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Delhi High Court – Orders
The Pr. Commissioner Of Income … vs Spicejet Limited on 3 July, 2025
Author: Prathiba M. Singh
Bench: Prathiba M. Singh
$~30 & 32
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 178/2025 & CM APPL. 33756/2025
THE PR. COMMISSIONER OF INCOME
TAX-CENTRAL -1 .....Appellant
Through: Mr. Ruchir Bhatia, SSC with Mr.
Anant Mann and Mr. P. Gupta, JSCs.
versus
SPICEJET LIMITED .....Respondent
Through: Mr. Mayank Nagi and Mr. Tarun
Singh, Advs.
32 AND
+ ITA 181/2025 & CM APPL. 34071/2025
THE PR. COMMISSIONER OF INCOME
TAX -CENTRAL -1 .....Appellant
Through: Mr. Ruchir Bhatia, SSC with Mr.
Anant Mann and Mr. P. Gupta, JSCs.
versus
SPICEJET LIMITED .....Respondent
Through: Mr. Mayank Nagi and Mr. Tarun
Singh, Advs.
CORAM:
JUSTICE PRATHIBA M. SINGH
JUSTICE RAJNEESH KUMAR GUPTA
ORDER
% 03.07.2025
1. This hearing has been done through hybrid mode.
CM APPL.33756/2025 (for condonation of delay) in ITA 178/2025
CM APPL.34071/2025 (for condonation of delay) in ITA 181/2025
2. For the reasons stated in the applications, the delay of 685 days in re-
filing the appeals is condoned. Applications are disposed of.
ITA 178/2025
ITA 181/2025
3. These are appeals arising out of the impugned order dated 28 th
December, 2022 passed by the Income Tax Appellate Tribunal (hereinafter,
ITA 178/2025 & 181/2025 Page 1 of 11
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‘ITAT’) in ITA No.5657/DEL/2011. Vide the said appeal, the order dated 23rd
September, 2011 passed by Commissioner of Income Tax (Appeals) for the
Assessment Years 2006-07, 2007-08, 2008-09, 2009-10 & 2010-2011 was
challenged.
4. The short question that arises in these appeals is whether redemption of
Foreign Currency Convertible Bonds (hereinafter, ‘FCCBs’) ought to be
considered as capital expenditure or as revenue expenditure.
5. A perusal of the ITAT’s order dated 28th December, 2022 would show
that as per ITAT, the said question has been decided in several decisions of
this Court and the ITAT has, in fact, followed the said decisions including
CIT v. Jagatjit Industries, (2006) 287 ITR 46. The findings of the ITAT are
as under:
“48. Briefly the facts are, in course of assessment
proceeding, the Ministry Assessing Officer noticed that on
the FCCBs issued in financial year 2005-06 for a period
of 5 years which were subsequently convertible to equity
shares, the assessee, in the computation of income has
claimed deduction of Rs.28,59,78,667/- as premium
payable on redemption of FCCBs. After calling for
necessary details and examining them the Assessing
Officer noticed that the assessee had set off the premium
payable on redemption of FCCBs. Being of the view that
the premium payable on the FCCBs is a capital
expenditure, the Assessing Officer disallowed the claim
and added back to the income of the assessee. While
deciding the issue in appeal, learned Commissioner
(Appeals), allowed assessee’s claim after taking note of the
fact that the expenses on issue of FCCB bonds were
allowed by his predecessors. Further, he observed that
whether the bonds issued were convertible or not, is not a
relevant criteria to be considered in order to adjudicate
whether the expense is capital or revenue. Thereafter,ITA 178/2025 & 181/2025 Page 2 of 11
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following the decision of the Hon’ble Jurisdictional High
Court in case of CIT Vs. Jagatjit Industries Ltd. [2006] 287
ITR 46, learned Commissioner (Appeals) deleted the
disallowance.
49. We have considered rival submissions and perused the
materials on record. While deciding Revenue’s appeal for
assessment years 2006-07, being ITA No.3264/Del/2011,
we have upheld the decision of learned Commissioner
(Appeals) in allowing assessee’s claim of revenue
expenditure in respect of expenditure incurred on issue of
FCCBs. It is further observed, in assessment years 2006-
07, the Assessing Officer himself has allowed the premium
payable on redemption of FCCBs as revenue expenditure.
Therefore, we do not find any infirmity in the decision of
learned Commissioner (Appeals) on the issue. Ground
raised is dismissed.”
