CA Manish Soni
A. Context: M/s Taparia Tools Limited (‘assessee’) issued debentures of Rs. 600 Lacs to various subscribers. The debenture holders were given following two options as regards payment of interest:-
- Interest @18% p.a. on a half yearly basis for 5 years or,
- One time upfront payment of Rs.55/- per debenture (FV Rs. 100/-).
Two subscribers out of six opted for upfront payment. The assessee made a payment of Rs. 272 Lacs in assessment year (‘AY’) 1996-97 and Rs. 55 Lacs in AY 1997-98 towards upfront payment of interest to these 2 subscribers. It made 2 different treatment of these upfront payments in financials and tax return respectively, which is mentioned as under:
| Treatment in financials | Treatment in Income Tax Return (‘ITR’) |
|---|---|
| As deferred revenue expenditure to be written off in 5 years i.e. over life period of debentures | Deduction of entire amount of interest in the year of payment only |
During assessment, the assessing officer (‘AO’) allowed 1/5th of total upfront payment as deduction in the year of payment and added back 4/5th to the income of assessee. The assessee lost the case from AO -> CIT(A) -> ITAT -> Bombay High Court (‘HC’).
B. Contentions of assessee:
