Judgment

Arjan Kumar Sikri, J.

1. The Appellant-Taparia Tools Limited (hereinafter referred to as the 'Assessee') is before us, having lost in the courts below. In these six appeals, the issue involved is identical, that too between the same parties. Necessity of six appeals is because of the reason that the same dispute pertains to three assessment years, namely, assessment years 1996-97, 1997-98 and 1998-99. The Assessee had claimed deduction of revenue expenditure on account of interest payment in the sum of 2,72,25,000 paid to one M/s. Maliram Makharia Stock Brokers Pvt. Ltd. and 55,00,000 on account of interest payment given to M/s. Sharp Knife Company Pvt. Ltd. This was on account of upfront payments of interest given to the aforesaid two debenture holders in the assessment years 1996-97 and 1997-98 respectively. The Assessing Officer (for short, the 'AO'), however, treated it as the 'deferred revenue expenditure', to be written off over a period of five years and, therefore, in these assessment years he allowed only 1/5th of the payment made, though the entire payment was made in the assessment year 1996-97.

2. The question of law, in the given circumstances, which has arisen for consideration is as to whether the liability of the assessee to pay the interest upfront to the debenture holder is allowable as a deduction in the first year itself or it is to be spread over a period of five years, being the life of the debentures? This substantial question of law has arisen in the following circumstances:

3. In the debenture issue of the Assessee two options as regards payment of interest thereupon were given to the subscribers/debenture holders. They could either receive interest periodically, that is every half yearly @ 18% per annum over a period of five years, or else, the debenture holders could opt for one time upfront payment of 55 per debenture. In the second alternative, 55 per debenture was to be immediately paid as upfront on account of interest. At the end of five years period, the debentures were to be redeemed at the face value of 100.

4. The debentures were allotted to the following parties as below:

On February 14, 1996, M/s. Maliram Makharia Stock Brokers Pvt. Ltd. gave their letter of acceptance opting for upfront payment of interest. Likewise, vide letter of acceptance dated May 24, 1996, M/s. Sharp Knife Company Pvt. Ltd. exercised similar option. As these parties, mentioned at S. Nos. 1 and 6, had opted for one time upfront payment towards interest, they were paid interest in the sum of 2,72,25,000 and 55,00,000 respectively.

5. The Assessee follows mercantile system of accounting. Further, one time upfront interest of an amount mentioned above was actually paid as well in the Accounting Years 1995-96 and 1996-97 respectively. However, it so happened that the said upfront payment of interest on debentures were shown by the Assessee as deferred revenue expenditure in the accounts to be written off over a period of five years. Notwithstanding this accounting treatment given to the payment qua interest, in the returns filed by the Assessee for the assessment years 1996-97 and 1997-98, it claimed the entire upfront interest payment in the sum of 2,72,25,000 and 55,00,000 respectively as fully deductible expenditure. It may be clarified that insofar as the Assessee's claim for deduction of premium payable on redemption is concerned, the same was claimed in the return on a spread over basis covering a period of five ye