6. Mr. Bhatia, ld. Sr. Standing Counsel appearing for the Appellants
submits that though the issue that FCCBs would be treated as revenue
expenditure is settled, the question of law that still arises is that the
expenditure ought to be spread across the life of the FCCBs i.e. 5 years and
could not have been claimed in the very first year itself.
7. Mr. Mayank Nagi, ld. Counsel appearing for the Respondent relies
upon another decision in CIT v. Havells India Ltd., (2013) 352 ITR 376
wherein a similar issue has been considered by the Coordinate Bench of this
Court. Relevant paragraphs in the said judgment are as under:
“22. We may now turn to the third question. The brief facts
in this connection are as follows. During the relevant
previous year, the assessee issued 4 per cent. fully
convertible debentures amounting to Rs. 2,350 lakhs
comprising of 235 debentures of the face value of Rs. 10
lakhs each to another company by name M/s. Shine Ltd.
which was incorporated under the laws of Mauritius. TheITA 178/2025 & 181/2025 Page 3 of 11
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issue of debentures was to give effect to the investor
agreement entered into with the Mauritius company.
Necessary amendments were made to the articles of
association of the assessee-company. In connection with
the debentures issued the assessee had incurred the
following expenditure:
Rs.
(i) Paid to M/s. Price 53,32,500
Water House Coopers
(P.) Ltd.|
(ii) Paid to M/s. Wadia 6,39,450
Chandy and Co.
(iii) Payment M/s. 4,88,768
KPMG India Pvt. Ltd.
Total 64,60,718
23. In addition to the aforesaid expenditure, the assessee
also paid interest of Rs. 28,07,123 on the debentures in the
relevant previous years. The aggregate of all the four items
of expenditure came to Rs. 92,67,841.
24. The above expenditure was claimed as revenue
expenditure in the return of income. The Assessing Officer
was of the view that the debenture issue was in fact an issue
of equity share capital to the Mauritius company and
accordingly the entire expenditure should be disallowed as
capital expenditure. In support of this conclusion he
referred to the board resolution in which it was stated that
the FCDs would be converted into equity shares on or
before June 12, 2006, and these shares would be issued to
the Mauritius company. It was also mentioned in the
resolution that the Mauritius company would be entitled to
bonus shares in the ratio of 1: 1 and they will be allotted
at the time of conversion of the debentures. According to
the Assessing Officer, this actually meant that the assessee
was in fact making an issue of share capital and accordingITA 178/2025 & 181/2025 Page 4 of 11
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to the judgments of the Supreme Court in Brooke Bond
India Ltd. v. CIT (1997) 225 ITR 798 (SC) and Punjab
State Industrial Development Corporation Ltd. v. CIT
(1997) 225 ITR 792 (SC), any expenditure incurred in
relation to the expansion of the capital base of a company
should be treated as capital expenditure. He accordingly
disallowed the expenditure of Rs. 92,67,841.
25. On appeal the Commissioner of Income-tax (Appeals)
referred to the judgment of the Rajasthan High Court in
CIT v. Secure Meters Ltd. (2010) 321 ITR 611 (Raj) in
which it was held that the position has to be examined only
with reference to the time when the debentures were issued
and that the fact that at a future point of time they were to
be converted into shares was irrelevant in order to decide
the allowability of the expenditure incurred in connection
with the debenture issue, and allowed the expenditure as
revenue expenditure. He also noted that the special leave
petition filed by the Revenue against the judgment of the
Rajasthan High Court (supra), was dismissed on August
11, 2009. He accordingly directed the Assessing Officer to
allow the expenditure as revenue expenditure. His decision
was affirmed by the Tribunal in the appeal by the revenue
in I. T. A. No. 2093/Del/2010.
26. The Revenue is in appeal. The main contention on its
behalf is that the position should be seen not only with
reference to time at which the debentures are issued but
the fact that at a future point of time they were to be
converted in shares should also be taken note of in order
to judge the allowability of the expenditure incurred in
connection with the debenture issue. It was submitted that
on the facts of the present case, the debentures were to be
converted within a period of 15 months, that is, on or
before June 12, 2006, and that the assessee-company had
even fixed the price at which the shares would be issued
upon conversion of the debentures, and that even the issue
of bonus shares had been finalised at the time of the
ITA 178/2025 & 181/2025 Page 5 of 11
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debenture issue and all these facts clearly showed that the
issue was in truth and effect only an issue of share capital.
It was accordingly contended that the judgments of the
Supreme Court cited supra were squarely applicable.
