Case Law Details
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.
Ruling of the High Court
- A loan is neither an asset nor an advantage of an enduring nature. Reliance was placed on the decision of the Hon?ble Supreme Court in the case of India Cement vs. CIT – 60 ITR 52.
- The expenditure for obtaining a loan is revenue in nature, even if it is spent on capital assets.
- It is irrelevant to consider the object for which the loan is obtained.
- A debenture, when issued, is a loan, and whether it is convertible or non- convertible, does not militate against the nature of the debenture, being loan.
- Expenditure incurred on issue of debentures is revenue in nature and hence allowable.
Special Leave Petition (SLP) before the Supreme Court
Against the above judgment of the High Court, the Revenue filed a Special Leave Petition before the Supreme Court, which has been dismissed.
