Rain Cement Limited, Hyderabad V. DCIT, Circle-3(1), Hyderabad

ITA 878/HYD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98567 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 09-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S V S S PRASAD
• Assessee Lawyers: MANASVANI BAJPAI ARS
• Keywords: Revenue expenditure
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 878/HYD/2014 ASSESSMENT YEAR: 2006-07 RAIN CEMENTS LIMITED (FORMERLY KNOWN AS RAIN INDUSTRIES LIMITED) HYDERABAD [PAN: AABCR8858F] VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI DEEPAK CHOPRA & MS. MANASVANI BAJPAI, ARS FOR REVENUE : SHRI S.V.S.S. PRASAD, CIT-DR DATE OF HEARING : 20-08-2015 DATE OF PRONOUNCEMENT : 24-09-2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN ASSESSEES APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-IV, HYDERABAD DATED 14-02-2014 . ASSESSEE HAS RAISED THE FOLLOWING FIVE GROUNDS ON THE TWO ISSUES : 2. THE LD. CIT(A) ERRED IN LAW IN NOT ALLOWING THE ENTIRE AMOUNT OF DISCOUNT ON ISSUE OF DEBENTURES OF RS. 12 ,78,00,000/- AS DEDUCTION U/S. 37 OF THE INCOME TAX ACT, 1961 (ACT ). 3. THE LD. CIT(A) ERRED IN FACTS AND IN LAW BY REST RICTING THE DEDUCTION TO THE EXTENT OF ONE FIFTH OF RS. 12,78,0 0,000/- AS AGAINST ALLOWING THE ENTIRE AMOUNT OF RS. 12,78,00,000/- IN THE YEAR OF I.T.A. NO. 878/HYD/2014 RAIN CEMENTS LIMITED (FORMERLY KNOWN AS RAIN INDUSTRIES LIMITED) :- 2 -: ISSUE OF DEBENTURES, WITHOUT APPRECIATING THE FACT THAT THERE IS NO SPECIFIC PROVISION UNDER THE ACT TO DEFER THE EXPEN DITURE WHICH IS IN NATURE OF DISCOUNT ON ISSUE OF DEBENTURES. 4. A) THE LD. CIT(A) AND AO ERRED IN LAW IN DISALLO WING THE PREMIUM ON UNSECURED LOANS OF RS. 32,46,671/- U/S. 40(A)(IA) OF THE ACT, ON THE GROUND THAT NO TAX HAS BEEN DEDUCTED ON THE SAME UNDER THE PROVISIONS OF CHAPTER XVII-B OF THE ACT. B) THE LD. CIT(A) AND AO ERRED IN NOT APPRECIATI NG THE FACT THAT PREMIUM ON LOAN OUTSTANDING IS NOT COVERED UND ER THE PROVISIONS OF CHAPTER XVII-B AND HENCE THERE IS NO LIABILITY TO DEDUCT TAX AT SOURCE ON THE SAME. 5. WITHOUT PREJUDICE TO THE GROUND -4 ABOVE, THE LD . CIT(A) ERRED IN LAW IN NOT APPRECIATING THE FACT, THAT THE PAYEE HAS NOT ACQUIRED THE RIGHT TO RECEIVE OR ENFORCE PAYMENT FR OM THE PAYER AND HENCE NO INCOME IS RECEIVED OR ACCRUED BY THE PAYEE . ACCORDINGLY, QUESTION OF DEDUCTION OF TAX ON SUCH PREMIUM IS NOT APPLICABLE DURING THE CAPTIONED ASSESSMENT YEAR. WE HAVE HEARD THE LD. COUNSEL AND LD. DR IN DETAIL AND PERUSED THE PAPER BOOK PLACED ON RECORD. 2. BRIEFLY STATED, ASSESSEE IS ENGAGED IN THE BUSIN ESS OF MANUFACTURING OF CEMENT. IN THE COURSE OF ASSESSME NT PROCEEDINGS, ASSESSING OFFICER (AO) NOTICED THAT ASSESSEE CLAIME D DEDUCTION OF RS. 2,55,60,000/- IN THE P&L A/C AND FURTHER CLAIMED AN AMOUNT OF RS. 9,20,16,000/- IN THE COMPUTATION OF INCOME. ASSESS EE SUBMITTED THAT IT HAS RAISED A SUM OF RS. 112.78 CRORES BY ISSUE OF D EBENTURES AT A DISCOUNT OF RS. 12.78 CRORES, THAT THE DEBENTURES W ERE REDEEMABLE IN 10 SEMI-ANNUAL INSTALMENTS, THAT ASSESSEE HAD CHARGED 1/5 TH OF THE DISCOUNT AMOUNTING TO RS. 2,55,60,000/- IN THE BOOK S AND THE BALANCE OF RS. 10,22,40,000/- WAS CLAIMED IN THE COMPUTATIO N OF INCOME. IT WAS SUBMITTED THAT THE DISCOUNT ON ISSUE OF DEBENTURES WAS A REVENUE EXPENDITURE COVERED U/S. 37(1) OF THE INCOME TAX AC T [ACT] AND