Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment years 1992-93 to 1995-96 - Assessee-company held shares in its sister concern 'S' which made an offer to it as of right for subscription to fully convertible debenture of 'S' - Assessee did not have wherewithal at that point of time to subscribe to that offer and, therefore, it entered into agreements with mutual funds, in terms of which mutual funds undertook to subscribe to fully convertible debentures subject to condition that assessee would buy-back same after conversion after 36 months - To compensate mutual funds for subscribing and retaining fully convertible debentures, assessee agreed to pay service charges to them at a pre-determined rate - In assessment proceedings, assessee claimed deduction of service charges as business expenditure - Assessing Officer disallowed assessee's claim - On appeal, Tribunal noted that substance of agreement between assessee and mutual funds was in nature of financing arrangement wherein mutual funds had assured fixed rates of returns and assessee expected to make substantial profits by selling fully convertible debentures after conversion - Tribunal, therefore, held that service charges were allowable expenses under section 37(1) inasmuch as they were wholly and exclusively expended for business of assessee - Whether, on facts, order of Tribunal was to be upheld - Held, yes Sanjeev Sabharwal for the Appellant. Sampat Krishnan and K. Sampath for the Respondent. JUDGMENT Badar Durrez Ahmed, J. - These four appeals relate to the assessment years 1992-93, 1993-94, 1994-95 and 1995-96 and they are directed against the common order passed by the Income-tax Appellate Tribunal dated 31-1-2007. 2. The issue sought to be raised by the appellant pertains to the arrangement made between the assessee and certain mutual funds such as PNB Mutual Fund, LIC Mutual Fund, and SBI Mutual Fund with regard to subscription of fully convertible debentures, offered as a rights issue by the assessee's sister concern (Steel Tubes India Ltd.). Since the assessee held shares in (Steel Tubes India Ltd.), an offer was made to it as of right for subscription…

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