AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (8) TMI 620
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....d under section 41(1) of the Income Tax Act, exists so as to enable the income tax authorities to include Rs. 10,77,49,601/- as income in the assessment year 2000-01? Whether the Tribunal is correct in proceeding on the assumption that WGI had written off the monies in question, when the Appellant Assessees specific plea was that these monies had been converted into equity? 2. The brief facts relevant to the appeal are as follows: The appellant is a company held, to the extent of 74%, by M/s Transworld Garnet British Columbia, which is in turn wholly held by Western Garnet International Limited, Canada (in short WGI). The appellant company had been set up completely with investment from the parent, WGI. Advances had also been recei....
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.... account instead of to general reserves. 5. In appeal before the Commissioner of Income tax (Appeals) (in short CIT(A)), the appellant submitted that the amount constituted a capital receipt not liable to tax. It was explained that apart from investing in the setting up of the company, WGI had advanced funds for business purposes that were to be adjusted against future sales. As per the extant norms, the investment by a foreign entity was capped at 74% with participation by a resident to the extent of the balance 26%. The resident investor imposed as a condition that the extent of loss that had been incurred be neutralized by further investment by the foreign party. Accordingly WGI had instructed the assessee to convert the advances made....
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....waived and in such circumstances the tribunal was of the view that the amount partook the character of a revenue receipt. Thus, according to the tribunal, the subsequent transfer of the amount to general reserve would constitute only an application that would not change the nature of the taxability of the amount at a stage anterior thereto. The assessee challenges the aforesaid conclusion of the tribunal before us. 9. We have heard the submissions of Mr.R.Venkataraman, learned Senior Counsel for Mr.Srinath Sridevan for the appellant and Mr.Swaminathan, learned counsel on behalf of the Revenue. 10. The provisions of section 41(1) of the Act, the interpretation of which is in issue before us, is extracted below for ease of reference. ....
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....background of the admitted facts as we have noticed in the preceding paragraph. In order for the provisions of Section 41(1) to stand attracted, the benefit obtained by the assessee in the relevant year should have a direct nexus with an allowance or deduction for any previous year as a claim of loss, expenditure, or trading liability which has not been established in the present case. Since the tribunal nonetheless decides the issue against the assessee relying on the judgment of the Supreme Court in the Case of T.V.Sundaram Iyengar, (supra), we advert to the same straightaway. 13. In T.V.Sundaram Iyengar, the Bench notes as a fact, that the amounts received had depleted by adjustments made by the assessee from time to time and the resu....
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.... Section 41(1) concluded that the following points are critical in the event the provisions of section 41(1) are to apply and state thus at page 437 of the judgement: The question is whether the circumstances contemplated by section 41(1) exist so as to enable the Revenue to take back what has been allowed earlier as business expenditure and to include such amount in the income of the relevant assessment year i.e. 1985-86. In order to apply section 41(1) in the context of the facts obtaining in the present case, the following points are to be kept in view: (1) In the course of assessment for an earlier year, allowance or deduction has been made in respect of trading liability incurred by the assessee; (2) Subsequently, a benefit is obtai....