TaxTMI 
TaxTMI 
2013 (9) TMI 634
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....nent of remittance to bank account of the assessee-company has been treated as revenue receipt and the component remitted directly to Bank of America for the same purpose has been treated as capital receipt." The assessee has questioned first appellate order on the following grounds : "That the learned Commissioner of Income-tax (Appeals) has grossly erred both in law and on facts in upholding the addition of sum of Rs. 9,59,32,212.66 representing the amount remitted by M/s. Gillette, USA for repayment of loans of the assessee-company. 1.1 That mere fact that the aforesaid sum had been credited to the bank account of the appellant-company could not in law or fact be held to be a valid basis for concluding that such sum represents income of the appellant-company, particularly when it is undisputed that the aforesaid sum had been utilised for repayment of debts by the appellant-company. 1.2 That the learned Commissioner of Income-tax (Appeals) has failed to appreciate that, sums remitted were voluntary payments and, were not received by the assessee for any services rendered to M/s. Gillette, USA, which could not be taxed as income of the appellantcompany. In fact, the le....
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....and in that field, and that Gillette will not undertake directly or indirectly any activities in competition with the assessee-company in India. As a result of the above arrangement, the assessee-company has been engaged in the business of manufacture and distribution of writing instruments and stationery products. The equity share capital of the assesseecompany was held equally by the Jain group and GIPL and its affiliates. The funds required by the assessee-company for its business were financed out of interest bearing loans raised from Gillette Diversified Operations P. Ltd. an affiliate of GIPL. The assessee-company raised a loan of Rs. 66 crores from the Bank of America in the financial year 2000-01, which was primarily utilised to repay the loans/debts of the company as per details given below : (Rs.) Gillette Diversified Operations P. Ltd. 47.25 crores Repayment of ECB to The Gillette Co, USA 4.78 crores Payment of supplier's credit to The Gillette Co. 1.78 crores Repayment of loan to India promoters 9.50 crores In the financial year 2001-02 the assessee-company further borrowed an amoun....
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....ch 26, 2002, namely: (Rs.) (a) Bank of America 96,35,08,609.81 (b) Standard Chartered Bank 2,14,59,307.00 (c) Canara Bank 10,00,00,000.00 Total 108,49,67,916.81 The balance amount of Rs. 11,58,72,913.66, i.e., difference between Rs.120,08,40,830.47 and Rs. 108,49,67,916.81 was credited to the bank account of the assessee in the following manner : (Rs.) (a) CA (LWIL) 70,91,390.19 (b) CA (LWIL) 8,88,40,822.47 (c) CC (LWIL) 1,99,40,701.00 Total 11,58,72,913.66 Out of the aforesaid, sum of Rs. 1,99,40,701.00 was already credited to the profit and loss account and was offered as income. However, the balance amount of Rs. 9,59,32,212.66 was utilised for repayment of debts. Thus out of the total sum remitted of Rs. 120,08,40,830.47 a sum of Rs.1,99,40,701.00 was credited to the profit and loss account and the balance sum of Rs. 118,08,00,129.47 was remitted for repayment of debts. Out of this sum of Rs. 118,08,00,129.47 the said sum of Rs. 108,49,67,916.81 was directly appropriated for the benefit of 3 banks and the balance....
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.... deleted Rs. 108.49 crores out of the said addition which has been questioned by the Revenue in their appeal. The remaining sum of Rs. 9.59 crores out of the said addition has been sustained by the learned Commissioner of Income-tax (Appeals) on the ground that the Gillette Co., USA, the assessee-company of the joint venture, GIL paid the said sum to the credit of the assessee's account rejecting the claim that the said sum was not in the nature of the income as it did not arise in the course of carrying on its business and cannot be taxed under section 28(1)(iv) of the Act. This action of the learned Commissioner of Income-tax (Appeals) has been questioned by the assessee in ground Nos. 1, 1.1 and 1.2 of the appeal preferred by it. In support of the grounds of the appeal of the Revenue the learned Departmental representative has basically placed reliance on the assessment order. He submitted that there was no disruption in the business of the assessee. The copy of memorandum of understanding (MOU), was not produced before the Assessing Officer. The same was produced only before the learned Commissioner of Income-tax (Appeals). He referred to pages 463 to 465 of paper book volum....
