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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Shri S.S. Godara, JM & Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax(Appeals)-15, Kolkata [in short the ld CIT(A)] in Appeal No. 377/CIT(A)- 15/14-15/Cir-8/R&T/Kol dated 10.03.2016 against the order passed by the JCIT(OSD), Circle-8(1), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 12.12.2011 for the Assessment Year 2009-10.
The only issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the disallowance made in the sum of Rs 1,40,81,843/- u/s 40(a)(ia) of the Act in the facts and circumstances of the case.
2 M/s Bansilal Leisure Parks Ltd. A.Yr. 2009-10 3. The brief facts of this issue are that the assessee is engaged in the business of ‘wholesaler, retailer, importer , trader and running a water recreation complex’. The return of income for the Asst Year 2009-10 was filed by the assessee company on 30.9.2009 declaring total loss of Rs 2,61,92,407/- . The return was revised on 15.10.2010 showing the revised loss of Rs 3,05,34,623/-. The assessee issued ‘deep discount debentures’ to M/s Bansilal Credit (P) Ltd for Rs 3 crores during the financial year 1998-99 with face value per debenture of Rs 2,00,000/- having maturity value of Rs 60 crores payable in 2019 i.e after 20 years from the date of issue. The assesee company evolved the scheme to charge discount proportionately at 16.16% as per mercantile system in the accounts and an annual accrual of liability in respect of such bonds and had claimed deduction thereof annually. The ld AO treated the source of raising of funds by the assessee as loans taken by the assessee company as debenture is akin to loan and accordingly observed that the interest payable thereon @ 16.16% had not suffered any deduction of tax at source thereby violating the provisions of section 40(a)(ia) of the Act. Accordingly, he disallowed the sum of Rs 1,40,81,843/- u/s 40(a)(ia) of the Act in the assessment.
The ld CITA placed reliance on the CBDT Circular No. 4/2004 dated 13.4.2004 wherein it was stated that TDS is to be made only in the year of redemption of bonds. Accordingly he deleted the disallowance u/s 40(a)(ia) of the Act. Aggrieved, the revenue is in appeal before us.
We have heard the rival submissions. We find that the assessee had issued deep discount debentures for Rs 3 crores in financial year 1998-99 with a coupon rate of 16.16% per annum and the said deep discount debentures are redeemable at the end of 20 years from the date of issue for Rs 60 crores. The ld AR argued that the claim of 2
3 M/s Bansilal Leisure Parks Ltd. A.Yr. 2009-10 liability debited in the Profit and Loss Account was accepted by the ld AO upto Asst Year 2008-09 and in assessment years subsequent to Asst Year 2009-10. The ld AR argued that the observation of the ld AO is factually incorrect in as much as the assessee company is a public limited company and not a private limited company and that a letter from the Registrar of Companies, West Bengal dated 25.11.2008 to the assessee regarding charging of compound interest rate at 16.16% instead of 16.15% and the reply dated 1.12.2008 of the assessee were produced before the ld AO and was also stated that necessary rectification was carried out in the accounts accordingly. Hence we are inclined to agree that the issuance of deep discount debentures had been duly approved by the competent authority and is very much within the knowledge of the competent authority and reverse the observation of the ld AO in this regard. We find from the audited accounts for the year ended 31.3.2005, the assessee company had also disclosed the issuance of deep discount bonds in the notes on accounts attached along with the audited financial statements. The relevant note is reproduced herein for the sake of convenience :-
5. The company had issued Deep Discount bonds with face value of Rs 60 crores at Rs 3 crores payable after 20 years to a company listed under section 301 of the Companies Act, 1956 and accordingly charge proportionate discount in the accounts and balance in Miscellaneous Expenditure.
5.1. This clearly proves that the assessee had issued deep discount bonds with a difference between issue price and amount payable on maturity. We find that the assessee company had issued bonds at a discount with an obligation to incur liability to pay a larger amount at a future date i.e on the date of maturity which is after 20 years from the date of issue. When the said bonds are redeemable at the end of a fixed period of 20 years, a proportionate amount of discount should be written off out of revenue every year during which the bonds are outstanding. This write off would certainly be allowable as a deduction as it is spread over the period of tenure of bonds. We would 3
4 M/s Bansilal Leisure Parks Ltd. A.Yr. 2009-10 like to place reliance on the decision of the Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd vs CIT reported in 225 ITR 802 (SC) , wherein it was held that the discount on issue of debentures would be allowable over the period of tenure of debentures. Moreover, we also find that the CBDT in its Circular No. 4/2004 dated 13.5.2004 had categorically stated that in respect of interest on deep discount bonds , tax is required to be deducted at source u/s 193 or 195 of the Act only at the time of redemption of such bond irrespective of whether the income from the bonds has been declared by the bond holder on accrual basis from year to year or is declared only in the year of redemption.
5.2. In view of the aforesaid findings in the facts and circumstances of the case, we hold that the ld CITA had rightly deleted the disallowance made in the sum of Rs 1,40,81,843/- u/s 40(a)(ia) of the Act which does not call for any interference. Accordingly, the grounds raised by the revenue are dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the Court on 04.07.2018