Law:

Section:

Section 37(1), read with section 36(1)(iii) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv), read with section 10(2)(iii) of the Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment year 1947-48 - Assessee-company issued debentures in year 1916 carrying interest at 6 per cent per annum and redeemable in year 1956 - There was condition that assessee could at anytime after 1-7-1921 give notice of its intention to pay off debentures together with bonus of 5 per cent - Subsequently, assessee-company resolved to redeem all outstanding debentures to issue fresh set of debentures at lower rate of interest - It accordingly paid 5 per cent bonus and claimed deduction in respect of said bonus either under section 10(2)(xv) or in alternative section 10(2)(iii) of 1922 Act - Whether since bonus paid to debentureholders on redemption of debentures was not expenditure laid out for purpose of business as contemplated in section 10(2)(xv) of 1922 Act, assessee's claims for deduction under said section was to be rejected - Held, yes - Whether, further, in view of fact that bonus was paid for liberty to vary terms of loan, said payment of bonus could not be brought within section 10(2)(iii) of 1922 Act - Held, yes - Whether, therefore, assessee's claim for deduction under section 10(2)(iii) of 1922 Act was also liable to be disallowed - Held, yes FACTS The assessee-company issued debentures in 1916 carrying interest at 6 per cent per annum and redeemable in the year 1956. There was a condition however that the assessee was at liberty at any time after 1-7-1921 to give notice of its intention to pay off any particular debentures and after the expiration of six months from such notice being given the debentures became payable together with the bonus of 5 per cent. Subsequently in view of the lesser rate of interest prevailing, the assessee resolved to redeem all outstanding debentures and to issue a fresh set of debentures bearing interest at 4½ per cent only Hence the company paid under the term of debentures a sum as the 5 per cent bonus and claimed deduction under section 10(2)(xv) of 1922 Act. The ITO rejected the claim. On…

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