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....1961] 41 ITR 608 (SC) ; (xii) Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 435 (SC) ; (xiii) Delhi Stock Exchange Association Ltd. v. CIT [1961] 41 ITR 495 (SC) ; (xiv) CIT v. Nova Promoters and Finlease P. Ltd. [2012] 342 ITR 169 (Delhi) (xv) Bombay Oil Industries Ltd. v. Deputy CIT [2002] 82 ITD 626 (Mum) ; (xvi) Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC) ; (xvii) Senairam Doongarmall v. CIT [1961] 42 ITR 392 (SC) ; (xviii) CIT v. G. R. Karthikeyan [1993] 201 ITR 866 (SC) ; (xix) CIT v. Smt. Shanti Meattle [1973] 90 ITR 385 (All) ; (xx) CIT v. Avinash Pasricha [2001] 251 ITR 360 (Delhi) ; (xxi) Logitronics P. Ltd. v. CIT [2011] 333 ITR 386 (Delhi) ; and (xxii) National Cement Mines Industries Ltd. v. CIT [1961] 42 ITR 69 (SC). The learned authorised representative tried to justify the first appellate order on the issue raised in the ground of appeal preferred by the Revenue. He submitted that the learned Commissioner of Income-tax (Appeals) should have deleted the entire addition of Rs. 118,09,00,129 made by the Assessing Officer. He reiterated the submissions made before the authorities below in this regard. He submitted that t....
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.... that return of income was filed by the assessee declaring a loss of Rs. 34,58,93,385 against which the Assessing Officer has assessed an income of Rs. 54,95,90,790 by making the said addition of Rs.118,09,00,129. The learned authorised representative referred pages 93 and 94 (copies of FIRC) of the paper book volume 1, pages 185, 293 (written submissions before the learned Commissioner of Income-tax (Appeals)) of the paper book volume 2 and pages 392 to 426 (agreements) of the paper book volume 3. He also referred to pages 62 to 92 (loan agreements) of paper book I, page 45 (letter of offer from Gillette Co., USA dated December 4, 1996) paper book I, pages 46 to 53 (application for approval to RBI dated March 4 and 11, 1997) of paper book I, pages 54 to 60 (approval dated June 13, 1997 from RBI) paper book I, page 61 (letter dated July 23, 1998 from Ministry of Finance) paper book I, and pages 72 to 74 (letter dated April 24, 2001 from Ministry of Commerce and Industry) paper book I, etc. He placed reliance on the following decisions : (i) CIT v. General Electrodes and Equipments Ltd. [1985] 155 ITR 78 (Bom) ; (ii) Ms. Payal Kapur v. Asst. CIT [2006] 98 ITD 19 (Delhi) ; (....
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....re a liability is discharged from the amount available to it, which is the application of receipt and as such section 41(1) of the Act has no application. In fact, the assessee-company had committed an error when it offered a sum of Rs. 1.99 crores as income under misconception of law by failing to appreciate that such receipt represented capital and was not liable to tax. Mere fact that sum received of Rs. 1.99 crores was not utilised for repayment of liabilities could not be a ground in law to regard the same as its income as it is a well settled position of law that every receipt is not income, submitted the learned authorised representative while placing reliance on the following decisions : 1. Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 (SC) ; 2. CIT v. N. Swamy [2000] 241 ITR 363 (Mad) ; 3. Dilip Kumar Roy v. CIT [1974] 94 ITR 1 (Bom) ; and 4. Kishinchand Chellaram v. CIT [1980] 125 ITR 713 (SC). The learned authorised representative submitted further that a debt waived or forgone cannot partake the character of income either under section 41(1) or section 28 of the Act. He placed reliance on the following decisions : 1. CIT v. Phool Chand Jiwan Ram [....
