Business does not run on the definite lines. Some expenses make contribution to current profits and some does not. Namely they are revenue and capital expenditure. The revenue expenditure is specifically covered by section 37.​​ Accountancy would also cover third category of expense namely deferred revenue expenditure.​​ Like for research and development expense or expense on ad-campaign. Where expenditure is incurred by an out lay its deferment for tax purpose is considered not permissible. Its accounting and permissibility under the tax law has their own purpose and justification from different angle. In light of this some of the decided cases are discussed here. However the issue seems to be now settling with the decision of supreme court in case of 225 ITR 802 as discussed below. ​​ 

21 ITR 353 Hindustan Commercial Bank Ltd. Vs. In re [All] The assessee, a bank, incurred during the relevant account year certain expenses in opening forty six new branches, sub-branches and pay offices. A sum of Rs. 24,675 represented charges for advertisement, entertainment, photos and invitation cards and a sum of Rs. 89,870 represented salary, dearness and other allowances, tax on salaries, postage, telegrams, telephone, rent, lighting, travelling expenses and conveyance.​​ Held, that there was no legal justification for spreading out the sum of Rs. 89,870 over a period of twenty years and the whole amount was deductible in the year in which it was incurred if it was not in the nature of a capital expenditure and assuming that the sums of Rs. 89,870 and Rs. 24,675 were expenses incurred wholly and exclusively for the purpose of the business, they were in the nature of revenue expenditure and were admissible deductions.

50 ITR 211 Bank of Cochin Ltd. Vs. Commissioner of Income-tax [Ker]

The memorandum of articles of association of the assessee-bank permitted it to carry on kuri business. The assessee claimed to deduct the amounts expended by it in connection with the commencement of kuries. The amounts had been spent on commission for canvassing, advertisement, registration, travelling expenses, etc. The Income-tax Officer disallowed the expenses on the ground that they were preliminary expenses for starting new businesses. The business of the kuries was not a new business and as such the expenses were not in the nature of preliminary expenses; the expenses were not also of a capital nature. Hence, they were allowable.

20 ITR 475 ​​ Commissioner of Income-tax Vs. Finlay Mills Ltd. [SC]

The expenditure incurred by a company carrying on business of manufacturing and selling textile goods in registering for the first time its trade marks is revenue expenditure and an allowable deduction. [although the benefit there from would last for number of years]

[1959] 37 ITR 1 Calcutta Co. Ltd. v. CIT (SC)

Where the outstanding obligation undertaken in the sale document, it was found, was deductible in ascertaining the profit on the sale.

​​ 

[1987] 165 ITR 765 M. P. Financial Corporation v. CIT [MP]

In the case of issue of bonds at a discount, the same principles as are applicable in the case of issue of debentures at discount would be attracted. The amount of discount in effect represents deferred interest. Looked at as a loss, a proportionate amount of discount can be written off out of revenue every year during the period the bonds would remain outstanding. Therefore, though an assessee would not be justified in claiming deduction of the entire amount of discount in the accounting year in question, it would be entitled to proportionate deduction spread over the period for which the bonds remain outstanding.

[1997] 225 ITR 802 Madras Industrial Investment Corporation Ltd. v. CIT [SC]

The Supreme Court in this case had occasion to deal with the issue of deduction of discount on debentures issued by the company. For accounting purposes, the discount was spread over the period of debentures with the result that only a proportionate part was charged to the accounts of the year. What was charged to accounts was alone claimed in the assessment as well. Hence an important issue as to whether discount on the issue of debentures could be treated as revenue expenditure had arisen in this case. The further question was the year of allowability in case it is to be treated as revenue expenditure. In fact, after a review of a number of cases, it felt that,​​ while discount on debentures is a revenue expenditure, it could be allowed only on a proportionate basis as there is a continuing benefit.​​ 

The Supreme Court has made observations to the effect that when a debenture carries a payment clause, say in the nature of a discount, that payment clause is to be spread over as a liability of the issuing assessee-company over the years ranging from issue to redemption.

236 ITR 577 National Engineering Industries Ltd. Vs. Commissioner of Income-tax [Cal]

There is no distinction between a discount and a premium. The result in both is that something over and above the face value and the specified interest is paid, the accounting procedure in one case being by way of a preliminary deduction from the mentioned amount, and the accounting procedure in the other case being an addition at the end over the prescribed and mentioned face value amount. The extra premium is to be spread over all the years which are occupied between the date of issue and the date of ultimate redemption.

207 ITR 553 TUNGABHADRA INDUSTRIES LTD. VS. COMMISSIONER OF INCOME-TAX [CAL]​​ 

That the expenditure incurred in respect of the premium on debentures was revenue expenditure. Where the liability to pay premium arose at the expiry of the seventh year from the date of allotment and there was no liability to pay the premium at all if the debentures were repurchased under the buy-back clause and there was no further issue of debentures.​​ The payment of premium was clearly a contingent liability and the liability to pay the premium would arise only if the debentures were not repurchased by the company and were redeemed only at the end of seven years. The entire amount of the premium in respect of the said debentures should be allowed as a deduction in its entirety in one year, i.e., in the year in which such liability was incurred.​​ This case is to be understood in light of the special facts before the court.​​ ​​ 

243 ITR 371 Universal Cables Ltd. Vs. Commissioner of Income-tax [Cal]

There is a continuing benefit to the business of the company over the entire period and therefore premium payable on redemption of loan convertible secured debentures issued during the year should be spread over the period of the debentures.

Conclusion

Generally under the income tax act there is no concept of amortisation except of specific provisions of 35D etc, however courts have taken the view that accouting concept of deferred revenue expense can not be overlooked.