Strides Shasun Limited Vs ACIT (ITAT Mumbai)
The learned Counsel for the assessee explained the facts that the assessee company has issued Foreign Currency Convertible Bond i.e. FCCB (listed in Singapore Stock Exchange) to the extent of US $ 40 million. These bonds carry an interest rate of 0.5% p.a. and are redeemable on April 19, 2010 at 136.78 percent of the Principal amount. Further, these bonds are convertible into shares by Bond holders on or after May 18, 2005. The total issue expenses relating to the issue of FCCB is USD $ 10,77,926 claimed in equal installments over a period of 5 years. Further, we find that these Bonds may be redeemed only in full, at any time on or after 18th April 2008 but before April 19th 2010 with a redemption premium of 68% p.a. As on 31′ December 2005 the additional amount (including exchange fluctuation) which is payable on redemption was provided for under Debenture Redemption Reserve with a corresponding adjustment to Securities Premium. Further, none of the bonds were offered for conversion as on 31st March 2007. Further, the FCCB issue expenses have been allowed as a deduction in the Company’s own case for the AY 2006-07. Based on GAAP principles, the premium needs to be accrued; consequently the liability has been accrued in the books in the year of receipt of FCCB funds. Premium on redemption amounting to USD 16 Million has been accrued in the financials for the year ending 31 December 2005 based on the office circular. The liability is crystallized in the year of issue; however, it is discharged in the year of redemption.
In view of these facts, we are of the view that when a Company issues FCCB, it incurs a liability to pay a larger amount than what is borrowed and such higher amount payable by the Company will be for the purpose of its business in order to generate funds for its business activities. The amounts so obtained are used by the Company for the purposes of its business. Hence the liability to pay the additional amount would therefore be revenue expenditure. The additional amount is nothing but an interest computed at 6.8% p.a. Hence the liability to pay the additional amount would therefore be revenue expenditure.
