Appeal details
Counselvise Citation
[2020] 111 COUNSELVISE.COM (IT) 0481 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
11 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
19-06-2020
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
11-06-2020
Assessment Year
2015-2016
Appeal Filed On
26-06-2019
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B R BASKARAN , ACCOUNTANT MEMBER IT A NO. 1549/BANG/2019 ASSESSMENT YEAR: 2015 - 16 IMS HEALTH ANALYTICS SERVICES PRIVATE LTD. [FORMERLY IMS HEALTH INDIA PVT. LTD. SINCE MERGED], OMEGA BLOCK, EMBASSY TECH SQUARE, MARATHAHALLI SARJAPUR OUTER RING ROAD, KADUBEESANAHALLI, BANGALORE 560 103. PAN: AADCP 1532C VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : S MT. TANMAYEE RAJKUMAR, ADVOCATE RESPONDENT BY : SMT. R. PREMI, JT.CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 11.06.2020 DATE OF PRONOUNCEMENT : 1 9 .0 6 .2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER DATED 26.4.2019 OF THE CIT(APPEALS)-3, BENGALURU RELATING TO ASSESSMENT YEAR 2015-16. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO, WHETHER THE REVENUE AUTHORITIES WERE JUSTIFIED IN D ISALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF A SUM OF RS.2,56,17,280 BEING INTEREST EXPENDITURE ON COMPULSORILY CONVERTIBLE DEBENTURES [CCDS]. ITA NO.1549/BANG/2019 PAGE 2 OF 8 3. THE ASSESSEE IS A COMPANY WHICH IS ENGAGED IN TH E BUSINESS OF KNOWLEDGE PROCESS OUTSOURCING. DURING THE PREVIOUS YEAR, THE ASSESSEE HAD ISSUED 4,92,640 CCDS OF RS.1,000 EACH TO IQVIA AG, SWITZERLAND CARRYING AN INTEREST RATE OF 5.2% P.A. ON THE ABOV E CCDS, THE ASSESSEE PAID INTEREST OF RS.2,56,17,280. THE SAID SUM WAS CLAIMED AS A DEDUCTION U/S. 36(1)(III) OF THE ACT VIZ., AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSION. ACCORDING TO THE AO, SINCE THE CCDS ARE FULLY CONVERTIBLE TO EQUITY SHAR ES, ANY EXPENDITURE RELATING THERETO WOULD BE IN THE NATURE OF CAPITAL EXPENDITURE AND ACCORDINGLY HE DISALLOWED THE CLAIM OF ASSESSEE FOR DEDUCTION U/S. 36(1)(III) OF THE ACT. THE AO IN COMING TO THE ABOVE CONCLUSI ON PLACED RELIANCE ON THE DECISION OF THE SPECIAL BENCH (SB) INCOME TAX A PPELLATE TRIBUNAL (ITAT) IN THE CASE OF ASHIMA SYNTEX LTD. V. ACIT [2006] 100 ITD 247 (AHD)(SB) . IN THE AFORESAID CASE DECIDED BY THE SPECIAL BEN CH [SB], THE ASSESSEE ISSUED CCDS WHICH WERE TO BE FULLY CONVERT ED INTO EQUITY SHARES AFTER A CERTAIN PERIOD. THE ASSESSEE CLAIMED DEDUC TION OF EXPENDITURE INCURRED IN ISSUING WHOLLY CONVERTIBLE DEBENTURES A ND THE QUESTION BEFORE THE SB WAS, WHETHER IT WAS ALLOWABLE U/S. 37(1) AS REVENUE EXPENDITURE. THE SB HELD THAT THE EXPENDITURE WAS NOT REVENUE EX PENDITURE. 4. AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE THE CIT(APPEALS) AND RELIED ON THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF GANESH BANZOPLAST LTD. V. ACIT [2008] 20 SOT 1 (MUM ) [URO] WHEREIN IT WAS HELD THAT THE DEBENTURE ISSUE EXPENS ES WERE TO BE ALLOWED AS A DEDUCTION. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF AAR IN RE. LMN INDIA LTD. [2008] 175 TAXMAN 139 (AAR). THE CIT(A) HELD THAT THE DECISION OF AAR RELIED ON BY THE ASSESSEE DID N OT ANSWER THE QUESTION RELATING TO ALLOWABILITY OF INTEREST AS EXPENDITURE IN THE HANDS OF THE RESIDENT COMPANY. RATHER, THE AAR DECIDED ONLY THE RECEIPT IN THE HANDS OF RECIPIENT. THE CIT(A) ALSO HELD THAT THE DECISION OF ITAT MUMBAI BENCH IN ITA NO.1549/BANG/2019 PAGE 3 OF 8 THE CASE OF GANESH BANZOPLAST LTD. (SUPRA) WAS RENDERED ON THE BASIS OF DECISION IN THE SAID ASSESSEES OWN CASE BY THE TRI BUNAL IN THE EARLIER ASSESSMENT YEAR BY FOLLOWING THE RULE OF CONSISTENC Y AND THEREFORE THE SAID DECISION WAS NOT OF ANY HELP TO THE PLEA OF ASSESSE E. THE CIT(A) WAS OF THE VIEW THAT THE DECISION OF THE ITAT SB IN THE CA SE OF ASHIMA SYNTEX LTD. (SUPRA) WAS APPLICABLE TO THE CASE OF THE ASSESSEE AND THER EFORE THE ACTION OF THE AO IN MAKING THE IMPUGNED DISALLOWANCE WAS U PHELD BY THE CIT(APPEALS). 5. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE ASSE SSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ITAT SB DECISION RENDERED IN THE CASE OF ASHIMA SYNTEX LTD. (SUPRA) WAS A CASE OF EXPENSES INCURRED IN CONNECTION WITH THE ISSUE OF C CDS; WHEREAS THE CASE OF ASSESSEE IS IN RELATION TO DEDUCTION OF INTEREST PAID ON CCDS AND THEREFORE CLEARLY DISTINGUISHABLE. IT WAS SUBMITTE D THAT CCDS TILL SUCH TIME THEY ARE CONVERTED INTO EQUITY ARE IN THE NATURE OF LOANS AND THEREFORE ANY INTEREST PAID ON BORROWINGS FOR THE PURPOSE OF BUSI NESS HAS TO BE ALLOWED AS A DEDUCTION U/S. 36(1)(III) OF THE ACT. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF ITA T BANGALORE A BENCH IN THE CASE OF ACIT V. M/S. CAE FLIGHT TRAINING (I) PVT. LTD. IN I T(TP)A NO.2060/BANG/2016 DATED 25.7.2017. THE ISSUE FOR CONSIDERATION IN THE AFORESAID CASE DECIDED BY THE BANGALORE BENCH WAS W ITH REGARD TO THE INTEREST PAID ON CCDS. THE CONTENTION OF THE REVEN UE WAS THAT THOUGH THE NOMENCLATURE CCD IS USED, YET THEY ARE IN THE NATUR E OF EQUITY. THE REVENUE SOUGHT TO RAISE THE ABOVE CONTENTION ON THE BASIS OF THE THIN CAPITALISATION RULE WHICH WAS NOT APPLICABLE FOR TH E ASSESSMENT YEAR WHICH WAS UNDER CONSIDERATION BEFORE THE TRIBUNAL. THE T RIBUNAL FIRSTLY HELD IN THE CASE OF CAE FLIGHT TRAINING (I) PVT. LTD. (SUPRA) THAT THIN CAPITALISATION PRINCIPLE WAS NOT APPLICABLE TILL SUCH TIME THOSE P RINCIPLES WERE RECOGNISED ITA NO.1549/BANG/2019 PAGE 4 OF 8 BY WAY OF STATUTORY