentures were issued. The Tribunal has reversed that view relying upon the decision of the Supreme Court in Madras Industrial Investment Corporation Ltd. Vs. Commissioner of Income-Tax (supra). The present appeals assail the correctness of the orders passed by the Tribunal primarily on the ground that the liability to pay a premium was contingent till the debentures matured for payment and the same could not be allowed at any time or for any year other than the year in which the liability was actually discharged.

(3.) Having heard learned counsel for the parties, we are of the view that the question sought to be agitated before us is no longer examinable in the face of the authoritative pronouncement of the Supreme Court in Madras Industrial Investment Corporation Ltd. Vs. Commissioner of Income-Tax (supra). In that case also, the assessee company had issued debentures at a discount amounting in all to Rs. 3 lakhs. The company spread the said amount over a period of 12 years for which the debentures were issued and claimed deduction on a proportionate basis towards expenditure incurred for the purpose of business. This was disallowed by the High Court on the ground that the proportionate amount could not be considered to be an expenditure within the meaning of Section 37 of the Income-tax Act, 1961. The question that fell for consideration before the Supreme Court, therefore, was whether discount on bonds and debentures was allowable as an expenditure and whether the liability spread over a number of years could be treated as an expenditure. Answering the first part of the question in the affirmative, the Court held that a liability is incurred by the company issuing the debentures, the moment the debentures are issued and if the amount raised through the issue of debentures is used by the company for the purpose of its business, the liability would be an expenditure. The court observed :