The division bench of the Delhi High Court in a recent decision held that only actual payment of money are covered under section 43-B of the Income Tax Act, 1961.
While observing so, the Court disallowed the claim of deduction made by the assessee in respect of interest paid by them by issuing non-convertible debentures. The Court was considering a review petition filed by the assessee against the order of the same court. In which the court delivered the above findings.
The assessee issued its non-convertible debentures to the financial institution for the interest payable. The Assessing officer disallowed the claim of deduction by holding that assessee does not satisfied the conditions provided under section 43 of the Act and the issue of debentures for the interest payable does not amount to actual payment of interest.
Though the Commissioner of Income Tax (Appeal) has accepted the plea of the assessee, the Appellate Tribunal rejected the same on the appeal filed by the revenue. The assessee, therefore approached the High Court. The issue raised before the High Court was that Whether the funding of the interest amount by way of a term ‘debenture’ amounts to actual payment of as contemplated by Section 43B of the Income Tax Act, 1961?
The Court, following the decision of the Supreme Court in J.B. Boda Co. (P.) Ltd v Central Board of Direct Taxes 223 ITR 27, held that only actual payment of money are covered under section 43-B and decided in favor of the Revenue.
The assessee, being aggrieved, filed a Review petition before the High Court contending that if the holder of a debenture so desires, it can secure the underlying amount and they are marketable securities. On this ground the assessee submitted that the court fell into error in answering the question of law against the assessee.
The division bench comprising of Justice S Ravindhra Bhat and Justice R K Gauba held that “Quite possibly the assessee’s arguments would have been convincing and the court might have been persuaded that actual payment of amounts is inessential and a composition of the kind involved in this case, would have sufficed- but for Explanation 3C. Now, this provision was inserted with retrospective effect and clearly operated for the period in question. The assessee does not dispute that. Furthermore, this court’s judgment cited the rulings of other courts- Andhra Pradesh & Telangana and the Madhya Pradesh High Courts- which held that actual payment is the sine qua non for applicability of Section 43-B. In the circumstances, the decisions in Standard Chartered (supra) and Sunrise Associates (supra), which declared the nature and character of debentures, are of little avail.”
The Court upheld its earlier judgment and held that there is no error apparent on the face of the record, nor is there any sufficient cause, for reviewing its judgment.
Read the full text of the Judgment below.