PROVISIONS. THEREAFTER, THE TR IBUNAL EXAMINED WHETHER THE QUESTION, INTEREST PAID ON CCDS SHOULD BE ALLOW ED AS A DEDUCTION. THE TRIBUNAL DISTINGUISHED THE DECISION OF THE SPECIAL BENCH ITAT IN THE CASE OF ASHIMA SYNTEX LTD. (SUPRA) AND HELD AS FOLLOWS:- 23. AS PER ABOVE PARAS OF THIS TRIBUNAL ORDER, IT COMES OUT THAT EVEN IF THIN CAPITALIZATION PRINCIPLE IS ON STATUTE BOOK OF THE OTHER COUNTRY, NO DISALLOWANCE CAN BE MADE IN INDIA BY APPLYING THIS PRINCIPLE. TO THIS EXTENT, WE UPHOLD THE FINDI NG OF CIT (A) BY RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER. BUT THE ISSUE STILL REMAINS BECAUSE, THE OBJECTIONS OF AO/TPO ARE NOT M ERELY ON THE BASIS OF THIN CAPITALIZATION PRINCIPLE. THEIR BASIC OBJECTION IS THIS THAT SINCE THE INTEREST IS PAID ON CCDS, THIS IS NO T AN INTEREST ON DEBT BUT ON EQUITY AND HENCE, NOT ALLOWABLE. ON PAG E 11 OF HIS ORDER FOR A. Y. 2009 10, THE TPO HAS REPRODUCED C ERTAIN COMMENTS OF RBI IN 2007 POLICY ON CONVERTIBLE DEBEN TURES IN WHICH IT IS STATED THAT FULLY AND MANDATORILY CONVE RTIBLE DEBENTURES INTO EQUITY WITHIN A SPECIFIED TIME WOUL D BE RECKONED AS EQUITY UNDER FDI POLICY. IN VIEW OF THIS RBI POL ICY, THE TPO CONCLUDED THAT THESE CCDS ARE EQUITY AND NOT DEBT A ND THEREFORE, INTEREST ON IT IS NOT ALLOWABLE U/S 36 (1) (III). T HIS FINDING OF TPO IS NOT BY INVOKING THIN CAPITALISATION PRINCIPLE AN D THEREFORE, IT HAS TO BE DECIDED INDEPENDENTLY. WE FIND THAT THE D ECISION OF TPO IS BASES ON RBI POLICY OF FDI. WE ALL KNOW THAT RBI POLICY OF FDI IS GOVERNED BY THIS THAT WHAT WILL BE FUTURE REPAYMENT OBLIGATION IN CONVERTIBLE FOREIGN CURRENCY AND SINC E, CCDS DOES NOT HAVE ANY REPAYMENT OBLIGATION, THE SAME WAS CON SIDERED BY RBI AS EQUITY FOR FDI POLICY. NOW THE QUESTION IS T HAT SUCH TREATMENT GIVEN BY RBI FOR FDI POLICY CAN BE APPLIE D IN EVERY ASPECT OF CCDS. WHETHER THE HOLDER OF CCDS BEFORE I NS CONVERSION CAN HAVE VOTING RIGHTS? WHETHER DIVIDEND CAN BE PAID ON CCDS BEFORE ITS CONVERSION? IN OUR CONSIDERED OP INION, THE REPLY TO THESE QUESTIONS IS A BIG NO. ON THE SAME L OGIC, IN OUR CONSIDERED OPINION, TILL THE DATE OF CONVERSION, FO R ALLOWABILITY OF INTEREST U/S 36 (1) (III) OF INCOME TAX ACT ALSO, S UCH CCDS ARE TO BE CONSIDERED AS DEBT ONLY AND INTEREST THEREON HAS TO BE ALLOWED AND IT CANNOT BE DISALLOWED BY SAYING THAT CCDS ARE EQUITY AND NOT DEBT. WE HOLD ACCORDINGLY. THIS ISSUE IS DECIDE D. 24. AFTER EXAMINING THE APPLICABILITY OF THE TRIBUN AL ORDER RENDERED IN THE CASE OF BESIX KIER DABHOL, SA VS. D DIT (SUPRA), ITA NO.1549/BANG/2019 PAGE 5 OF 8 WE NOW EXAMINE THE APPLICABILITY OF THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF ASHIM A SYNTEX LTD. VS. ACIT AS REPORTED IN 100 ITD 247 (AHD.) (SB) ON WHICH RELIANCE HAS