INDIAN SHAVING PRODUCTS LTD IN V. ADDL COMMISSIONER OF INCOME TA

ITA/361/2008

AI Insights

The case involves Indian Shaving Products Ltd., now known as Gillette India Limited, appealing against the decision of the Tribunal which had reversed the order of the CIT(A) regarding the allowability of expenditure on the issue of convertible debentures as revenue expenditure. The substantial questions of law framed by the court pertained to the nature of expenditure on debentures and its treatment under the Income Tax Act, 1961. The appellant argued that the expenditure should be treated as revenue expenditure, referencing a precedent set by the Rajasthan High Court in Commissioner of Income Tax vs. Secure Meters Ltd., which was supported by the dismissal of an SLP against that decision. The respondent, however, relied on a contrary view previously taken by Justice K.S. Jhaveri in the Gujarat High Court. The court ultimately decided to follow the precedent set by the Rajasthan High Court, allowing the appeal and reversing the Tribunal's decision.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 691605 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 17-01-2017
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax vs. Secure Meters Ltd., C.I.T. Vs. East India Hotels, India Cement's case, Ashima Syntex Ltd. vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: PARINITOO JAIN
• Assessee Lawyers: SANJAY JHANWAR
• Keywords: Capital expenditure; Convertible Debentures; Non-Convertible Debentures; Revenue expenditure
• Section: 37(1); 35D(2)(c)(iv)

Judgement Text

"HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 361 / 2008 Indian Shaving Products Ltd. Industrial Area, Bhiwadi, Alwar now known as Gillette India Limited through its Managing Director Mr. Jubair Ahemd S/o Shri F. Ahmed, aged about_____ years, Global Business Park-Tower ‘A’ Mehrauli- Gurgoan Road, Gurgaon-122002 (Haryana). ----Appellant Versus Addl. Commissioner Of Income Tax, Special Range, Alwar. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sanjay Jhanwar. For Respondent(s) : Mrs. Parinitoo Jain. _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VINIT KUMAR MATHUR Judgment Per Hon’ble Jhaveri J. 17/01/2017 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal preferred by the Revenue and reversed the order of the CIT(A). 2. This Court while admitting the appeal on 05.11.2008, has framed the following substantial questions of law: “(i) Whether expenditure incurred on issue of debentures is not allowable as revenue expenditure u/s 37(1) of the Income Tax Act, 1961? (ii) Whether conversion of debentures into Share Capital after issuance of the debentures would make any difference in the character of expenditure incurred in respect of issuance of such debentures? (2 of 4) [ITA-361/2008] (iii) Whether, under the facts and circumstances of the case, ld. ITAT was justified in concluding that claim of the expenditure of Rs.14,98,255/- on issue of convertible debentures is not tenable u/s. 35D(2)(c)(iv) without giving any reasoning?” 3. Counsel for appellant has contended that the issue is squarely covered by the decision of this Court in the case of Commissioner of Income Tax vs. Secure Meters Ltd. in (2010) 321 ITR 0611 against which an SLP was preferred which was dismissed vide order dated 11.08.2009. 4. This court in the case of Commissioner of Income Tax vs. Secure Meters Ltd. (supra) in para 8 & 9 has observed as under: “8. At this stage it was contended by the learned counsel for the Revenue, that a distinction should be drawn between the convertible, and non convertible debentures, inasmuch as if the debenture is converted into shares, then it partakes the character of capital, and in that event, the expenditure would not be revenue expenditure, and would be capital expenditure. Learned counsel for the assessee informs, that though it has not come on record so far, but as a matter of fact the debentures issued were of convertible nature. Then, the learned counsel for the assessee argued, relying upon the judgment of Calcutta High Court, in C.I.T. Vs. East India Hotels, reported in 252 ITR-860, that the expenditure incurred, even in raising loan by convertible debenture would also be admissible as revenue expenditure. The Calcutta High Court had adopted the reasoning, that conversion of debentures results into repayment of loan, and issuance of shares. This is one aspect of the matter. In our view, the other more important aspect of the matter is, that the Hon'ble Supreme Court in India Cement's (3 of 4) [ITA-361/2008] case has clearly excluded this aspect from consideration, by holding, that it is irrelevant to consider the object, with which the loan was obtained. 9. Admittedly the debentures when issued is a loan, and therefore, whether it is convertible, or non convertible, does not militate against the nature of the debenture, being loan, and therefore, the expenditure incurred would be admissible as revenue expenditure.” 5. However, counsel for the respondent is contended that one of us (Justice K.S. Jhaveri) while sitting in Gujarat High Court in the case of Ashima Syntex Ltd. vs. ACIT in Tax Appeal No.1133/2006, decided on 14.06.2016, has taken a contrary view which has been relied upon by the Tribunal. 6. We have heard counsel for both the sides. 7. It is well settled that the law which was prevailing in this Court shall prevail and the view taken by one of us (Justice K.S. Jhaveri) while sitting in Gujarat High Court will not be binding while taking the matter in Rajasthan High Court. While, deciding the Tax Appeal in Gujarat High Court, the view of the Rajasthan High Court was not pointed out before the Bench. 8. In that view of the matter, the issue no.1 & 2 are decided in favour of the assessee and against the department. In view of this, the issue no.3 has become infructuous. 9. The appeal stands allowed. (VINIT KUMAR MATHUR)J. (K.S. JHAVERI)J. (4 of 4) [ITA-361/2008] Asheesh Kr. Yadav/100 "