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....money from a Government to a private enterprise considered as a beneficial to the company. He cited the following decisions : 1. CIT v. Grace Paper Industries P. Ltd. [1990] 183 ITR 591 (Guj) approved by the Supreme Court in CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830 (SC) ; and 2. Shri Ambica Mills Ltd. v. Textile Labour Association, AIR 1973 SC 1081 ; [1972] (SCI.) GJX 648 (SC). In rejoinder the learned Departmental representative submitted that all receipt unless exempt is income and placed reliance on the decision of the hon'ble Allahabad High Court in the case of CIT v. Smt. Shanti Meattle [1973] 90 ITR 385 (All). He submitted that the payment is in the nature of subsidy and not subsidy. He also pointed out that waiver of payment was made to the assessee through bank and not to the bank as held by the learned Commissioner of Income-tax (Appeals). The payment was made only out of the agreement, submitted the learned Departmental representative. We have considered the above submissions in view of the orders of the authorities below, material available on record and the decisions relied upon. An undisputed fact remained that a total sum aggregating to Rs.120,08,40,....
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....USD 2.3 million was also raised from M/s. Gillette Co., USA under the external commercial borrowing scheme of Reserve Bank of India. The Gillette Co., USA later on waived its claim to this foreign currency loans advanced by it to the assessee. As stated hereinabove that on March 19, 1996 a joint venture agreement was entered between M/s. Gillette India P. Ltd. (GIPL) a subsidiary of M/s. Gillette Co., USA, members of one Mr. D. K. Jain family (Jain family) and JHPL Holdings P. Ltd. (JHPL) to incorporate the assessee-company for carrying on the business of manufacture and distribution of writing instruments and stationery products in India. The share capital of the assesseecompany was thus allotted to Jain family, JHPL, GIPL and its affiliates. In the year 2001 Gillette Co., USA, sold its business of writing instruments to Newell, USA. The shareholding of the GIPL in LWIL was also sought to be transferred to Newell. For this purpose various agreements were executed between GIPL, and Jain family on January 17, 2001, whereby Newell was also made a party (assignment agreement) and wherein the Jain family had given consent to transfer of shares by GIPL and its affiliates to Newell an....
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....ing, the consideration and compensation of USD 10,000,000 ; (b) M/s. Gillette shall cause to be remitted a sum of USD 24,744,299.00 to the Bank of America, Barakhamba Road, New Delhi to be disbursed as follows : (i) Rupee equivalent of USD 20,000,000.00 (United States dollars twenty million only) to be paid to the Bank of America, Barakhamba Road, New Delhi in full and final settlement of the amounts owing at closing to the said bank by LWIL and thereby secure the release and discharge of the corporate guarantee(s) given by M/s. Gillette to the said bank to guarantee credit facilities extended by the said bank to LWIL ; (ii) United States dollar equivalent to Indian rupees 21,459,307.00 (rupees twenty one million four hundred fifty nine thousand three hundred and seven only) to be paid to Standard Chartered Grindlays Bank in full and final settlement of the amounts owing at closing to the said bank by LWIL ; (iii) United States dollar equivalent to Indian rupees 100,000,000, (rupees one hundred million only) to be paid to Canara Bank in full and final settlement of the amounts owing at closing to the said bank by LWIL ; (iv) United States dollar equivalent to Indian ....
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....ayments by private party are in the nature of voluntary payment and do not stem from any business circumstances and hence, cannot be termed as "subsidy". We find that there is no scope of any debate on the finding of the learned Commissioner of Income-tax (Appeals) that the amount remitted was not subsidy. The learned Commissioner of Income-tax (Appeals) has also tried to distinguish the decision of the hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC) and rightly so, that the decision relied upon by the Assessing Officer is not applicable since in the present case no subsidy was received by the assessee. In the present case except the amount to the extent of Rs. 11.58 crores, the remitted amount have not been received by the assessee and was directly appropriated for the three banks. The undisputed fact also remained that M/s. Gillette Co., USA had provided primary security in the shape of corporate guarantee for the grant of loan to the assessee-company and the amount had been paid to the bankers for discharge of such corporate guarantee directly. The only dispute that remained was as to whether the remittance was in respect of ....
