Supreme Court approves deduction of interest paid via debentures for tax calculation under Sec 43B of Income Tax Act

Last updated: 20 August 2021
Quick Summary
The Supreme Court has ruled that companies can deduct interest paid through the issuance of debentures from their taxable income under Section 43B of the Income Tax Act. The court found that issuing debentures to a lender to settle an interest debt constitutes 'actual payment', thereby extinguishing the liability. This decision clarifies that genuine transactions of interest payment, even if converted into a new loan instrument like debentures, are eligible for deduction, provided the lender recognises this as income.

Court :
Supreme Court of India

Brief :
The judgment could pave the way for corporates under stress in the current environment to restructure their interest payment as debentures or other instruments, and deduct the same for income tax purposes. This is provided the lender recognises such interest payment in its books and pays tax on it.

Citation :
M.M. Aqua Technologies Ltd. vs Commissioner Of Income Tax, Delhi dt 11 August, 2021

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