Delhi High Court – Orders
The Pr. Commissioner Of Income Tax … vs Spicejet Limited on 23 July, 2026
$~3 & 4
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 539/2026
+ ITA 540/2026
THE PR. COMMISSIONER OF INCOME TAX -CENTRAL -1
.....Appellant
Through: Mr. Ruchir Bhatia, SSC with Mr.
Anant Maan & Mr. Pratyaksh Gupta,
JSCs.
versus
SPICEJET LIMITED .....Respondent
Through: Mr. Mayank nagi & Ms. Husnal Syali
Nagi, Advs.
CORAM:
HON'BLE MR. JUSTICE DINESH MEHTA
HON'BLE MR. JUSTICE RAJNEESH KUMAR GUPTA
ORDER
% 23.07.2026
CM APPL. 44221/2026 in ITA 539/2026
CM APPL. 44222/2026 in ITA 540/2026
1. For the reasons stated in the applications, the delay of 1080 days (ITA
539/2026) and 1080 days (ITA 540/2026) in re-filing the appeals is condoned.
2. Applications are disposed of.
ITA 539/2026
ITA 540/2026
3. These appeals arise out of the order dated 28th December, 2022 passed
by the Income Tax Appellate Tribunal (hereinafter,’ITAT’) in ITA
No.5657/DEL/2011.
4. Vide the said appeal, the order dated 23.08.2013 (in ITA 539/2026) and
order dated 20.12.2012 (in ITA 540/2026) passed by Commissioner of
ITA 539/2026 & ITA 540/2026 Page 1 of 10
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Income Tax (Appeals) for the Assessment Years 2006-07, 2007-08, 2008-09,
2009-10 & 2010-2011 was challenged.
5. 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.
6. 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, 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.
ITA 539/2026 & ITA 540/2026 Page 2 of 10
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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.”
7. 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.
8. 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. The
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 theITA 539/2026 & ITA 540/2026 Page 3 of 10
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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
theMauritius 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 according 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 theITA 539/2026 & ITA 540/2026 Page 4 of 10
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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 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.
ITA 539/2026 & ITA 540/2026 Page 5 of 10
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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 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
ITA 539/2026 & ITA 540/2026 Page 6 of 10
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that the expenditure is revenue in nature. Accordingly, we
answer the substantial question of law in favour of the
assessee and against the Revenue.”
9. 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.
This 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 aITA 539/2026 & ITA 540/2026 Page 7 of 10
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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 expenses
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 capitalITA 539/2026 & ITA 540/2026 Page 8 of 10
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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
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
ITA 539/2026 & ITA 540/2026 Page 9 of 10
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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,
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.
DINESH MEHTA, J.
RAJNEESH KUMAR GUPTA, J.
JULY 23, 2026/sid
ITA 539/2026 & ITA 540/2026 Page 10 of 10
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