The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) granted relief to Tata Steel Limited, ruling that perpetual non-convertible debentures are allowable expenditure under Section 36(1)(iii) of the Income Tax Act,1961.
Mr. Nishant Thakkar representing the assessee submitted that interest on debentures was disallowed in proceedings under Section 263 of the Income Tax Act in assessment years 2011-12 and 2012-13. The assessee assailed the findings of the Principal Commissioner of Income Tax in appeal before the Tribunal for AY 2011-12 and AY 2012-13. The Tribunal vide common order held that interest paid on debentures is allowable deduction under Section 36(1) (iii) of the Income Tax Act.
The assessee has claimed interest paid amounting to Rs.266,17,02,198/- under Section 36(1)(iii) of the Income Tax Act. The AO rejected the assessee’s claim on the ground that the said expenditure claimed is not in the nature of interest. The assessee is not under obligation to repay Perpetual Debentures and hence, returns of such debentures cannot be classified as interest per se under the definition of interest under the provisions of the Income Tax Act.
As per Section 36 of the Income Tax Act deals with the list of specific expenses which are allowed for the purpose of computation of income chargeable to tax under the business and profession head of income.
And Section 36(1)(iii) of Income Tax Act, Interest on borrowed capital The amount of interest paid in respect of capital borrowed for the purpose of Business & Profession of assessee shall be allowed subject to the section 43B. When the capital is borrowed for acquisition of a capital asset, then interest liability pertaining to the period till the date such asset is put to use shall not be allowed as deduction.
The two member bench of the tribunal comprising M.Balaganesh (Accountant member) and Vikas Aswathy (Judicial member) found that in AY 2011-12 and 2012-13, the PCIT had invoked revisional jurisdiction on the same issue, It is not disputed by the Department that the PNCD on which the assessee has paid interest are the same that were subject matter of dispute in AY 2011-12 and 2012-13 in proceedings under Section 263 of the Income Tax Act Thus, in the light of the decision of Co-ordinate Bench on same issue in assessee’s own case in preceding assessment year.
The ITAT hold that the interest expenditure in respect of Perpetual Non-Convertible Debentures was an allowable expenditure under Section 36(1)(iii) of the Income Tax Act. Thus, the appeal of the assessee was allowed.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