BEEN PLACED BY LD. DR OF REVENUE IN TH E WRITTEN SUBMISSIONS FILED BY HIM AS REPRODUCED ABOVE. FROM THE FACTS NOTED BY THE TRIBUNAL IN THIS CASE, IT IS SEEN THAT IN THAT CASE THE ASSESSEE ISSUED CONVERTIBLE DEBENTURES FOR SUBSCRIP TION AT THE RATE OF RS. 75 PER DEBENTURE AND THESE WERE IN TWO PARTS ; PART-A OF RS. 35 TO BE COMPULSORILY CONVERTED INTO ONE EQUITY SHA RE OF THE FACE VALUE OF RS. 10 EACH AT A PREMIUM OF RS. 25 PER SHA RE ON THE DATE OF ALLOTMENT OF THE DEBENTURE AND PART-B OF RS. 40 TO BE COMPULSORILY CONVERTED INTO ONE EQUITY SHARE OF THE FACE VALUE OF RS. 10 EACH AT A PREMIUM OF RS. 30 PER SHARE ON THE EXPIRY OF 15 MONTHS FROM THE DATE OF ALLOTMENT OF THE DEBENTURE. PART-B DEBENTURE WAS TO CARRY AN INTEREST AT THE RATE OF R S. 14 PER ANNUM TILL THE DATE OF CONVERSION PAYABLE HALF YEARLY ON 30TH JUNE AND 31ST DECEMBER EACH YEAR AND ON CONVERSION. THE ISSU E IN DISPUTE IN THAT CASE WAS REGARDING THE ALLOWABILITY OF EXPE NSES INCURRED ON ISSUE OF SUCH DEBENTURES AND THE ISSUE IN THAT C ASE WAS NOT OF INTEREST ON DEBENTURES BEFORE ITS CONVERSION AS IN THE PRESENT CASE. THIS IS ALSO AN IMPORTANT ASPECT OF THE MATTER OF T HAT CASE THAT ONE PART OF THE DEBENTURE WAS TO BE CONVERTED ON THE DA TE OF ALLOTMENT OF DEBENTURE ITSELF, SECOND PART OF THE DEBENTURE H AS TO BE CONVERTED ONLY ON EXPIRY OF 15 MONTHS FROM THE DATE OF ALLOTMENT OF DEBENTURE AND UNDER THESE FACTS, IT WAS HELD BY SPECIAL BENCH OF THE TRIBUNAL IN THAT CASE THAT THE EXPENSES INCU RRED ON ISSUE OF SUCH DEBENTURES HAS TO BE CONSIDERED AS EXPENSES IN CURRED FOR ISSUE OF SHARES BECAUSE IT WAS FOUND THAT FIRST PAR T OF THE DEBENTURES WAS TO BE CONVERTED INTO SHARES ON THE D ATE OF ALLOTMENT ITSELF AND THE SECOND PART WAS TO BE CONV ERTED AFTER EXPIRY OF 15 MONTHS FROM THE DATE OF ALLOTMENT OF D EBENTURE AND THEREFORE IT WAS HELD THAT EXPENSES INCURRED WERE A CTUALLY INCURRED FOR ISSUE OF SHARES AND NOT ISSUE OF DEBEN TURES. IN THE PRESENT CASE, THE ISSUE IS NOT REGARDING EXPENSES I NCURRED ON ISSUE OF SHARES. IN THE PRESENT CASE, THE DISPUTE IS REGA RDING INTEREST ON CCDS FOR A PERIOD BEFORE CONVERSION. HENCE IN OUR C ONSIDERED OPINION, THIS DECISION OF SPECIAL BENCH OF THE TRIB UNAL IS NOT APPLICABLE IN THE FACTS OF PRESENT CASE BECAUSE THE ISSUE IN DISPUTE IS DIFFERENT. IN THAT CASE THE ISSUE IN DISPUTE IS REGARDING EXPENDITURE INCURRED ON ISSUE OF CONVERTIBLES WHERE AS IN THE PRESENT CASE THE ISSUE IS REGARDING ALLOWABILITY OF INTEREST ITA NO.1549/BANG/2019 PAGE 6 OF 8 EXPENDITURE ON CONVERTIBLE DEBENTURES FOR THE PRE-C ONVERSION PERIOD. HENCE WE HOLD THAT THE REVENUE DOES NOT FIN D ANY SUPPORT FROM THIS DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THAT CASE. 25. APART FROM RELYING ON THIS