JUDGMENT
T.S. Thakur, J.
1. The common question of law which the revenue has raised in all these appeals for our adjudication is whether the Income Tax Appellate Tribunal was correct in law in allowing the assessed’s claim for proportionate allowance of premium payable on redemption of debentures issued by it. The question is no longer res integra in the light of the decision of the Supreme Court in Madras Industrial Investment Corporation Ltd. v. Commissioner of Income-Tax 225 ITR 802, but before we refer to the said decision in some detail, we need to state a few facts relevant for the disposal of these appeals.
2. The assessed company is engaged in the manufacture of liquors, snack foods, bottles and jars, etc. It appears to have issued debentures with a provision that the same could be redeemed at a premium of 5% after a period of 7 years from the date of their issue. It had, eversince the issue of debentures, followed the practice of debiting the proportionate amount of premium payable on such debentures to the profit and loss account. In the assessment orders passed for the years relevant to these appeals, the assessing officer had disallowed the deduction claimed by the assessed towards premium calculated on a proportionate basis spread over the period for which the debentures are issued. The Assessing Officer was of the view that the liability to pay premium on the debentures issued by the assessed was contingent and could not, therefore, be spread over or allowed on a proportionate basis for the period for which the debentures were issued. The Tribunal has reversed that view relying upon the decision of the Supreme Court in Madras Industrial Investment Corporation Ltd. v. Commissioner of Income-Tax (supra). The present appeals assail the correctness of the orders passed by the Tribunal primarily on the ground that the liability to pay a premium was contingent till the debentures matured for payment and the same could not be allowed at any time or for any year other than the year in which the liability was actually discharged.
3. Having heard learned Counsel for the parties, we are of the view that the question sought to be agitated before us is no longer examinable in the face of the authoritative pronouncement of the Supreme Court in Madras Industrial Investment Corporation Ltd. v. Commissioner of Income-Tax (supra). In that case also, the assessed company had issued debentures at a discount amounting in all to Rs. 3 lakhs. The company spread the said amount over a period of 12 years for which the debentures were issued and claimed deduction on a proportionate basis towards expenditure incurred for the purpose of business. This was disallowed by the High Court on the ground that the proportionate amount could not be considered to be an expenditure within the meaning of Section 37 of the Income-tax Act, 1961. The question that fell for consideration before the Supreme Court, therefore, was whether discount on bonds and debentures was allowable as an expenditure and whether the liability spread over a number of years could be treated as an expenditure. Answering the first part of the question in the affirmative, the Court held that a liability is incurred by the company issuing the debentures, the moment the debentures are issued and if the amount raised through the issue of debentures is used by the company for the purpose of its business, the liability would be an expenditure. The court observed :
Therefore, when a company issues debentures at a discount, it incurs a liability to pay a larger amount than what it has borrowed, at a future date. We need not go into the question whether this additional liability equivalent to the discount, which is incurred in praesenti but is payable in future, represents deferred interest or not. That may depend upon the totality of circumstances relating to the issue of debentures, including its terms. The liability, however, to pay the discounted amount over and above the amount received for the debentures, is a liability which has been incurred by the company for the purposes of its business in order to generate funds for its business activities. The amounts so obtained by issue of debentures are used by the company for the purposes of its business. This would, therefore, be expenditure.
4. It is noteworthy that the revenue has not in the present appeals disputed the nature of the expenditure. It is not in dispute that the amount raised through the issue of debentures was used for business activities of the assessed. That being so, the moment the debentures were issued, the liability had arisen against the assessed which would constitute an expenditure allowable under Section 37 of the Act. What is argued by the revenue all the same is that the liability could not be spread over on a proportionate basis as has been done by the assessed in the instant case. A similar argument was advanced even before the Apex Court in Madras Industrial Investment Corporation Ltd. v. Commissioner of Income-Tax (supra). Repelling the contention that the liability cannot be spread over the number of years for which the debentures were issued, their Lordships observed that the facts may justify the spreading of the liability over the ensuing years. Allowance of the entire expenditure in one year, observed their Lordships, might give a very distorted picture of the profits of a particular year. Their Lordships approved the view taken by the Calcutta High Court in Hindustan Aluminium Corporation Ltd. v. CIT CIT , and observed :
The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessed was entitled to deduct the entire amount of Rs. 3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessed has written it off in his books over a period of years. However, the facts may justify an assessed who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. v. CIT , the Calcutta High Court upheld the claim of the assessed to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question.
5. The Court further held that issuing debentures at a discount is also an instance where although the assessed has incurred the liability to pay the discount in the year of the issue of debentures the payment is to secure the benefit over a number of years. There is thus a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of debentures.
6. There is, in the light of the above authoritative pronouncement, no room for any contrary view. The fact that the debentures could not have been redeemed on before the date of their maturity does not, in our opinion, make any material difference in so far as the application of the principle stated by the Supreme Court to the facts of the present case are concerned. What is important is that the liability to pay premium arises in the year in which the debentures were issued and could be proportionately spread over the period prescribed for the maturity of such debentures. It matters little whether the debentures were redeemable at will or only upon maturity. The Tribunal was in that view perfectly justified in allowing the deduction claimed by the assessed.
7. No substantial question of law arises for our consideration. These appeals fail and are hereby dismissed.