S. 115JB—provision made for premium payable on mezzanine capital is an ascertained liability.

The assessee had debited a sum of Rs.88 lakhs in the profit &
loss account as provision for mezzanine capital. On enquiry, the assessee
provided a detailed explanation of the nature of this provision, that this
provision was made for redemption of unsecured bonds in the nature of mezzanine
capital (Tier II) and was provided over the tenure of bond. The assessee also
submitted that the amount of provision is ascertained at the time of issue of
bonds and therefore the liability is ascertained liability, thus allowable
u/s.115JB. However, the AO disallowed the same holding it as unascertained
liability. The CIT(A) allowed the same on the reasoning that the bonds issued by
the company would earn annual interest for the bond holder. The bond holder was
also required to be paid premium and face value. The premium was to be paid in
equal instalments spread over the tenure of bonds. The provision of Rs.88 lakhs
related to premium payable in respect of previous year under consideration. The
CIT(A) further observed that the face value of the bond is known and amount of
premium and tenure of bond is also fixed. Therefore, it cannot be said the
premium payable on bonds is incapable of being computed in a scientific manner.
Accordingly addition was deleted.

The Tribunal held that there was a scientific method of
calculation of liability on account of premium on mezzanine capital. Therefore,
it cannot be said that the liability was not an ascertained liability.