RELIED ON THE DECISION OF MADRAS INDUSTRIAL INVESTMENT CORPOR ATION VS. CIT [225 ITR 802 (SC)] AND M.P. FINANCIAL CORPORATION VS. CI T [165 ITR 765 (MP)]. I.T.A. NO. 878/HYD/2014 RAIN CEMENTS LIMITED (FORMERLY KNOWN AS RAIN INDUSTRIES LIMITED) :- 3 -: IT WAS FURTHER SUBMITTED THAT THE PRIMARY PRINCIPLE OF LAW WAS THAT REVENUE EXPENDITURE WAS DEDUCTIBLE IN THE YEAR IN W HICH THE EXPENDITURE WAS INCURRED IRRESPECTIVE OF ITS BENEFIT BEING SPRE AD OVER ON LONG PERIOD OF TIME AND THAT WHEREVER THE INTENT OF LEGISLATURE WAS TO AMORTIZE/DEFER THE DEDUCTIBILITY OF A PARTICULAR EXPENSE, A SPECIF IC PROVISION WAS MADE IN THE ACT, FOR EXAMPLE U/S. 35D, U/S. 35DD AND U/S . 35DDA. ASSESSEE RELIED ON VARIOUS PRINCIPLES ESTABLISHED IN VARIOUS CASE LAW (EXTRACTED BY THE CIT(A) IN PARA 6.3 OF THE ORDER). AO HOWEVER, DID NOT AGREE WITH THE ABOVE AND RELYING ON THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION VS . CIT [225 ITR 802 (SC)] (SUPRA) ALLOWED ONLY 1/10 TH OF THE AMOUNT AND DISALLOWED AN AMOUNT OF RS. 9,20,16,000/-. BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT ENTIRE CLAIM WAS MADE ON THE BASIS OF PRINCIPL ES OF LAW AND THAT ASSESSEE HAS INCURRED EXPENDITURE IN THE YEAR OF IS SUING DEBENTURES BY WAY OF DISCOUNT. EVEN THOUGH THERE WERE CERTAIN MI STAKES COMMITTED BY THE AO IN DISALLOWING THE AMOUNT, LD. CIT(A) GAVE D IRECTIONS TO THE AO TO ADOPT THE CORRECT AMOUNT WHICH IS NOT IN DISPUTE NO W. THE DISPUTE IS ONLY WITH REFERENCE TO WHETHER THE AMOUNT IS ALLOWA BLE ENTIRELY IN THE YEAR OF DISCOUNT OR HAS TO BE SPREAD OVER THE PERIO D OF DEBENTURES I.E., FIVE YEARS IN THIS CASE. 3. LD. CIT(A) CONSIDERING THE DETAILED SUBMISSI ONS OF ASSESSEE HOWEVER, AGREED WITH THE AO AND ALLOWED ONLY PROPOR TIONATE AMOUNT IN THE YEAR UNDER CONSIDERATION. THE ORDER OF CIT(A) IN PARAS 6.7 TO 6.9 IS AS UNDER: 6.7 I HAVE CONSIDERED THE FACTS ON RECORD AND THE SUBMISSIONS OF THE APPELLANT. THE SUPREME COURT IN ITS DECISION IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATI ON HELD AS FOLLOWS: 'THE TRIBUNAL, HOWEVER, HELD THAT SINCE THE ENTIRE LIABILITY TO PAY THE DISCOUNT HAD BEEN INCURRED IN THE ACCOUNTING YEAR IN QUESTION, THE ASSESSEE WAS ENTIT LED TO DEDUCT THE ENTIRE AMOUNT OF RS.3,00,000 IN THAT ACC OUNTING YEAR. THIS CONCLUSION DOES NOT APPEAR TO BE JUSTIFI ED LOOKING TO THE NATURE OF THE LIABILITY. IT IS TRUE THAT THE I.T.A. NO. 878/HYD/2014 RAIN CEMENTS LIMITED (FORMERLY KNOWN AS RAIN INDUSTRIES LIMITED) :- 4 -: LIABILITY HAS BEEN INCURRED IN THE ACCOUNTING YEAR. BUT THE LIABILITY IS A CONTINUING LIABILITY WHICH STRETCHES OVER A PERIOD OF 12 YEARS. IT IS, THEREFORE, A LIABILITY S PREAD OVER A PERIOD OF 12 YEARS. ORDINARILY, REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEA R IN WHICH IT IS INCURRED; IT: CANNOT BE SPREAD OVER E. NUMBER OF YEARS EVEN IF THE ASSESSEE HAS WRITTEN IT OFF IN HI S BOOKS OVER A PERIOD OF YEARS. HOWEVER, THE FACTS MAY JUST IFY AN ASSESSEE WHO HAS INCURRED EXPENDITURE IN A PARTICUL AR YEAR TO SPREAD AND CLAIM IT OVER A PERIOD OF ENSUIN G YEARS. IN FACT, ALLOWING THE ENTIRE EXPENDITURE IN ONE YEA R MIGHT GIVE A VERY DISTORTED PICTURE OF THE PROFITS OF A P ARTICULAR YEAR. ISSUING DEBENTURES AT A DISCOUNT IS ANOTHER S UCH INSTANCE WHERE, ALTHOUGH THE ASSESSEE HAS INCURRED THE LIABILITY TO PAY THE DISCOUNT IN THE YEAR OF ISSUE