Expenditure on convertible debentures held to be deductible

Background:- Secure Meters Ltd. (‘the assessee’) is engaged in the business of manufacture of energy meters. The Assessing Officer (AO) inter-alia disallowed expenses on the issue of convertible debentures on the basis that it was capital in nature. This was confirmed by the Commissioner of Income Tax (Appeals). On further appeal, the Income Tax Appellate Tribunal (‘Tribunal’), however, held that the expenses on issue of debentures was allowable as a revenue expenditure. Aggrieved by the decision of the Tribunal, the Revenue filed an appeal before the Rajasthan High Court.

Issue before the High Court

• Whether the Tribunal was justified in holding that the expenses incurred in relation to issue of debentures is allowable as revenue expenditure under section 37 of the Income-tax Act.

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