Law:

Section:

Section 43B, read with section 147, of the Income-tax Act, 1961 - Business disallowance - Certain deduction to be allowed only on actual payment (Payment, connotation of) - Assessment year 2002-03 - Assessee had borrowed loan from IDBI and there was outstanding interest on such loan - A rehabilitation scheme was sanctioned by BIFR in respect of assessee in terms of which IDBI was allotted certain equity shares by assessee and interest to extent of such shares was taken as having been paid - Assessee claimed that said allotment of shares should be taken as interest amount 'actually paid' within meaning of section 43B - Thereafter Assessing Officer reopened assessment on ground that mere allotment of equity shares in lieu of interest liability could not be construed as 'actually paid' as required under section 43B - Whether when pursuant to a settlement, creditor agrees to convert a portion of interest into shares, it must be treated as an extinguishment of liability to pay interest to that extent and, thus, said conversion of portion of interest into shares should be taken to be 'actual payment' within meaning of section 43B - Held, yes [Paras 14, 15 and 17] [In favour of assessee] FACTS â–  The assessee had borrowed loan from IDBI, one of the major lender of the assessee, and there was outstanding interest on such loan. A rehabilitation scheme was sanctioned in respect of the assessee by the BIFR, wherein it was decided that the IDBI would be allotted equity shares by the assessee and the interest to the extent of shares would be taken as having been paid as on 31-3-2002. â–  The assessee allotted certain shares to the IDBI on 30-3-2002 and claimed that the said allotment of shares should be taken to be against the interest amount 'actually paid' within the meaning of section 43B. â–  The assessment was completed accordingly,. Thereafter, the Assessing Officer reopened the case of assessee under section 147 on the ground that mere allotment of equity shares in lieu of interest liability could not be construed as 'actually paid' as required under section 43B. â–  On appeal, the Commissioner (Appeals) held that the reopening of the case under…

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