OF DEBENTURES, THE PAYMENT IS TO SECURE A _ BENEFIT OV ER A NUMBER OF YEARS. THERE IS A CONTINUING BENEFIT TO T HE BUSINESS OF THE COMPANY OVER THE ENTIRE NUMBER OF Y EARS. THERE IS A CONTINUING BENEFIT TO THE BUSINESS OF TH E COMPANY OVER THE ENTIRE PERIOD. THE LIABILITY SHOUL D,' THEREFORE, BE SPREAD OVER THE PERIOD OF THE DEBENTU RES. THE APPELLANT, THEREFORE, HAD, IN ITS RETURN, CORRECTLY CLAIMED A DEDUCTION ONLY IN RESPECT OF THE PROPORTIONATE PART OF DISCOUNT OF RS.12,500 OVER THE RELEVANT ACCOUNTING PERIOD IN QUESTION. THIS VIEW IS ALSO IN CONFORMITY WITH A CCOUNTING PRACTICE OF SHOWING THE DISCOUNT IN 'DISCOUNT ON DE BENTURES ACCOUNT' WHICH IS WRITTEN OFF OVER THE PERIOD OF TH E DEBENTURES. THE APPELLANT IS, THEREFORE, ENTITLED T O DEDUCT A SUM OF RS.12,500 OUT OF THE DISCOUNT. OF RS.3,00,00 0 IN THE RELEVANT ASSESSMENT YEAR. ' 6.8 THERE IS NO DISPUTE THAT A REVENUE EXPENDITURE IS ALLOWABLE IN ITS ENTIRETY IN THE YEAR OF INCURRENCE IRRESPECTIVE OF ITS BENEFIT EXTENDING OVER A LONGER PERIOD. THIS PRINCI PLE HAS BEEN ACKNOWLEDGED IN A NUMBER OF JUDICIAL DECISIONS INCL UDING THOSE CITED BY THE APPELLANT. HOWEVER, THE NATURE OF EXPE NDITURE IN THESE DECISIONS WERE ENTIRELY DIFFERENT. FOR EXAMPLE, IN THE CASE OF MADRAS AUTO SERVICES PVT. LTD, THE EXPENDITURE WAS INCURR ED ON DEMOLITION AND REBUILDING OF LEASE PREMISES. IN THE CASE OF AS SOCIATED CEMENT COMPANY LTD, THE EXPENDITURE WAS INCURRED ON CONSTR UCTION OF A ROAD. IN THE CASE OF BONGAIGAON REFINERY AND PETRO CHEMICALS LTD, THE EXPENDITURE WAS INCURRED ON CONSTRUCTION OF A R AILWAY TRACK. IN THE CASE OF HINDUSTAN COMMERCIAL BANK LTD, THE EXPE NDITURE WAS INCURRED IN CONNECTION WITH OPENING NEW BRANCHES, S UB BRANCHES AND PAY OFFICES. I.T.A. NO. 878/HYD/2014 RAIN CEMENTS LIMITED (FORMERLY KNOWN AS RAIN INDUSTRIES LIMITED) :- 5 -: 6.9 IN NONE OF THESE DECISIONS, WERE THE COURTS DEA LING WITH THE SPECIFIC ISSUE OF DISCOUNT ON DEBENTURES. THE S UPREME COURT'S DECISION IN THE CASE OF MADRAS INDUSTRIAL INVESTMEN T CORPORATION DEALS WITH AN EXPENSE WHICH IS IDENTICAL IN NATURE' WITH THAT INCURRED BY THE APPELLANT. THE APPELLANT HAD SOUGHT TO PLEAD THAT THIS DECISION SHOULD BE IGNORED, FIRSTLY, BECAUSE T HE.' SUPREME COURT HAD NOT TAKEN NOTE OF AN EARLIER DECISION AND SECON DLY, BECAUSE A SUBSEQUENT DECISION OF THE SUPREME COURT APPEARED T O BE AT VARIANCE FROM IT. HOWEVER, THE APPELLANT HAS NOT B ROUGHT TO MY NOTICE ANY SUBSEQUENT DECISION OF THE SUPREME COURT TO THE EFFECT THAT ITS DECISION IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION WAS NO LONGER GOOD LAW. UNDER THE CIRCU MSTANCES, THE DECISIONS OF THE SUPREME COURT ON IDENTICAL FACTS A RE TO BE HELD AS APPLICABLE. THE DECISION OF THE ASSESSING OFFICER T O. DISALLOW THE DISCOUNT ON DEBENTURES ON PROPORTIONATE BASIS IS, T HEREFORE, UPHELD. 4. ASSESSEE IS AGGRIEVED AND RAISED GROUND NOS. 2 & 3 ON THE ISSUE OF CLAIMING THE BALANCE AMOUNT OF DISCOUNT ALSO AS EXPENDITURE OF THE YEAR U/S 37(1) OF THE ACT. 5. OTHER ISSUE WHICH IS ALSO IN DISPUTE IS ON SIMIL AR CLAIM BUT FACTUALLY LITTLE DIFFERENT. ASSESSEE HAD BORROWED FUNDS EARLIER FROM M/S IL&FS. DUE TO CORPORATE DEBT RESTRUCTURING (CDR), ASSESSEE WAS LIABLE TO PAY AN AMOUNT OF RS. 16.62 CRORES (WHICH INCLUDE D ACCRUED INTEREST). AS PER THE TERMS OF CDR AN UPFRONT PAYMENT OF RS. 1 0 CRORES WAS MADE