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....om a foreign bank. The shares were transferred subject to fulfilling guarantee obligation of the transferee. The amount of loan paid by shareholder to discharge guarantee obligation was not assessable as income or as remission of liability or as benefit derived from business, held the Tribunal. Likewise in the case of General Electrodes and Equipments Ltd. [1985] 155 ITR 78 (Bom) before the hon'ble Bombay High Court, collaboration agreement between the assessee-company arranged through foreign bank for bank guarantee for Rs. 10 lakhs to enable the assessee to obtain loan of like amount from an Indian Bank. Subsequently the foreign company paid Rs. 5 lakhs to the foreign bank in part extinction of liability. The Income-tax Officer held that payment was in course of carrying on of the assessee's business and assessable as income. The Tribunal held that the payment was made by foreign company to foreign bank and not to the assessee, the payment amounted to discharge of the foreign company's liability, foreign company was to be released of all financial obligations in relation to affairs of the assessee, benefit obtained by the assessee was not in the course of carrying on of business ....
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....er all the evidence and the arguments raised by the parties. Similar view has been expressed in the cases of Srinivasa Pitti and Sons v. CIT [1988] 173 ITR 306 (AP) and CIT v. H. H. Maharani Sethu Parvathi Bayi [1998] 232 ITR 678 (Ker). In the case of CIT v. Nova Promoters and Finlease P. Ltd. [2012] 342 ITR 169 (Delhi), the hon'ble Delhi High Court has been pleased to hold that the Tribunal ought to have seen the modus operandi behind the entry provider. In the case of CIT v. Chuharmal Manghandas [1997] 228 ITR 528 (MP) the issue was regarding change in the constitution of firm on the death of the partner and the inclusion of his wife. In the case of Raghunarayan Rice Mills v. CIT [1970] 75 ITR 682 (Orissa) the issue raised was allowability of business expenditure in the case of payments amounted to settlement of the contract otherwise than of actual delivery within the meaning of Explanation 2 to section 24 of the Indian Income-tax Act, 1922. In the case of Delhi Stock Exchange Association Ltd. v. CIT [1961] 41 ITR 495 (SC), the question was whether the admission fees received by the company from the members and the authorised assistants were taxable in the hands of the company. ....
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.... assessee questioning the addition in ground Nos. 1, 1.1 and 1.2 of the appeal preferred by it remained that the learned Commissioner of Income-tax (Appeals) while sustaining the addition has failed to appreciate the claim of the assessee that the said sum was not in the nature of the income as it did not arise in the course of carrying on its business hence, cannot be taxed under section 28(1)(iv) of the Act. It was also contended that the sum received is beyond the scope of section 5 of the Income-tax Act. There is no dispute that an amount of Rs. 11.58 crores out of Rs. 118.09 crores was credited to the bank account of the assessee. Since the assessee had already credited a sum of Rs. 1.99 crores to its profit and loss account, and offered it to tax, the learned Commissioner of Income-tax (Appeals) restricted the addition to Rs. 9.58 crores, since the amount was credited to the bank account of the assessee. Hence, in the absence of any contrary and satisfactory explanation by the assessee, we are of the view that the learned Commissioner of Income-tax (Appeals) has rightly treated this amount as income of the assessee. The same is upheld. Ground Nos. 1, 1.1 and 1.2 of the appeal....
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.... (iii) Mahindra and Mahindra Ltd. v. CIT [2003] 261 ITR 501 (Bom) ; (iv) CIT v. Tosha International [2009] 319 ITR (St.) 7 (SC) ; and (v) CIT v. Jindal Equipments Leasing and Consultancy Services Ltd. [2010] 325 ITR 87 (Delhi). The learned authorised representative while concluding his arguments submitted that decision of the hon'ble Delhi High Court in the case of Jagatjit Industries Ltd. [2011] 337 ITR 21 (Delhi) is fully applicable in the present case. The learned Departmental representative on the other hand tried to justify the orders of the authorities below on the issue. He placed reliance on the decision of the hon'ble Delhi High Court in the case of Logitronics P. Ltd. v. CIT [2011] 333 ITR 386 (Delhi). Having gone through the decisions relied upon by the parties especially the decision of the hon'ble jurisdictional High Court of Delhi, in the case of Jagatjit Industries Ltd. [2011] 337 ITR 21 (Delhi) we find that the facts in the case of Jagatjit Industries Ltd. are more or less similar to the facts of the present assessee before us. In that case the issue was as to whether 21 percent of the said gain should be treated as revenue receipt because of the re....