S.H Kapadia, J.:— Both the above appeals raise a common question of law and fact and, therefore, they are heard together and disposed of by this common judgment. Both the appeals have been preferred by the Department. They concern the assessment years 1995-96 and 1996-97, respectively. For the sake of convenience, we reproduce herein the facts in Income-tax Appeal No. 215 of 2001. The following question is referred for opinion of this court:
“Whether, on the facts and in the circumstances of the case and in law, the Income-tax Appellate Tribunal has erred in deleting the addition of Rs. 54,75,000 made on account of 1/5th (sic) of premium on the redeemable debentures without considering the fact that no liability had accrued during the year under appeal and it was a contingent liability which was payable only after the expiry of ten years and directing the Assessing Officer to follow the decision of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT, [1997] 225 ITR 802, where the facts of the case diferred from those of the Supreme Court's decision?”
Facts:
2. During the assessment year in question, the assessee-company had issued zero interest unsecured redeemable convertible debentures of Rs. 100 each redeemable after ten years at a premium of 100 per cent.
3. These debentures are redeemable after ten years from the date of allotment at a premium of 100 per cent. The assessee claimed before the Assessing Officer a spread over. The assessee claimed that the premium payable by it was Rs. 5,47,50,000 after the expiry of ten years. However, the assessee claimed deduction of Rs. 54,75,000 per annum. The said amount was debited to the profit and loss account for the accounting year ending March 31, 1995. In the annual report, a footnote was added that premium on zero interest unsecured redeemable debentures of Rs. 100 each was redeemable after ten years at a premium of 100 per cent. The Assessing Officer disallowed the assessee's claim for deduction of Rs. 54,75,000. He added back that figure to the income of the assessee on the ground that the liability was not ascertainable during the accounting year ending March 31, 1995. That, it was a contingent liability. This decision was confirmed by the Commissioner of Income-tax (Appeals). However, the Tribunal overruled the case of the Department in view of the judgment of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT, [1997] 225 ITR 802. Being aggrieved, the Department has come by way of the appeal to this court.
Arguments:
4. None appears for the respondents though served.
5. Mr. R.V Desai, learned counsel appearing for the Department/appellant, submitted that the ratio of the judgment of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT, [1997] 225 ITR 802 as also the judgment of this court in the case of Taparia Tools Ltd. v. Joint Commissioner Of Income-Tax, [2003] 260 ITR 102 was not applicable as in this case the Assessing Officer found alteration in the terms of issue of debentures during the life of the issued debentures. He submitted that originally the debentures were issued at 2 per cent, which was changed to zero per cent, during the life of the issued debentures. That originally the issued debenture was for five years which was changed to ten years during the existence of the issued debentures. He submitted that in the case of Madras Industrial Investment Corporation Ltd., [1997] 225 ITR 802 (SC) as also in the case of Taparia Tools Ltd. v. Joint Commissioner Of Income-Tax, [2003] 260 ITR 102 (Bom), there was no discretion vested in the assessee to alter the terms of the issued debentures during the subsistence of the issued debentures whereas, in the present case, the borrower had the discretion to change the terms of the issued convertible debentures. He, therefore, submitted that during the assessment year in question, there was no ascertainment of liability to the tune of Rs. 54,75,000 and, therefore, the Assessing Officer was right in disallowing the claim for deduction.
Findings:
6. We do not find any merit in the above arguments advanced on behalf of the Department. Firstly, we have gone through the records and proceedings (R & P). In the entire R & P, there is nothing to indicate alterations of terms and conditions during the subsistence of the issued convertible debentures during the assessment year in question. Secondly, in the annual reports of the company and also in the audit reports given by the auditors, it has been certified that zero interest unsecured redeemable convertible debentures of Rs. 100 each redeemable after ten years at a premium of 100 per cent, had been issued during the assessment year in question. There is no reason for us to discard this note of the auditor. Even in the assessment order, no reasons have been given by the Assessing Officer for discarding this note of the auditors. Lastly, we may point out that even assuming for the sake of argument that the borrower had a discretion to change the terms of the issued debentures, there is nothing in the record to show that during the assessment year in question the borrower had exercised such a discretion. In the absence of factual matrix, we have no option but to confirm the judgment of the Tribunal. In our view, the judgment of this court in the case of Taparia Tools Ltd. v. Joint Commissioner Of Income-Tax, [2003] 260 ITR 102 (Bom) is applicable to this case. In our view, the judgment of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT, [1997] 225 ITR 802 is also applicable.
7. In the circumstances, we answer the above quoted question in the affirmative, i.e, in favour of the assessee and against the Department.
8. Accordingly, both the above appeals are disposed of with no order as to costs.