Business expenditure : S. 37 of Income-tax Act, 1961 : Expenditure incurred on issue of convertible debentures : Is revenue expenditure allowable as deduction ?

I. Unreported :

52. 


Business expenditure : S. 37 of Income-tax Act, 1961 : Expenditure incurred on
issue of convertible debentures : Is revenue expenditure allowable as
deduction ?

[CIT v. M/s. Secure Meters Ltd. (Raj.), ITA No. 8 of 2007, dated
20-11-2008 (Not reported)]

The assessee incurred expenditure on issue of convertible debentures : The
assessee’s claim for deduction of the expenditure was rejected on the ground
that it is capital expenditure. The Tribunal held that the expenditure is
revenue expenditure and allowed the deduction.

In appeal, the Revenue contended that convertible debentures were akin to shares
and that in line with the judgment of the Supreme Court in Brooke Bond India
v. CIT, 225 ITR 798 (SC), the expenditure was capital in nature.

The Rajasthan High Court upheld the decision of the Tribunal and held as under :

“A debenture, when issued, is a loan. The fact that it is convertible does not
militate against it being a loan. In accordance with the judgment of the Supreme
Court in the case of India Cement v. CIT, 60 ITR 52 (SC), expenditure on
loan is always revenue in nature even if loan is taken for capital purposes.
Consequently the expenditure on convertible debenture is admissible as revenue
expenditure.”