Case Law Details
M.M. Aqua Technologies Ltd. Vs CIT (Supreme Court of India)
In the return filed by it, the Appellant claimed a deduction of Rs.2,84,71,384/- under Section 43B based on the issue of debentures in lieu of interest accrued and payable to financial institutions. By an order dated 29th October, 1998, the Assessing Officer rejected the Appellant’s contention by holding that the issuance of debentures was not as per the original terms and conditions on which the loans were granted, and that interest was payable, holding that a subsequent change in the terms of the agreement, as they then stood, would be contrary to Section 43B(d), and would render such amount ineligible for deduction.
ITAT allowed deduction of interest and against that Revenue filed an appeal before the High Court, in which the question raised before the High Court for determination was set out as follows:
“Whether the funding of the interest amount by way of a term loan amounts to actual payment as contemplated by Section 43B of the Income-tax Act, 1961?”
Both the CIT and the ITAT found, as a matter of fact, that as per a rehabilitation plan agreed to between the lender and the borrower, debentures were accepted by the financial institution in discharge of the debt on account of outstanding interest. This is also clear from the expression “in lieu of” used in the judgment of the learned CIT. That this is so is clear not only from the accounts produced by the assessee, but equally clear from the fact that in the assessment of ICICI Bank, for the assessment year in question, the accounts of the bank reflect the amount received by way of debentures as its business income. This being the fact-situation in the present case, it is clear that interest was “actually paid” by means of issuance of debentures, which extinguished the liability to pay interest.
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