TaxTMI 
TaxTMI 
2007 (2) TMI 348
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....e assessee by crediting the same to the capital reserve account directly, was taxable. The assessee-company, in response to notice under section 148, stated that the original return filed should be treated as return filed in response to notice under section 148. The Assessing Officer drew the attention of the assessee to the decision of the Hon'ble Supreme Court in the case of CIT v. T.V. Sundaram Iyengar & Sons Ltd. [1996] 222 ITR 344 . The assessee differentiated its case on facts and contended that because of this, the ratio of the case of T.V. Sundaram Iyengar & Sons. Ltd. (supra) was not applicable. The assessee also submit- ted that in the case of the assessee no deduction was either claimed or allowed earlier, hence, provisions of section 41(1) were also not applicable. The Assessing Officer, however, held that the borrowing of loan, though not a trading receipt, but it was a receipt of the assessee-company in the ordinary course of its business and also the fact that it was not credited in the P&L account made no difference. The Assessing Officer, accordingly, held that if it was liable to be treated as income of the assessee under section 28(iv) of the Act. Aggrieved by th....
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.... did not arise from the business as a part of trading operations, and, therefore, provisions of section 28(iv) were not applicable. The learned counsel further placed strong reliance on the order of the Hon'ble Gujarat High Court in the case of CIT v. Chetan Chamicals (P.) Ltd. [2004] 267 ITR 770 to contend that section 28(iv) would apply only where benefit or perquisite was not in cash or money whereas in the present case, the loan amount had been received in cash, hence, provisions of section 28(iv) are not applicable. It was also pointed out that the amount of remission was directly transferred to capital reserve without routing the same through P&L account and these two facts clearly distinguished this case from the case of T.V. Sundaram Iyengar & Sons Ltd. (supra). The learned counsel further contended that in the present case it was a positive act of remission and such remission was duly approved by the Reserve Bank of India (RBI) unlike claim becoming time-barred by way of limitation in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra). The learned counsel further contended that decision of the Hon'ble Supreme Court was not an authority for applicability of provisions of....
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....engar & Sons Ltd. (supra) and also earlier decision of Hon'ble Apex Court in the case of K.M.S. Lakshmanier & Sons v. CIT/EPT [1953] 23 ITR 202 , hence, present case was directly covered in favour of the assessee by the ratio of this decision. 10. The learned AR also referred to various other judicial decisions in support of its case (copies of same are placed on records). 11. The learned Departmental Representative, initiated his arguments by stating that in the case of Mahindra & Mahindra Ltd. (supra) the Hon'ble jurisdictional High Court had not considered the decision of the Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra), hence, that this decision could not be treated as conclusive on this issue. The learned Departmental Representative further emphasised on the fact that what was important was the fact that these monies were received in the course of business and referred to the observations of Hon'ble Supreme Court at page 353 of the report in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra) to contend that although the Hon'ble Court generally observed that the money was received in the course of trading transactions but the conclusive ob....
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....any entries through the P&L account, hence, there is a substantial difference in the facts of both the cases. Further, in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra), no view has been expressed by the Hon'ble Supreme Court on the provisions of section 28(iv) and in fact, the Hon'ble Supreme Court has not referred to any specific provision of the Act in holding the amount of unclaimed balances as taxable in the year of credit of the same to the P&L account. However, the issue before us is strictly with reference to the applicability of provisions of section 28(iv) of the Act, hence, we are eventually required to deal with this section only. However, before proceeding with the matter on this aspect, we would prefer to deal with the findings of the learned CIT(A) that even if the amount was of capital nature originally but it changed its character to revenue nature by positive act of remission. If this view is accepted then there can be some other consequences in the sense that concept of capital receipt v. revenue receipt or capital loss v. revenue loss would become meaningless and also the scheme of the Act to tax receipts of revenue nature as income except capital receipt....
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....g terms as well as the legal consequence of the findings given by the CIT(A), now, we will deal with the other aspects of the issue. 14. The learned Departmental Representative has pointed out that the Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra) ultimately held that money received in the course of business were liable to be taxed as income on remission and not the money received in the course of trading operations. We find it difficult to accept this proposition. We have gone through the decision in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra) and it is observed that the Assessing Officer in that case had held that surplus had arisen as a result of trade transactions, the amount had a character of income and had to be added as income of the assessee for the purpose of the income-tax assessment. However, the learned CIT(A) had held that in the first instance, these amounts were not revenue receipts, but were capital receipts which was negatived by the Tribunal. Thus, the fact that these receipts arose from trading operations was never under any dispute and the only question which was referred to was whether in spite of arising from tradin....
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....ued as income in the ordinary sense. But the facts remains that all the receipts mentioned in section 28 have inherently of income nature except in case or receipt under a Key Man Insurance Policy which is a recovery of expenditure already allowed as deduction. Hence, prima facie, the loan received by an assessee in the course of business is not envisaged an income. Now, coming to specific provisions of sub-section (iv) of section 28 it is also in connection with the value of any benefit or perquisite arising from business which means that such benefit or perquisite should be in the nature of income from the very beginning or it must have characteristics of income before it becomes chargeable at a later stage, if the original transaction is completed as designed. As stated earlier that no material has been brought on record to show that the loan agreements provided for such waiver at subsequent stages, hence, this receipt cannot be construed as a benefit within the meaning of section 28(iv) of the Act. Further, the words "benefit" or "perquisite" have been used in this sub-section, which have to be read together and would draw colour from each other. Normally, the term "perquisite"....