2018 (12) TMI 1758 - HC - Income Tax

Court rules waiver of principal in favor of non-banking financial company as capital receipt, not taxable revenue.

Manipal Sowbhagya Nidhi Ltd. Versus Deputy Commissioner of Income tax, Circle-1

The court resolved the issue in favor of the non-banking financial company, holding that the waiver of the principal component of deposits and debentures ... Scrutiny assessment - claim of waiver of principal component of deposit and debentures - taxable revenue receipt as against the assessee's claim of principal part of deposit and debentures as capital receipt - HELD THAT:- Income Tax Appeal in M/S. MANIPAL SOWSHAGYA NIDHI LIMITED VERSUS THE ASSISTANT COMMISSION OF INCOME-TAX, CIRCLE -1, UDUPI [2018 (12) TMI 1757 - KARNATAKA HIGH COURT] was disposed off by the order of even date on the same ground. Hence, following the judgment above, the substantial question of law is answered in favour of the assessee and against the Revenue. Issues:Assessment of income for non-banking financial company, treatment of waiver of principal component of deposits and debentures as taxable revenue receipt, appeal against assessing officer's decision, consideration of substantial questions of law raised in connected appeals.Analysis:1. The assessee, a non-banking financial company, filed returns of income for the Assessment Years 2007-08 and 2008-09 showing a net loss and nil income respectively. The returns were processed under Section 143(1) of the Income Tax Act, 1961, and taken up for scrutiny. The Assessing Officer determined the total income for both years, considering the waiver of principal component of deposits and debentures as taxable revenue receipt, contrary to the assessee's claim that these were capital receipts not liable to tax. Appeals were filed before the Commissioner of Income Tax (Appeals) and the Tribunal, both of which were dismissed, leading to the current appeals.2. The appeals were admitted to consider substantial questions of law raised in connected appeals in Income Tax Appeal Nos.794 of 2008, 795 of 2008, and 99 of 2009. Income Tax Appeal No.99 of 2009 was disposed of on the same ground, and following the judgment in that appeal, the substantial question of law was answered in favor of the assessee and against the Revenue.3. The judgment in Income Tax Appeal No.99 of 2009 of the Court served as the basis for the decision in the current appeals, resulting in the substantial question of law being resolved in favor of the assessee. Consequently, the appeals were disposed of accordingly, providing a resolution to the issues raised regarding the treatment of the waiver of principal component of deposits and debentures as taxable revenue receipt.