In the High Court of Judicature at Madras Dated : 14.07.2008 Coram :- The Honourable Mr.Justice K.RAVIRAJA PANDIAN and The Honourable Mr.Justice P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.872 of 2008 Commissioner of Income Tax Tamil Nadu-I, Madras. .. Appellant Vs. M/s.Aslhok Leyland Limited 19,Rajaji Salai, Chennai – 600 001 Chennai – 600 001. .. Respondent TAX CASE (APPEAL) filed under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal, Madras A Bench dated 15.12.2006 in I.T.A.No.2584/Mds/2005 for the assessment year 1998-99 against the Commissioner of Income Tax Appeals - III, Chennai-34 dated 9.8.2005 in ITA.No.21/2005-06/AIII for the Assessment year 1998-99 against the Assistant Commissioner of Income Tax, Company circle (1) Chennai dated 8.3.2005 in PA/G.I.R.No.AX1- 001 for the Assessment year 1998-99. For Appellant : Mrs.Pushya Sitaraman JUDGMENT JUDGMENT OF THE COURT WAS DELIVERED BY K.RAVIRAJA PANDIAN,J The revenue has filed this appeal aggrieved by the order of the Income Tax Appellate Tribunal Madras A Bench dated 15.12.2006 in I.T.A.No.2584/Mds/2005. The relevant assessment year is 1998-99. The substantial question of law formulated for entertainment of this appeal is as follows:- "Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the entire debenture issue expenses should be allowed as revenue expenditure under Section 37 of the Income-tax Act, 1961? https://hcservices.ecourts.gov.in/hcservices/ 2. The facts of the case as culled out from the grounds of appeals are as follows:- The assessee is a company engaged in the manufacture and sale of automobiles chasis. The assessing officer disallowed amortisation of debenture issue expenses of Rs.1,02,60,000/-. As against the said order, the assessee preferred appeal before the Commissioner of Income-tax (Appeals), who held that the object of the debenture issue was to meet the working capital requirement of the assessee and therefore the expenditure was considered to be a revenue expenditure and directed the assessing officer to allow the expenditure incurred in connection with the issue of debentures under Section 37 of the Income-tax Act, 1961 by allowing the appeal filed by the assessee. The revenue carried the matter on appeal before the Income-tax Appellate Tribunal and the Tribunal by following the decision reported in 252 ITR 860 in the case of CIT Vs. East India Hotels Limited (Calcutta) dismissed the Department appeal. Aggrieved by the said order, the revenue filed the present appeal by formulating the above said question of law. 3. When the matter came up for admission before this Court, learned counsel appearing for the revenue submits that the issue involved in this appeal is covered by the decision of this Court in the case of CIT Vs. SOUTH INDIA CORPORATION (AGENCIES) LIMITED, (2007) 290 ITR 217. 4. This Court in the case of CIT Vs. SOUTH INDIA CORPORATION (AGENCIES) LIMITED, (2007) 290 ITR 217 held thus: "Question No. 1 : “Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the 60 per cent. of the expenses incurred on partly convertible debentures had to be allowed as deduction ?” This question pertains to the assessment years 1989-90 and 1992-93. For the relevant assessment years, the assessee claimed certain expenditure as debenture issue expenses. The Assessing Officer treated 60 per cent. of the claim of expenditure as capital expenditure and the balance 40 per cent. as revenue expenditure. Aggrieved by the same, the assessee filed an appeal to the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) confirmed the order of the Assessing Officer and dismissed the appeal filed by the assessee. Aggrieved by the order, the assessee filed an appeal to the Income-tax Appellate Tribunal (hereinafter referred to as the “Tribunal”). The Tribunal held as follows : https://hcservices.ecourts.gov.in/hcservices/ “The last of the issues is with regard to expenses incurred on debenture issue being treated as capital expenditure. The authorities have treated part of the expenditure as capital expenditure on the reasoning that at the time of redemption of the debenture, the holders of the debentures were entitled to certain shares. The issue of shares is a future event which may or may not happen. At present, the expenditure incurred was on the issue of debentures only and hence the expenses incurred on obtaining a loan is a revenue expenditure. We accordingly uphold the claim of the assessee.” The Assessing Officer had bifurcated the expenditure and allowed only 40 per cent. as revenue expenditure, without any basis. The Tribunal correctly held that the disallowance of 60 per cent. is without any basis and the Assessing Officer was wrong in treating part of the expenditure as capital expenditure on the reasoning that at the time of redemption of debentures, the holders of the debentures would be entitled to certain shares. The issue of shares is a future event which may or may not happen. The Tribunal considered and followed the principles enunciated in the apex court judgment reported in India Cements Ltd. v. CIT [1966] 60 ITR 52, which, in fact, followed by the Delhi High Court in CIT v. Thirani Chemicals Ltd. [2007] 290 ITR 196 holding that expenditure incurred on the issue of debentures is a permissible deduction under section 37 of the Act. Learned counsel appearing for the Revenue has not produced any material or evidence to take a different view. The reasoning of the Tribunal was based on relevant materials and evidence and there is no error or infirmity in the order of the Tribunal to warrant interference. In view of the same, no substantial question of law arises for consideration by this court and hence, the appeal in respect of question No. 1 is dismissed. A similar view has been take by the Delhi High Court in the case of CIT VS. THIRANI CHEMICALS LIMITED, (2007) 290 ITR 196. https://hcservices.ecourts.gov.in/hcservices/ 5. Therefore, the appeal is dismissed, as the question of law raised in this appeal has already been decided against the revenue in the above said Division Bench Judgment of this Court reported in 290 ITR 217. Sd/- Asst. Registrar. /true copy/ Sub Asst. Registrar. To 1.The Assistant Registrar, Income-Tax Appellate Tribunal, III Floor, Rajaji Bhavan, Besant Nagar, Madras 90 2. The Commissioner of Income Tax (Appeals),III, Chennai 3. The Asst. Commissioner of Income-tax, Company Circle I(1), Chennai – 34. 4.The Commissioner of Income-tax-, Tamilnadu I, Madras 1 cc to M/s. Pushya Sitaraman, SR. SC. for IT, Sr. 37128 Tax Case (Appeal) No.872 of 2008 VSV (CO) kk 28/7 https://hcservices.ecourts.gov.in/hcservices/