27. It is well settled that expenditure incurred in
connection with the issue of debentures or obtaining loan
is revenue expenditure. Reference in this connection may
be made to the leading judgment of the Supreme Court in
India Cements Ltd. v. CIT (1966) 60 ITR 52 (SC). The
question before us, however, is whether it is a debenture
issue or an issue of share capital involving the
strengthening of the capital base of the company. Though
it prima facie appears that there are sufficient facts to
indicate that what was contemplated was an issue of
shares to the Mauritius company under the investor
agreement which would result in strengthening of the
assessee’s capital base, having regard to the judgments
cited on behalf of the assessee, in which it has been held
that despite indications to the effect that the debentures are
to be converted in the near future into equity shares, the
expenditure incurred should be allowed as revenue
expenditure on the basis of the factual position obtaining
at the time of the debenture issue, we are not inclined to
take a different view. The following cases have been cited
on behalf of the assessee in support of the view that even
in such a situation the expenditure is allowable as revenue
expenditure:
(i) CIT v. East India Hotels Ltd. (2001) 252 ITR 860 (Cal)
(ii) CIT v. ITC Hotels Ltd. (2011) 334 ITR 109 (Karn);
(iii) CIT v. South India Corporation (Agencies) Ltd. [2007]
290 ITR 217 (Mad) ; and
(iv) CIT v. First Leasing Co. of India Ltd. (2008) 304 ITR
67(Mad).
28. In addition to the above judgments, we also have the
judgment of the Rajasthan High Court CIT v. Secure
Meters Ltd. (2010) 321 ITR 611 (Raj) against which the
ITA 178/2025 & 181/2025 Page 6 of 11
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special leave petition filed by the Revenue was dismissed.
Having regard to the predominant view taken in the above
judgments, in which the judgment of the Supreme Court in
India Cements Ltd. (1966) 60 ITR 52 (SC) has been
noticed, we are inclined to uphold the view taken by the
Tribunal that the expenditure is revenue in nature.
Accordingly, we answer the substantial question of law in
favour of the assessee and against the Revenue.”
8. Heard. It is a settled position in law that expenditure incurred in
connection with the issue of debentures or for obtaining a loan constitutes
revenue expenditure. The moment the FCCBs or debentures are issued, the
liability is incurred by the assessee, which qualifies as an expenditure within
the meaning of Section 37 of the Income Tax Act, 1961. As held by the
Supreme Court in Madras Industrial Investment Corporation Ltd. v. CIT,
[1997] 225 ITR 802, the moment the debentures are issued, and the funds
raised therefrom are utilised by the assessee for the purposes of its business,
the said expenditure is to be regarded as revenue expenditure. The relevant
portion of the said decision reads as under:
“12. Therefore, when a company issues debentures at a
discount, it incurs a liability to pay a larger amount than
what it has borrowed, at a future date. We need not go
into the question whether this additional liability
equivalent to the discount, which is incurred in
praesenti but is payable in future, represents deferred
interest or not. That may depend upon the totality of
circumstances relating to the issue of debentures,
including its terms. The liability, however, to pay the
discounted amount over and above the amount received
for the debentures, is a liability which has been incurred
by the company for the purpose of its business in order
to generate funds for its business activities. The
amounts so obtained by issue of debentures are used
by the company for the purposes of its business. ThisITA 178/2025 & 181/2025 Page 7 of 11
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would, therefore, be expenditure.
13. Section 37(1) further requires that the expenditure
should not be of a capital nature. In the case of India
Cements Ltd. v. CIT [(1966) 60 ITR 52 : AIR 1966 SC
1053] the appellant Company had obtained a loan of Rs
40 lakhs from the Industrial Finance Corporation
secured by a charge on its fixed assets. In connection
with this loan it spent a sum of Rs 84,633 towards stamp
duty, registration fees, lawyer’s fees, etc., and claimed
this amount as business expenditure. This Court
considered whether the expenditure so incurred was
business expenditure or whether it was capital
expenditure. This Court quoted with approval the
observations of Shah, J. in Bombay Steam Navigation
Co. (1953) (P) Ltd. v. CIT [(1965) 56 ITR 52 : AIR 1965
SC 1201] (ITR at p. 59) that whether a particular
expenditure is revenue expenditure incurred for the
purpose of business must be determined on a
consideration of all the facts and circumstances, and by
the application of principles of commercial trading. The
question must be viewed in the larger context of business
necessity or expediency. If the outgoing or expenditure
is so related to the carrying on or conduct of the
business, that it may be regarded as an integral part of
the profit-making process and not for acquisition of an
asset or a right of a permanent character, the
possession of which is a condition of the carrying on
of the business, the expenditure may be regarded as
revenue expenditure. This Court went on to observe
that the provisions of the English Income Tax Act in this
regard are somewhat different from those of the Indian
Income Tax Act. It referred to the English case of Texas
Land and Mortgage Co. v. William Holtham [(1894) 3
Tax Cas 255 : 63 LJQB 496] (Tax cases at p. 260) where
a mortgage company had raised money by the issue of
debentures and debentures stock and incurred expenses
in this connection. The English High Court said that the
expenses could not be deducted as trading expensesITA 178/2025 & 181/2025 Page 8 of 11
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because the amount paid was for raising capital.
