A corporation issued a second debenture pursuant to the terms of an existing debenture, which permitted it to do so in satisfaction of interest on the existing debenture. In finding that interest on the second debenture was not deductible, the Directorate stated:
[T]he interest computed on this amount of Debenture 2 will not be deductible under the provisions of subparagraph 20(1)(c)(i) since there is no lender-borrower relationship between the Corporation and the Creditor in this transaction. Furthermore, it should be concluded that the conditions set out in subparagraph 20(1)(c)(ii) were not satisfied when the debenture was issued, since it was an amount payable but not for the acquisition of property.