ON MARCH, 2005 AND BALANCE AMOUNT OF RS. 6.62 CRORE S WAS CONVERTED INTO AN UNSECURED SUBORDINATE LOAN CARRYING 0% RATE OF INTEREST PAYABLE BY MARCH, 2010. BY END OF MARCH 2011, ASSESSEE IS LIABLE TO PAY PREMIUM OF RS. 1.95 CRORES AND THIS PREMIUM WAS AMO RTIZED OVER THE PERIOD OF SIX YEARS AND DEBITED RS. 32,46,671/- TO THE P&L A/C AS PREMIUM ON UNSECURED LOANS AND CLAIMED IT AS DEDU CTIBLE EXPENSE IN COMPUTING ITS TOTAL INCOME. AO HOWEVER, DID NOT AL LOW THE AMOUNT ON THE REASON THAT LIABILITY TO PAY THE PREMIUM HAS NO T OCCURRED DURING THE YEAR AND SINCE ASSESSEE HAS NOT MADE ANY TDS ON SUC H PAYMENT, THE SAME WAS ALSO NOT ALLOWABLE AND ACCORDINGLY ADDED B ACK TO THE TOTAL INCOME. BEFORE THE LD. CIT(A), ASSESSEE RELIED ON THE SAME PRINCIPLES AS IN THE CASE OF DISCOUNT ON DEBENTURES TO HOLD THAT THE AMOUNT IS I.T.A. NO. 878/HYD/2014 RAIN CEMENTS LIMITED (FORMERLY KNOWN AS RAIN INDUSTRIES LIMITED) :- 6 -: ALLOWABLE AS DEFERRED REVENUE EXPENDITURE AND IT CA N BE SPREAD OVER FOR A PERIOD OF SIX YEARS IE. PERIOD OF LOAN. ASSESSEE RELIED ON VARIOUS CASE LAW AS EXTRACTED BY THE CIT(A) IN PARA 7.3 OF THE O RDER. LD. CIT(A) FOLLOWING THE PRINCIPLES LAID DOWN BY THE HONBLE C ALCUTTA HIGH COURT IN THE CASE OF NATIONAL ENGINEERING INDUSTRIES LTD., V S. CIT [236 ITR 577] (CAL) CONSIDERED THAT THERE IS NO DISTINCTION BETWE EN A DISCOUNT AND A PREMIUM, THE RESULT IN BOTH IS THAT SOMETHING OVER AND ABOVE THE FACE VALUE AND THE SPECIFIED INTEREST IS PAID AND THE AC COUNTING PROCEDURE IN ONE CASE, BEING BY WAY OF PRELIMINARY DEDUCTION FRO M THE MENTIONED AMOUNT, THAT ACCOUNTING PROCEDURE IN OTHER CASE BEI NG IN ADDITION AT THE END, OVER THE PRESCRIBED AND MENTIONED FACE VALUE A MOUNT. FOLLOWING THE RATIO OF THIS DECISION ASSESSEES CLAIM OF ALLO WABILITY OF PREMIUM ON UNSECURED LOAN SPREAD OVER SIX YEARS WAS ACCEPTED I N PRINCIPLE. THERE IS NO DISPUTE ON THIS ISSUE. 5.1 HOWEVER, THE LD. CIT(A) DID NOT ALLOW THE AM OUNT AS THE SAME IS LIABLE TO BE DISALLOWED U/S. 40(A)(IA). THE ORDER OF LD. CIT(A) IN PARA 7.7 IS AS UNDER: 7.7 HOWEVER, THE APPELLANT HAS ADMITTEDLY NOT DED UCTED ANY TAX ON THIS SUM. THE APPELLANT HAS SOUGHT TO AR GUE THAT OBLIGATION TO DEDUCT TAX AROSE ONLY WHEN THE PAYEE ACQUIRED A RIGHT TO ENFORCE/RECEIVE PAYMENT FROM THE PAYER AND NOT O N THE BASIS OF MERE CREDIT BY THE PAYER IN, THE BOOKS OF ACCOUNT.' THE ARGUMENT OF THE APPELLANT IS NOT IN ACCORDANCE WITH THE EXPRESS PROVISIONS OF THE ACT. THE TDS PROVISIONS CREATE A LIABILITY TO DEDUC T TAX ON CREDIT OR PAYMENT, WHICHEVER IS EARLIER. THERE IS NO NEXUS O F SUCH A LIABILITY TO DEDUCT TAX WITH THE ACCRUAL OF THE LIABILITY TO THE CREDITOR. IN OTHER WORDS, WHILE THE PAYMENT MAY NOT HAVE ACCRUED FOR P AYMENT TO THE PARTY CONCERNED, THE LIABILITY TO DEDUCT TAX ARISES ON THE MERE CREDIT OF ANY SUCH AMOUNT TO THE PARTY'S ACCOUNT. THERE I S NO DENYING THAT THE APPELLANT HAS CREDITED THE PAYEE'S ACCOUNT AND DEBITED THE EXPENSE ACCOUNT IN ITS BOOKS. HAVING DONE SO, IT WA S LIABLE TO DEDUCT TAX AND HAVING FAILED TO DO SO, IT BECOMES L IABLE TO DISALLOWANCE U/S. 40(A)(IA). THE DISALLOWANCE OF TH E PREMIUM OF RS.32,46,671/- IS THEREFORE, UPHELD AND THE FOURTH GROUND OF APPEAL IS DISMISSED. ASSESSEE IS AGGRIEVED AND RAISED GROUND NOS. 4 & 5. I.T.A. NO. 878/HYD/2014 RAIN CEMENTS LIMITED (FORMERLY KNOWN AS RAIN INDUSTRIES