COMMISSIONER OF INCOME TAX vs. THE ANIL STARCH PRODUCTS LTD.

ITA/259/1998HC GujaratGJHC24024297199801 December 1998Author: HONOURABLE MR. JUSTICE R.BALIA,HONOURABLE MR. JUSTICE ANIL R. DAVE4 pages
AI SummaryDismissed

What were the facts?

The Revenue filed an application under Section 256(2) of the Income Tax Act, 1961, seeking a direction to the Income Tax Appellate Tribunal (ITAT) to refer a specific question of law arising from its order dated October 3, 1997, in ITA No. 2551/Ahd/92, concerning assessment year 1988-89. The assessee, The Anil Starch Products Ltd., had issued debentures totaling Rs. 1,70,000, redeemable at a 5% premium. The assessee claimed a deduction of one-seventh of the premium as expenditure for the relevant assessment year. The Assessing Officer disallowed this, holding that the entire premium accrued only at the time of redemption. The CIT(Appeals) allowed the deduction, and the ITAT affirmed this decision. The Revenue's application to the ITAT under Section 256(1) for referring the question was unsuccessful.

What did the High Court hold?

The High Court declined to direct the Tribunal to refer the question of law. The Court noted that the issue concerning the deductibility of premium payable on redemption of debentures had already been decided by the Supreme Court in the case of Madras Industrial Investment Corporation Limited v. Commissioner of Income-tax (225 ITR 802). The Supreme Court held that the liability to pay a premium over and above the amount received for debentures is a revenue expenditure incurred for the purposes of business to generate funds. Furthermore, the Supreme Court accepted the principle of spreading over such expenditure over the period of the debentures' life, as the benefit derived from the borrowed funds is for a number of years. Since the Tribunal's decision was in consonance with this Supreme Court ruling, the High Court rejected the Revenue's application.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the Commissioner of Income Tax (Appeals) deleting the addition of Rs. 1,21,429/- made on account of premium payable on redemption of debentures, when the Assessing Officer was of the opinion that the entire amount of premium accrued in the year in which the debentures were redeemed and did not form part of the expenditure for the current year? The Revenue contended that the entire premium on redemption of debentures accrues only in the year of redemption and cannot be claimed as expenditure in the current year. The Assessee argued that the premium is a liability incurred for the purpose of business to secure funds and should be spread over the life of the debentures. (Note: Question 2 was not pressed by the Revenue in their application under Section 256(2).)

Which sections of the Income-tax Act were involved?

Section 256(1),Section 256(2),Section 37

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX APPLICATION No 259 of 1998

For Approval and Signature:

Hon'ble MR.JUSTICE R.BALIA. and MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge?

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The order continues below.

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