Delhi High Court Rejects Revenue's Plea Against SpiceJet Over Foreign Currency Convertible Bond Tax Dispute

The Delhi High Court has dismissed two appeals filed by the Income Tax Department against SpiceJet Ltd., holding that the tax treatment of premium payable on redemption of Foreign Currency Convertible Bonds (FCCBs) is a settled issue.

A division bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta observed that the issue raised by the Revenue—whether the expenditure on FCCB redemption premium ought to be spread over the five-year life of the bonds instead of being claimed in the first year—stands concluded by earlier decisions of the Delhi High Court.

The Court also noted that the Revenue had not raised this issue before either the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal (ITAT). Consequently, it held that no substantial question of law arose for consideration and dismissed the appeals.

The appeals arose from an ITAT order dated December 28, 2022 relating to Assessment Years 2006-07 to 2010-11. The core issue before the Court was whether premium payable on redemption of FCCBs should be treated as capital expenditure or revenue expenditure.

ITAT had upheld the Commissioner (Appeals)' decision allowing SpiceJet's claim for deduction of premium payable on redemption of FCCBs as revenue expenditure, relying on the Delhi High Court's judgment in CIT v. Jagatjit Industries Ltd.

The Tribunal had also noted that for one of the assessment years, the Assessing Officer himself had treated the redemption premium as revenue expenditure.

Revenue accepted that the issue of FCCB redemption premium being revenue expenditure was settled, but argued that the expenditure could not have been claimed entirely in the first year and instead had to be amortised over the five-year life of the FCCBs.

Rejecting the contention, the High Court reiterated that expenditure incurred in connection with the issue of debentures or for obtaining a loan constitutes revenue expenditure. Referring to the Supreme Court's decision in Madras Industrial Investment Corporation Ltd. v. CIT, the Court observed that the liability is incurred the moment the debentures are issued and the funds are utilised for business purposes.

The Court further noted that in Jagatjit Industries, the Delhi High Court had already held that while the liability to pay the premium arises in the year of issue of the debentures, the expenditure may be proportionately spread over the maturity period.

As such, the appeal was dismissed.

For Appellant: Senior Standing Counsel Ruchir Bhatia with Junior Standing Counsel Anant Maan and Junior Standing Counsel Pratyaksh Gupta.

For Respondent: Advocate Mayank Nagi with Advocate Husnal Syali Nagi.