TaxTMI 
TaxTMI 
2016 (4) TMI 954
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....e Tax Act being the benefit arising for the business?" 2. Heard Mr.T.Ravikumar, learned Senior Standing Counsel appearing for the Revenue and Mrs.Dr.Anita Sumanth, learned counsel for the respondent/assessee. 3. The assessee filed a Return of income for the assessment year 2006-07 on 22.10.2006, admitting a total loss of Rs. 2,42,20,780/-. The case was selected for scrutiny and a notice under Section 143(2) and 142(1) of the Act, was issued. 4. It was found by the Assessing Officer that the assessee was indebted to the Indian Bank. By a letter dated 15.2.2006, the Indian Bank mooted a proposal for a one time settlement. The total amount payable under the one time settlement scheme was Rs. 10.50 Crores and the amount had to be paid on or before 30.4.2006. The company paid only a sum of Rs. 93,89,000/-. 5. The Assessing Officer was of the view that since the assessee accepted the One Time Settlement Scheme, they should have shown the entire interest waived by the bank as income under Section 41(1) on accrual basis during the relevant assessment year. The Assessing Officer found that the total amount waived was Rs. 10.50 Crores and that as per the assessees accounts, the total int....
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....sues one related to the disallowance of Rs. 1,20,26,254/-. On this issue, the Tribunal remanded the matter back to the Assessing Officer for a fresh consideration. There is no appeal either by the assessee or by the Revenue, on the order of remand relating to the said issue. 10. On the only remaining issue namely the deletion of the principal portion of the term loan waived by the bank, the Tribunal held in para 12 of its order that the term loan had admittedly been used by the assessee for acquiring capital assets. Therefore, the Tribunal followed the decision of this Court in Iskraemeco Regent Limited and confirmed the order of the first Appellate Authority. Hence, this appeal by the revenue. 11. Before taking up the rival contentions for consideration, it may be necessary to have a look at the decision of this Court in Iskraemeco Regent Limited, since the first Appellate Authority as well as the Tribunal have merely followed the said decision. 12. In Iskraemeco Regent Limited, the assessee admittedly availed a loan from the bank for the purchase of capital assets. When the assessee became a sick industrial undertaking, they approached the BIFR. Under a Scheme of R....
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....anding Counsel submitted that this Court is entitled to consider the issue independently. 16. We have carefully considered the above submissions. 17. For the purpose of convenience, we shall divide the discussion into two parts, the first dealing with the statutory provisions and the second dealing with the decisions of various High Courts and the Supreme Court. STATUTORY PROVISIONS 18. The expression "income" is defined in Section 2(24) of the Act to include several things, some of which that may be of relevance for the case on hand, are as follows: (a) any sum chargeable to income tax under Clauses (ii) and (iii) of Section 28 or Section 41 or Section 59; (b) any sum chargeable to income tax under Clause (iiia) of Section 28; (c) any sum chargeable to income tax under Clause (iiib) of Section 28; (d) any sum chargeable to income tax under Clause (iiic) of Section 28; and (e) any sum chargeable to income tax under Clause (iv) of Section 28. 19. The expression "total income" is defined in Section 2(45) to mean the total amount of income referred to in Section 5, computed in the manner laid down in the Act. Under Section 5(1), the total income of any previous year, of a pe....
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....ned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1. - For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts. Explanation 2. - For the purposes of this sub-section, "successor in business" means (i) where there has been an amalgamation of a company with another company, the amalgamated company; (ii) where the first-mentioned person is succeeded by any other person in that business or profession, the other person; (iii) where a firm carrying on a business or profession....
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....e taxability of a receipt was fixed with reference to its character at the moment it was received and that merely because the recipient treated it subsequently in his income account as his own, it would not alter that character. The Supreme Court noted that this test laid down by Lord Greene formed the basis of several judgments delivered by our courts. 26. After taking note of the principle of law laid down by Lord Greene, the Supreme Court considered a few decisions of different High Courts as well as the Supreme Court, where the Courts distinguished the decision in Morley. Thereafter, the Supreme Court pointed out that the amounts in question were not in the nature of security deposits held by the assessee for the performance of contract by its constituents. The Supreme Court also held that the unclaimed surplus retained by the assessee will be its trade receipt and the assessee itself treated the same as trade receipt by bringing it to the profit and loss account. 27. Finally, in T.V.Sundaram Iyengar & Sons, the Supreme Court took note of the opinion expressed by Atkinson,J in Jay's-The Jewellers Limited Vs. I.R.C. [1947 (29) TC 274 (KB)], wherein the Bench distinguished ....
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....n from the State Bank of India, but failed to discharge its liability. The loan was categorized as a non performing asset and proceedings for recovery have been initiated. During the pendency of those proceedings, a One Time Settlement was arrived at and a portion of the loan as well as interest were waived. In the return filed by the assessee, they showed the interest waived as income, but not the amount of loan waived. The principal amount written off was directly taken to the balance sheet under the head 'capital reserve' and it was not offered for taxation. The Assessing Officer looked at the expanded meaning of the expression 'income' under Section 2(24) and held that the principal amount of loan written off was nothing but gain/income in the hands of the assessee by relying upon Section 28(iv) and 41(1). The assessee's first appeal was allowed by the Commissioner, but his order was reversed by the Income Tax Appellate Tribunal, forcing the assessee to file a tax case appeal before the High Court of Delhi. 30. In Logitronics, two substantial questions of law were taken up for consideration by the Delhi High Court and they are as follows : "(1) Whether the....
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....cerned with a case where in terms of a corporate debt restructuring package worked out between the assessee and the bank, a portion of the principal and interest were waived. The Income Tax Appellate Tribunal held that the waiver of the working capital loan utilised towards the day-to-day business operations resulted in manifest in the revenue field and hence, was taxable in the year of waiver. 35. Finding on facts that the term loans in question were taken for the purchase of capital assets from time to time and these amounts did not come into the possession of the assessee on account of any trading transactions, the Delhi High Court reiterated the opinion rendered in Logitronics. 36. Therefore, the law as expounded by the Delhi High Court appears to be that if a loan had been taken for acquiring a capital asset, waiver thereof would not amount to any income exigible to tax. If the loan is taken for trading purposes and was also treated as such from the beginning in the books of account, the waiver thereof may result in the income, more so when it is transferred to the profit and loss account. 37. But, the Delhi High Court, both in Logitronics as well as in Rollatainers, did no....
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....r of a part of the loan. Therefore, the finding recorded in paragraph 27.1 of the decision in Iskraemeco Regent Limited that Section 28(iv) has no application to any transaction, which involves money, is a sweeping statement and may not stand in the light of the express language of Section 28(iv). In our considered view, the waiver of a portion of the loan would certainly tantamount to the value of a benefit. This benefit may not arise from "the business" of the assessee. But, it certainly arises from "business". The absence of the prefix "the" to the word "business"makes a world of difference. 40. We shall now turn our attention to the distinction sought to be made between the waiver of a portion of the loan taken for the purpose of acquiring capital assets on the one hand and the the waiver of a portion of the loan taken for the purpose of trading activities on the other hand. 41. It appears that in so far as accounting practices are concerned, no such distinction exists. Irrespective of the purpose for which, a loan is availed by an assessee, the amount of loan is always treated as a liability and it gets reflected in the balance sheet as such. When a repayment is ....