Differing from the observations made therein, this
Court observed that a loan is a liability and has to be
repaid and in its opinion it is erroneous to consider a
liability as an asset or an advantage. This Court
disagreed with the English view that borrowing money
by the issue of debentures was an acquisition of capital
asset and that any commission or expenditure incurred
in respect thereof was of a capital nature. It said:
“We are of the opinion that (a) the loan obtained is
not an asset or advantage of an enduring nature; (b)
that the expenditure was made for securing the use of
money for a certain period; and (c) that it is
irrelevant to consider the object with which the loan
was obtained. Consequently, in the circumstances of
the case, the expenditure was revenue expenditure
within Section 10(2)(xv).”
The same ratio would apply here also
14. Our attention was drawn to the case of Lomax
(Inspector of Taxes) v. Peter Dixon and Son Ltd. [12
Supp ITR 513 : (1943) 2 All ER 255, CA] , a decision of
the English Court of Appeal where the English Court
had treated discount or premium in the hands of the
recipient as a receipt of a capital nature. But the
character of payment in relation to the payer can be
different from the character of that payment in the hands
of the recipient. In the light of the ratio laid down by
this Court in the case of India Cements Ltd. [(1966) 60
ITR 52 : AIR 1966 SC 1053] any liability incurred for
the purpose of obtaining the loan would be revenue
expenditure.”
9. Moreover, the question raised by the Appellant in the present appeal
that the expenditure ought to be spread across the life of the FCCBs i.e. 5
years and could not have been claimed in the very first year itself is also
settled. In the decision of Jagatjit Industries (Supra), a Coordinate Bench of
ITA 178/2025 & 181/2025 Page 9 of 11
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this Court, while placing reliance on the decisions in Madras Industrial
Investment Corporation Ltd. (Supra) and Hindustan Aluminium
Corporation Ltd. v. CIT, [1983] 144 ITR 474, held that the liability to pay
premium arises in the year in which the debentures were issued. The Court
further clarified that the same could be proportionately spread over the period
prescribed for the maturity of such debentures. It was further held by the
Coordinate Bench of this Court that it is immaterial whether the debentures
were redeemable at will or only upon maturity. The Bench further observed
that the fact that the debentures could not have been redeemed on or before
the date of their maturity does not make any material difference. The relevant
portion of the decision in Jagatjit Industries (Supra) reads as under:
“6. There is, in the light of the above authoritative
pronouncement, no room for any contrary view. The fact
that the debentures could not have been redeemed on or
before the date of their maturity does not, in our opinion,
make any material difference in so far as the application
of the principle stated by the Supreme Court to the facts
of the present case is concerned. What is important is
that the liability to pay premium arises in the year in
which the debentures were issued and could be
proportionately spread over the period prescribed for
the maturity of such debentures. It matters little whether
the debentures were redeemable at will or
only upon maturity.”
10. However, in the present case, this issue has not been raised throughout
the assessment proceedings either before the Commissioner of Income Tax
(Appeals) or the ITAT.
11. Therefore, the legal issue raised, in the opinion of this Court is already
settled. No fresh adjudication of the said question of law is needed. Therefore,
ITA 178/2025 & 181/2025 Page 10 of 11
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that no substantial question of law arises in the present appeal.
12. The appeals are, accordingly, dismissed. Pending applications, if any,
are also disposed of.
PRATHIBA M. SINGH, J.
RAJNEESH KUMAR GUPTA, J.
JULY 3, 2025/dk/ck
ITA 178/2025 & 181/2025 Page 11 of 11
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.
The Order is downloaded from the DHC Server on 09/07/2025 at 21:21:52
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