SC approves deduction of interest paid via debentures for tax calculation

In its order last week favouring MM Aqua Technologies, it held that explanation 3C to section 43B(d) of Income Tax Act is 'clarificatory' and does not add a new condition retrospectively

The Supreme Court (SC) has allowed MM Aqua Technologies to deduct interest paid via issue of debentures from its income for the purpose of income tax calculation. The judgment, which came this week, may provide relief to a number of companies that want to restructure their interest liability into payments by securities.

The court held that the interest was “actually paid” by the assessee through issuance of debentures, which has extinguished its liability to pay interest. To reach this conclusion, the court relied on the fact that the accounts of the bank reflected the amount received by way of debentures as