Law:

Section:

Section 37(1), read with section 35D, of the Income-tax Act, 1961 - Business expenditure - Allowability of - Whether expenditure incurred on issuance of debentures will be an permissible deduction notwithstanding introduction of section 35D with effect from 1-4-1971 - Held, yes Circulars and notifications - Circular No. 56, dated 19-3-1971 FACTS The assessee-company, in order to modernize and expand its activities and with a view to augment its long term capital requirements, raised funds during the relevant accounting year by issuing debentures on right basis to the existing shareholders. The assessee claimed deduction of the expenditure incurred in that regard from its taxable income. The Assessing Officer held that the expenditure would qualify only for amortization under section 35D. On appeal, the Commissioner (Appeals) affirmed the view taken by the Assessing Officer. On further appeal, the Tribunal allowed the deduction in view of the Board‘s Circular No. 56, dated 19-3-1971. On appeal : HELD The circulars issued by the Board are binding upon the revenue authorities except where the circulars take a view contrary to the decision of the Supreme Court, is fairly well-settled by the decisions of the Apex Court. The circular in question inter alia says that expenditure incurred on the issuance of debentures is an admissible deduction in the light of the decision of the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52. The Circular extends the logic underlying the said decisions to cases where the expenditure is incurred by the assessee by issuing debentures as was the position in the instant case. Since the circular‘s instructions are binding on the revenue, it would not be entitled to urge that since the case in hand referred to issuance of debentures for expansion of an existing business, the expenditure incurred on the same must be amortized. To set the controversy at rest, the circular specifically states that expenditure incurred on the issuance of debentures will be a permissible deduction notwithstanding the introduction of section 35D with effect from 1-4-1971. There was after those instructions, no room for any further debate on the…

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