AJIT K. SENGUPTA, J.

( 1 ) THERE are two consolidated references for the assessment year 1984-85 made by the Tribunal under Section 256 (1) of the Income-tax Act, 1961, one at the instance of the assessee and the other at the instance of the Revenue. At the instance of the Revenue, the following question of law has been referred to this court :"whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 4 lakhs payable as premium is allowable revenue expenditure over a period of seven years and, therefore, for the assessment year 1984-85, one-seventh of the sum of Rs. 4 lakhs should be allowed as a deduction ?"

( 2 ) THE following questions of law have been referred at the instance of the assessee :"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to a deduction of Rs. 57,643 only and not of the entire amount of Rs. 4 lakhs being premium payable on debentures in computation of its income for the assessment year 1984-85 ?2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenditure of Rs. 59,940 incurred by the assessee was a capital expenditure ?

( 3 ) WHETHER, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenditure incurred on repairs and insurance of cars should be considered for the purpose of computing disallowance under Section 37 (3a) of the Income-tax Act, 1961, and that such an expenditure is not allowable under Section 31 of the said Act ?"3. The only question referred at the instance of the Revenue and the first question referred at the instance of the assessee relate to deduction claimed in respect of premium payable on redemption of non-convertible secured debentures. The brief facts are that in October, 1983, the assessee issued non-convertible secured debentures of the total value of Rs. 80 lakhs carrying interest at 15 per cent. per annum. The said debentures were redeemable on January 4, 1991, i. e. , after the expiry of the 7th year from the date of allotment. One of the conditions of the issue of the said debentures was that they would be redeemable at a premium of 5 per cent. of the face value of the debenture. The other condition of the said debenture was that assessee undertook to repurchase the debentures at par value from any holder of the debentures if they were held by the holder for at least 12 months and to the extent the face value thereof did not exceed Rs. 40,000. The assessee had also the right to reissue the debentures so purchased from time to time and upon such reissue, the person entitled to the debenture was to have and was deemed always to have had the same rights and priorities as if the debentures had never been redeemed. In the course of the assessment proceedings for the assessment year 1984-85, the assessee claimed deduction of the sum of Rs. 4 lakhs being premium payable on the redemption of the said debentures at 5 per cent. of their face value. The Income-tax Officer disallowed the said claim on the ground that the liability for the said premium could not be said to have crystallised before expiry of the period of seven years so as to be regarded as an accrued liability either in full or in part. He further held that the assessee had the right to repurchase the debentures and reissue them from time to time and that unless the debentures were actually redeemed after the expiry of seven years it could not be said that the debentures would not be bought back by the assessee in any case and would in each and every case be redeemed in full.

( 4 ) THE Income-tax Officer further held that the debenture premium did not amount to an expenditure and it was not allowable either in full or by spreading it over seven years as alternatively claimed by the assessee.

( 5 ) ON the assessee's appeal, the Commissioner of Income-tax (Appeals) upheld

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