LIMITED) :- 7 -: 6. LD. COUNSEL REITERATED ARGUMENTS MADE BEFORE THE LD. CIT(A) AND ALSO RELIED ON THE JUDGMENT OF HONBLE SUPREME COUR T IN THE CASE OF TAPARIA TOOLS LIMITED VS. JCIT, NASIK IN CIVIL APPE AL NOS. 6366- 6368/2003 DT, 23-03-2015. IT WAS SUBMITTED THAT HO NBLE SUPREME COURT UPHELD THE RULE THAT REVENUE EXPENDITURE INCU RRED IN A PARTICULAR YEAR IS TO BE ALLOWED IN THE YEAR. HE RELIED ON TH E PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT IN THE ABOVE SAID DECI SION AND SUBMITTED THAT ENTIRE AMOUNT IS TO BE ALLOWED UPFRONT. 6.1 COMING TO THE ISSUE OF DISALLOWANCE U/S. 40(A)( IA) ON THE PREMIUM PAYABLE, IT WAS THE SUBMISSION THAT THERE IS NO LIA BILITY TO DEDUCT TAX ON THE ABOVE AMOUNT AND RELIED ON THE BOARD CIRCULAR N O. 4/2004 DT. 13- 05-2004 GIVEN IN THE CASE OF DEEP DISCOUNT BONDS TO SUBMIT THAT THERE IS NO OBLIGATION TO WITHHOLD TAX ON THE PREMIUM AMO UNT CLAIMED BY ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IT W AS FURTHER SUBMITTED THAT SO MUCH OF AMOUNT HAS NOT ACCRUED TO THE PAYEE ,THEREFORE, THERE IS NO LIABILITY TO DEDUCT TAX. 6.2 LD. DR HOWEVER, RELIED ON THE PRINCIPLES AS UPH ELD BY THE LD. CIT(A) AND FURTHER SUBMITTED THAT DECISION IN THE C ASE OF TAPARIA TOOLS LIMITED VS. JCIT, NASIK IN CIVIL APPEAL NOS. 6366-6 368/2003 DT, 23-03- 2015 (SUPRA), RELIED ON BY ASSESSEE MAY BE APPLICAB LE FOR THE INTEREST CLAIMS. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE FACTS OF THE CASE. AS FAR AS THE ISSUE OF DISCOUNT ON DEBEN TURES IS CONCERNED, THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT ASSESSEE HAS ISSUED THE DEBENTURES WITH DISCOUNT. IT IS ALSO A FACT TH AT HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT C ORPORATION VS. CIT [225 ITR 802 (SC)] (SUPRA), HAS CONSIDERED THE ISSU E IN DETAIL WHICH WAS EXTRACTED BY THE LD. CIT(A) IN THE ORDER. THEREFOR E, SINCE THE PRINCIPLES I.T.A. NO. 878/HYD/2014 RAIN CEMENTS LIMITED (FORMERLY KNOWN AS RAIN INDUSTRIES LIMITED) :- 8 -: ESTABLISHED BY THE SUPREME COURT IN THE ABOVE SAID CASE FULLY APPLIES TO THE FACTS OF THE CASE, WE ARE CONVINCED THAT THE DI SCOUNT OF THE DEBENTURES IS TO BE SPREAD OVER THE PERIOD OF HOLDI NG PERIOD OF DEBENTURES I.E., IN THIS CASE FIVE YEARS. 8. LD. COUNSEL RELIED ON THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF TAPARIA TOOLS LIMITED VS. JCIT, NASIK IN CI VIL APPEAL NOS. 6366- 6368/2003 DT, 23-03-2015 (SUPRA), IN WHICH HONBLE SUPREME COURT HAS AN OCCASION TO EXAMINE THE DECISION OF MADRAS INDUS TRIAL INVESTMENT CORPORATION VS. CIT [225 ITR 802 (SC)] (SUPRA). LD . COUNSEL RELIED ON THE PRINCIPLES LAID DOWN IN SAID DECISION. WE ARE NOT CONVINCED WITH THE APPLICABILITY OF ABOVE SAID DECISION TO THE FACTS O F THE CASE. THE FACTS IN TAPARIA TOOLS LIMITED VS. JCIT, NASIK IN CIVIL APPE AL NOS. 6366- 6368/2003 DT. 23-03-2015 (SUPRA) ARE THAT ASSESSEE CLAIMED DEDUCTION OF REVENUE EXPENDITURE ON ACCOUNT OF INTEREST PAYME NT OF THE SUM OF RS. 2,72,25,000/- PAID TO ONE M/S. MALIRAM MAKHARIA STO CK BROKERS PVT. LTD., AND RS. 55,00,000/- ON ACCOUNT OF INTEREST PA YMENT GIVEN TO M/S. SHARP KNIFE COMPANY PVT. LTD. THIS WAS ON ACCOUNT OF UPFRONT PAYMENTS OF INTEREST GIVEN TO THE ABOVE SAID TWO DE BENTURE HOLDERS IN THE AYS. 1996-97 & 1997-98 RESPECTIVELY. WHILE ANA LYZING THE CLAIM OF ALLOWANCE OF THE ENTIRE AMOUNT IN AY. 1996-97 BY AS