2018 (12) TMI 1757 - HC - Income Tax

Court rules in favor of non-banking financial institution on income treatment issue

M/s. Manipal Sowshagya Nidhi Limited Versus The Assistant Commission Of Income-Tax, Circle -1, Udupi

The Court ruled in favor of the appellant, a non-banking financial institution, regarding the treatment of forfeited principal portion of a settlement ... Cessation of liability u/s 41 - Additions of the forfeited principal portion of settlement amount treating it as a revenue receipt and as income from business - HELD THAT:- Under these circumstances, since the earlier order of the Tribunal was followed in the assessee's case, we do not propose to take a different view. In terms of the earlier order passed by the Tribunal and as confirmed by this Court in M/S MANIPAL FINANCE CORPORATION LTD [2014 (10) TMI 706 - KARNATAKA HIGH COURT] the substantial questions of law are answered in favour of the assessee and against the Revenue. Issues Involved:1. Treatment of forfeited principal portion of settlement amount as revenue receipt and income from business under Section 143(3) of the Income Tax Act, 1961.2. Appeal against assessment under Section 143(3) of the Income Tax Act before the Commissioner of Income Tax (Appeals) and the Tribunal.3. Admissibility of appeal to consider substantial questions of law raised in Income Tax Appeal Nos.794 and 795 of 2008.4. Decision based on earlier orders and confirmation by the Court in Income Tax Appeal Nos.794 and 795 of 2008.Issue 1: Treatment of forfeited principal portion of settlement amount:The appellant, a non-banking financial institution, proposed a Scheme of compromise and arrangement under Section 391 of the Companies Act due to significant losses. The Assessing Officer added a forfeited principal portion of the settlement amount as revenue receipt and income from business under Section 143(3) of the Income Tax Act, 1961. The appellant challenged this treatment through appeals to the Commissioner of Income Tax (Appeals) and the Tribunal. The Tribunal, relying on earlier orders, dismissed the appeal. The Court noted that the Tribunal's decision in the appellant's case was consistent with previous orders and confirmed by the Court in Income Tax Appeal Nos.794 and 795 of 2008, resulting in the substantial questions of law being answered in favor of the appellant and against the Revenue.Issue 2: Appeal process against assessment under Section 143(3) of the Income Tax Act:The appellant's appeal against the assessment under Section 143(3) of the Income Tax Act was initially dismissed by the Commissioner of Income Tax (Appeals). Subsequently, an appeal was filed before the Tribunal, which also ruled against the appellant based on earlier orders. The appellant then pursued the matter further through the legal process, leading to the Court's decision to uphold the Tribunal's decision in line with previous judgments.Issue 3: Admissibility of appeal to consider substantial questions of law:The appeal was admitted to address substantial questions of law raised in Income Tax Appeal Nos.794 and 795 of 2008. The Court's order dated 7-10-2014 favored the appellant and went against the Revenue. Despite a Special Leave Petition and subsequent dismissal due to monetary limits, the Court maintained its decision in favor of the appellant based on the earlier Tribunal orders and confirmed by the Court in Income Tax Appeal Nos.794 and 795 of 2008.Issue 4: Decision based on earlier orders and Court confirmation:Given the consistency with earlier Tribunal orders and the Court's confirmation in Income Tax Appeal Nos.794 and 795 of 2008, the Court decided not to deviate from the previous view. The substantial questions of law were answered in favor of the appellant and against the Revenue, resulting in the disposal of the appeal accordingly.