DECISION OF SPECIA L BENCH OF THE TRIBUNAL, THE LD. DR OF REVENUE IN WRITTEN SUBM ISSIONS AS REPRODUCED ABOVE HAS MAINLY REITERATED THE SAME ARG UMENTS WHICH ARE ADOPTED BY THE TPO IN ITS ORDER I.E. REGA RDING RBI MASTER CIRCULAR ON FOREIGN INVESTMENT IN INDIA DATE D 02.07.2007 AND 01.07.2008. WE WOULD LIKE TO OBSERVE THAT SUCH CIRCULAR IN THE CONTEXT OF FDI POLICY OF RBI IS IN A DIFFERENT CONTEXT I.E. REGARDING FUTURE RE-PAYMENT OBLIGATIONS IN CONVERTI BLE FOREIGN CURRENCY AND TO HAVE CONTROL OVER SUCH FUTURE RE-PA YMENT OBLIGATIONS, THE RBI IS EXERCISING STRICT AND CONTR OL SO THAT SUCH FUTURE RE-PAYMENT OBLIGATIONS DOES NOT GO BEYOND A POINT AND SINCE IN THE CASE OF FULLY CONVERTIBLE DEBENTURES, THERE IS NO FUTURE RE-PAYMENT OBLIGATION, THE SAME WAS CONSIDERED AS E QUITY FOR THE PURPOSE OF FDI POLICY. IN OUR CONSIDERED OPINION, A NY DEFINITION OF ANY TERM IS TO BE CONSIDERED KEEPING IN MIND THE CONTEXT IN WHICH SUCH DEFINITION WAS GIVEN. THIS DEFINITION OF CONVERTIBLE DEBENTURES GIVEN BY RBI IS IN THE CONTEXT OF FDI PO LICY TO EXERCISE CONTROL ON FUTURE RE-PAYMENT OBLIGATIONS I N CONVERTIBLE FOREIGN CURRENCY. IN OUR CONSIDERED OPINION, SUCH D EFINITION OF THE TERM CONVERTIBLE DEBENTURES CANNOT BE APPLIED I N OTHER CONTEXT SUCH AS ALLOWABILITY OF INTEREST ON SUCH DE BENTURES DURING PRE-CONVERSION PERIOD OR REGARDING PAYMENT OF DIVID END ON SUCH CONVERTIBLE DEBENTURES DURING PRECONVERSION PERIOD OR REGARDING GRANTING OF VOTING RIGHTS TO THE HOLDERS OF SUCH CO NVERTIBLE DEBENTURES BEFORE THE DATE OF CONVERSION. IF YOU AS K A QUESTION AS TO WHETHER DIVIDEND CAN BE PAID ON SUCH CONVERTIBLE DEBENTURES IN A PERIOD BEFORE THE DATE OF CONVERSION OR WHETHE R SUCH HOLDERS OF CONVERTIBLE DEBENTURES CAN BE GRANTED VOTING RIG HTS AT PAR WITH VOTING RIGHTS OF SHARE HOLDERS DURING PRE-CONVERSIO N PERIOD, THE ANSWER WILL BE A BIG NO. ON THE SAME ANALOGY, IN OU R CONSIDERED OPINION, THE ANSWER OF THIS QUESTION IS ALSO A BIG NO AS TO WHETHER INTEREST PAID ON CONVERTIBLE DEBENTURES FOR PRE- CONVERSION PERIOD CAN BE SAID TO BE INTEREST ON EQU ITY AND INTEREST ON DEBENTURES ALLOWABLE U/S. 36(1)(III) OF THE IT A CT. 7. THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. SECURE METERS LTD. [2008] 175 ITA NO.1549/BANG/2019 PAGE 7 OF 8 TAXMAN 567 (RAJ) TOOK THE VIEW THAT EXPENSES INCURRED IN RELATION TO THE ISSUE OF DEBENTURES WERE REVENUE EXPENDITURE AND SH OULD BE ALLOWED AS REVENUE EXPENDITURE U/S. 37(1) OF THE ACT. OUR ATT ENTION WAS ALSO DRAWN TO THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. ITC HOTELS [2020] 190 TAXMAN 430 (KARN) WHEREIN IT WAS HELD THAT EXPENDITURE INCURRED ON ISSUE OF CONVERTIBLE DEBENT URES IS ALLOWABLE AS REVENUE EXPENDITURE U/S. 37(1) OF THE