SESSEE, WHERE THE AO TREATED IT AS DEFERRED REVENUE EXPENDITURE TO BE WRITTEN OFF OVER A PERIOD OF FIVE YEARS AND ALLOWED 1/5 TH OF THE AMOUNT, HONBLE SUPREME COURT ANALYSED THE ISSUE BY CONSIDERING THE PROVISI ONS OF SECTION 36, WHICH IS APPLICABLE FOR DEDUCTION OF INTEREST VIDE SUB-SECTION 1(III) OF SECTION 36. VIDE PARA 8 & 9, THE HONBLE SUPREME C OURT ANALYSED THE PROVISIONS OF SECTION 36(1)(III) AND WENT ON TO ANA LYSE AMOUNT INCURRED/ PAID AND THEN CAME TO THE CONCLUSION THAT SINCE A SSESSEE HAD PAID THE ENTIRE INTEREST AMOUNT UPFRONT, THE SAME WAS ALLOWA BLE IN THE YEAR OF PAYMENT. IN FACT, HONBLE SUPREME COURT ALSO HELD THAT BY ALLOWING ONLY 1/5 TH OF THE UPFRONT PAYMENT, THOUGH THE ENTIRE AMOUNT O F INTEREST IS ACTUALLY INCURRED IN THE VERY FIRST YEAR, THE AO, I N FACT, TREATED BOTH THE I.T.A. NO. 878/HYD/2014 RAIN CEMENTS LIMITED (FORMERLY KNOWN AS RAIN INDUSTRIES LIMITED) :- 9 -: METHODS OF PAYMENTS AT PAR WHICH IS CLEARLY UNSUSTA INABLE. IN COMING TO CONCLUSION, THE HONBLE SUPREME COURT HAS CONSID ERED TWO WAYS OF PAYMENT OF INTEREST ON DEBENTURES, IN ONE METHOD, T HE DEBENTURE HOLDER WAS ENTITLED TO RECEIVE PERIODICAL RECEIPTS AFTER E VERY HALF YEAR AT 18% P.A. FOR FIVE YEARS OR ELSE, DEBENTURE HOLDER ACCEP TED UPFRONT PAYMENT OF RS. 55/- PER DEBENTURE TOWARDS INTEREST AS ONETIME PAYMENT. SINCE THE CLAIM IS ONLY PERTAINING TO UPFRONT PAYMENT OF RS. 55/- PER DEBENTURE TOWARDS INTEREST AS ONETIME PAYMENT, HON'BLE SUPRE ME COURT HELD THAT AO TAMPERED WITH THE TERMS OF ISSUE WHICH WAS BEYON D HIS DOMAIN. HOWEVER, THERE IS NO CLAIM FOR DEBENTURE INTEREST P AYABLE HALF YEARLY AS THAT INTEREST HAS NOT ACCRUED AND WAS ALSO NOT CLAI MED. THE HON'BLE SUPREME COURT IN THE SAID JUDGMENT ALSO CONSIDERED THE JUDGMENT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATIO N VS. CIT [225 ITR 802 (SC)] (SUPRA). VIDE PARA 17 OF THE JUDGMENT, TH E HON'BLE SUPREME COURT CONSIDERED AS UNDER: 17. THUS, THE FIRST THING WHICH IS TO BE NOTICED I S THAT THOUGH THE ENTIRE EXPENDITURE WAS INCURRED IN THAT YEAR, I T WAS THE ASSESSEE WHO WANTED THE SPREAD OVER. THE COURT WAS CONSCIOUS OF THE PRINCIPLE THAT NORMALLY REVENUE EXPENDITURE IS TO BE ALLOWED IN THE SAME YEAR IN WHICH IT IS INCURRED, BUT AT THE I NSTANCE OF THE ASSESSEE, WHO WANTED SPREADING OVER, THE COURT AGREED TO ALLOW THE ASSESSEE THAT BENEFIT WHEN IT WAS FOUND THAT TH ERE WAS A CONTINUING BENEFIT TO THE BUSINESS OF THE COMPANY O VER THE ENTIRE PERIOD . (EMPHASIS SUPPLIED) 9. THUS, AS CAN BE SEEN, HON'BLE SUPREME COURT DIST INGUISHED ISSUE ON FACTS, HOWEVER DID NOT OVERRULE THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT C ORPORATION VS. CIT [225 ITR 802 (SC)], WHICH IS DIRECTLY APPLICABLE T O THE FACTS OF THE CASE AS CONSIDERED BY THE LD. CIT(A). MOREOVER, THE JUD GMENT IN THE CASE OF TAPARIA TOOLS LIMITED VS. JCIT, NASIK IN CIVIL APPE AL NOS. 6366- 6368/2003 DT, 23-03-2015 (SUPRA) IS UNDER THE PROVI SIONS OF SECTION 36(1)(III) WHEREAS THE DECISION OF THE HON'BLE SUPR EME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION VS. CIT [225 ITR 802 (SC)] I.T.A. NO. 878/HYD/2014 RAIN CEMENTS LIMITED (FORMERLY KNOWN AS RAIN INDUSTRIES LIMITED) :- 10 - : (SUPRA) IS DIRECTLY U/S. 37(1) AND THAT TOO ON THE ISSUE OF DISCOUNT ON DEBENTURES. SINCE THERE IS A DIRECT JUDGMENT OF TH E HON'BLE SUPREME COURT COVERING THE FACTS OF THE CASE, WE DO NOT SEE ANY REASON TO INTERFERE THE ORDER OF THE LD. CIT(A). THIS IS ALSO IN TUNE WITH THE CLAIM OF PREMIUM CONSIDERED IN LATER GROUNDS, PRINCIPLES B EING SAME. ACCORDINGLY, WE UPHOLD THE SPREADING OVER OF THE DI SCOUNT ON DEBENTURES OVER PERIOD OF DEBENTURES I.E., FIVE YEARS. ACCORD INGLY, WE UPHOLD THE ALLOWANCE OF 1/5 TH OF THE DISCOUNT ONLY IN THE YEAR UNDER CONSIDERATI ON. THE GROUNDS 2 & 3 RAISED BY ASSESSEE ARE ACCORDINGL Y REJECTED. 