ACT. THE SUM AND SUBSTANCE OF THE SUBMISSION WAS THAT THE DECISION OF THE SPECIAL BEN CH RENDERED IN THE CASE OF ASHIMA SYNTEX LTD. (SUPRA) CANNOT BE FOLLOWED IN THE LIGHT OF DECISION OF THE HONBLE HIGH COURT OF KARNATAKA. T HE ABOVE SUBMISSION WAS MADE WITHOUT PREJUDICE TO THE SUBMISSION THAT Q UESTION OF INTEREST ON THE ISSUE OF CONVERTIBLE DEBENTURE U/S. 37(1) CANNO T BE EQUATED WITH THE ISSUE, WHETHER INTEREST PAID ON DEBENTURES IS ALLOW ABLE AS A DEDUCTION U/S. 36(1)(III) OF THE ACT. 8. THE LD. DR RELIED ON THE ORDER OF CIT(APPEALS). 9. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIV AL SUBMISSIONS. WE ARE OF THE VIEW THAT THE DECISION OF THE ITAT BANGA LORE BENCH IN THE CASE OF CAE FLIGHT TRAINING (I) PVT. LTD. (SUPRA) SUPPORTS THE PLEA OF THE ASSESSEE FOR ALLOWING DEDUCTION ON INTEREST PAID ON CCDS. IN THE AFORESAID DECISION, THE TRIBUNAL IN PARA 23 HELD THAT THE FA CT THAT THE RBI UNDER ITS FOREIGN DIRECT INVESTMENT POLICY MANDATES CONVERSIO N OF DEBENTURES INTO EQUITY AND SUCH MANDATE WILL NOT MAKE ANY DIFFERENC E TO THE ALLOWABILITY OF INTEREST ON DEBENTURES U/S. 36(1)(III) OF THE ACT. THE TRIBUNAL HELD THAT TILL DATE OF CONVERSION, CCDS ARE IN THE NATURE OF DEBT AND INTEREST PAID ON CCDS CANNOT BE DISALLOWED ON THE GROUND THAT CCDS W ILL LATER ON BE CONVERTED INTO EQUITY. THE TRIBUNAL THEREAFTER IN PARA 24 EXAMINED THE DECISION RENDERED IN ASHIMA SYNTEX LTD. (SUPRA) AND CONCLUDED THAT THE ISSUE THEREIN WAS REGARDING EXPENSES INCURRED ON IS SUE OF CONVERTIBLE DEBENTURES AND NOT INTEREST PAID ON CCDS FOR THE PE RIOD BEFORE CONVERSION ITA NO.1549/BANG/2019 PAGE 8 OF 8 AND THEREFORE THE DECISION OF SPECIAL BENCH WILL NO T BE OF ANY APPLICATION TO THE FACTS OF THE CASES WHERE DEDUCTI ON U/S. 36(1)(III) OF THE ACT IS CLAIMED. THE TRIBUNAL ALSO DISCUSSED THE RB I MASTER CIRCULAR ON FOREIGN INVESTMENTS IN INDIA DATED 2.7.2007 AND 1.7 .2008 AND HELD THAT THOSE CIRCULARS WILL HAVE NO EFFECT AND THE DEBENTU RES TILL ITS CONVERSION WILL RETAIN ITS CHARACTER AS LOAN OR BORROWINGS. 10. IN THE LIGHT OF THE AFORESAID DECISION OF THE T RIBUNAL, WE ARE OF THE VIEW THAT THE DEDUCTION CLAIMED BY THE ASSESSEE HAS TO BE ALLOWED. WE MAY ALSO CLARIFY THAT THE THIN CAPITALISATION PRINC IPLE WAS NEITHER INVOKED BY THE AO OR THE CIT(APPEALS) IN THE PRESENT CASE N OR WERE THOSE RULES PART OF THE STATUTE FOR THE RELEVANT AY IN THIS APP EAL. 11. FOR THE REASONS GIVEN ABOVE, WE ALLOW THE APPEA L OF THE ASSESSEE AND HOLD THAT DEDUCTION CLAIMED BY THE ASSESSEE SHO ULD BE ALLOWED. 12. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF JUNE, 2020. SD/- SD/- ( B R BASKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 19 TH JUNE, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.