10. COMING TO THE ISSUE OF CLAIM OF PREMIUM WHICH WAS DISALLOWED U/S. 40(A)(IA), THERE IS NO DISPUTE WITH REFERENCE TO THE CLAIM OF PREMIUM SPREAD OVER THE PERIOD OF SIX YEARS. THIS CLAIM IS IN ACCORDANCE WITH THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE AB OVE REFERRED CASE I.E., MADRAS INDUSTRIAL INVESTMENT CORPORATION VS. CIT [225 ITR 802 (SC)]. AS RIGHTLY HELD BY THE HON'BLE CALCUTTA HIG H COURT IN THE CASE OF NATIONAL ENGINEERING INDUSTRIES LTD., VS. CIT [236 ITR 577] (CAL), THERE IS NO DISTINCTION BETWEEN A DISCOUNT AND A PREMIUM. T HEREFORE, ASSESSEES CLAIM OF LIABILITY OF PREMIUM ON THE LOAN, SPREAD O VER IN THE SIX YEARS IS TO BE ACCEPTED IN PRINCIPLE. HOWEVER, THE ISSUE IS NOT WHETHER THE AMOUNT IS ALLOWABLE IN THE FIRST YEAR OR IN THE LAS T YEAR OR IS TO BE SPREAD OVER. THE CONTENTIONS OF ASSESSEE BEFORE THE CIT(A ) ARE IN CONTRAST TO THE CONTENTIONS RAISED ON THE ABOVE ISSUE OF DISCOUNT O N DEBENTURES. BE THAT AS IT MAY, AS FAR AS THE PRINCIPLES OF LAW ARE CONCERNED, BOTH THE DISCOUNT AS WELL AS PREMIUM ARE TO BE SPREAD OVER A S THERE IS A CONTINUING BENEFIT OR A CONTINUING LIABILITY OVER T HE PERIOD OF DEBENTURE OR THE LOAN PERIOD. THEREFORE, KEEPING THE CONSIST ENCY PRINCIPLE ALSO, THE DISCOUNT ON DEBENTURES AS WELL AS THE PREMIUM ON LO AN TAKEN ARE TO BE ALLOWED PROPORTIONATELY OVER THE PERIOD. TO THAT EX TENT ASSESSEES CONTENTIONS ON THE ALLOWABILITY ARE ACCORDING TO TH E PRINCIPLES OF LAW. I.T.A. NO. 878/HYD/2014 RAIN CEMENTS LIMITED (FORMERLY KNOWN AS RAIN INDUSTRIES LIMITED) :- 11 - : 10.1 BUT THE ISSUE IN THIS APPEAL IS WHETHER TH E AMOUNT CAN BE DISALLOWED U/S. 40(A)(IA)? IT WAS THE CONTENTION O F ASSESSEE THAT THERE IS NO NEED FOR DEDUCTING TAX AS NO LIABILITY WAS INCUR RED AND SINCE AMOUNT WAS NOT ACCRUED TO THE PAYEE AS PER THE TERMS OF AG REEMENT, THERE IS NO LIABILITY TO DEDUCT TAX ON ASSESSEE. FURTHER, IT W AS CONTENDED THAT THERE IS NO PROVISION TO CONSIDER THE AMOUNT FOR THE PURP OSE OF TDS UNDER CHAPTER-XVIIB. WE ARE NOT CONVINCED WITH THE ARGUM ENTS OF ASSESSEE AND ITS CONTENTIONS. ASSESSEE ADMITS THAT THERE IS A LIABILITY TO PAY THE PREMIUM, THAT THE REASON WHY ASSESSEE HAS CLAIMED 1 /6 TH OF THE AMOUNT AS A DEDUCTION IN THE YEAR. ONCE THERE IS LIABILIT Y TO PAY, AUTOMATICALLY, PROVISIONS OF CHAPTER-XVIIB WILL APPLY. AS STATED , THIS AMOUNT IS NOT A DISCOUNT ON DEBENTURES NOR A DISCOUNT ON DEEP DISC OUNT BONDS. AS ADMITTED BY ASSESSEE, ASSESSEE WAS LIABLE TO PAY TO TAL OF RS. 16.62 CRORES AS PRINCIPLE AND ACCRUED INTEREST. OUT OF W HICH, RS. 10 CRORES WAS PAID UPFRONT AND BALANCE AMOUNT OF RS. 6.62 CRO RES WAS CONVERTED TO 0% INTEREST LOAN. HOWEVER, PREMIUM OF RS. 1.95 CRORES WAS TO BE PAID AT THE END OF THE SIXTH YEAR I.E., BY MARCH, 2 011 AS A PREMIUM. THIS AMOUNT IS NOTHING BUT THE INTEREST AMOUNT CALC ULATED OVER THE PERIOD OF SIX YEARS TERMED AS PREMIUM TO BE PAID AT THE END OF THE YEAR. THE DEFINITION OF INTEREST AS PER THE INCOME TAX AC T IS AS UNDER: SECTION 2(28A) - 'INTEREST' MEANS INTEREST PAYABL E IN ANY MANNER IN RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED (INCLUDING A DEPOSIT, CLAIM OR OTHER SIMILAR RIGHT OR OBLIGATION ) AND INCLUDES ANY SERVICE FEE OR OTHER CHARGE IN RESPECT OF THE MONEY S BORROWED OR DEBT INCURRED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN UTILISED;] 10.2. THUS, AS CAN BE SEEN, THE INTEREST INCLUDES A NY SERVICE FEE OR OTHER CHARGE IN RESPECT OF THE MONEYS BORROWED /INCURRED. FROM THE TERMS OF THE AGREEMENT AS WELL AS THE FACTS OF THE CASE, PRE MIUM IS NOTHING BUT OTHER CHARGE IN RESPECT OF THE MONEYS BORROWED. EV EN THOUGH, IT WAS TERMED THAT INTEREST IS 0%, THE PREMIUM WAS COLLECT ED AT THE END OF THE PERIOD IS NOTHING BUT AN INTEREST PAYABLE OVER A PE RIOD OF LOAN, WHATEVER I.T.A. NO. 878/HYD/2014 RAIN CEMENTS LIMITED (FORMERLY KNOWN AS RAIN INDUSTRIES LIMITED) :- 12 - : THE NOMENCLATURE GIVEN BY THE PARTIES. WE ARE OF T HE OPINION THAT THIS AMOUNT CERTAINLY COMES WITHIN THE PURVIEW OF INTER EST AS PER SECTION 2(28A) OF THE ACT. THEREFORE, THE PROVISIONS OF SE CTION 194A- INTEREST OTHER THAN INTEREST ON SECURITIES DO APPLY TO THE FACTS OF THE CASE. ANOTHER CONTENTION OF ASSESSEE IS THAT AMOUNT HAS N OT ACCRUED TO THE PAYEE AND THEREFORE, ASSESSEE IS NOT LIABLE TO DEDU CT TAX. HOWEVER, , PROVISIONS OF SECTION 194A HAS THIS EXPLANATION. SECTION 194A : INTEREST OTHER THAN INTEREST ON SE CURITIES.- . . EXPLANATION.FOR THE PURPOSES OF THIS SECTION, WHER E ANY INCOME BY WAY OF INTEREST AS AFORESAID IS CREDITED TO ANY ACCOUNT, WHETHER CALLED INTEREST PAYABLE ACCOUNT OR SUSPENSE ACCO UNT OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE PERSON L IABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF T HIS SECTION SHALL APPLY ACCORDINGLY. 10.3. CONSEQUENTLY, EVEN IF THE AMOUNT IS CREDITED TO SUSPENSE A/C, BUT IS CLAIMED IN THE BOOKS OF ACCOUNTS OF THE PERSON L IABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF PAYEE AND THE PROVISIONS OF THIS SEC TION SHALL APPLY ACCORDINGLY. THERE IS NO DISPUTE THAT ASSESSEE HAS PROVIDED THE AMOUNT IN THE BOOKS OF ACCOUNTS AND ALSO CLAIMED IN THE P& L A/C AS AN EXPENDITURE. CONSEQUENTLY, THE CREDIT OF SUCH IN B OOKS OF ACCOUNT SHALL BE DEEMED TO BE INCOME TO THE ACCOUNT OF PAYEE AND PROVISIONS OF SECTION 194A DO APPLY TO THE FACTS OF PRESENT CASE. CONSEQUENTLY, FOR THE FAILURE OF DEDUCTION OF TAX AT SOURCE, WE ARE OF TH E OPINION THAT AMOUNT IS DISALLOWABLE UNDER THE PROVISIONS OF SECTION 40( A)(IA). IN VIEW OF THIS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDE R OF LD. CIT(A). ACCORDINGLY, THE GROUNDS 4 & 5 ARE ALSO REJECTED. I.T.A. NO. 878/HYD/2014 RAIN CEMENTS LIMITED (FORMERLY KNOWN AS RAIN INDUSTRIES LIMITED) :- 13 - : 11. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH SEPTEMBER, 2015 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 24TH SEPTEMBER, 2015 TNMM COPY TO : 1. RAIN CEMENTS LIMITED, (FORMERLY KNOWN AS RAIN IN DUSTRIES LIMITED), PLOT NO.34, RAIN CENTER, SRINAGAR COLONY, HYDERABAD. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3( 1), 7 TH FLOOR, B BLOCK, INCOME TAX TOWER, HYDERABAD. 3. CIT (APPEALS)-IV, HYDERABAD. 4. CIT-III, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.