TaxTMI 
TaxTMI 
2006 (3) TMI 90
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....ing to this reference are as under: The assessee-company is engaged in the business of acting as a finance company dealing, inter alia, in securities, debentures, shares, etc. and also granting loans and advances to other parties. In the year 1973, the assessee-company had issued a large number of debentures of Rs. 10 each at par. These debentures were redeemable during the accounting years corresponding to the assessment years 1984-85, 1985-86 and 1986-87 at the rate of 30 per cent., 30 per cent, and 40 per cent., respectively of the face value thereof. During the period of redemption, the assessee-company purchased some of these debentures through a nominee at a price less than the face value thereof. The assessee credited the difference amount between the face value of the debentures purchased and the cost thereof in its books as surplus arising on redemption of debentures. The figures of such surplus credited to the profit and loss account for the three years, i.e., the assessment years 1984-85, 1986-86 and 1986-87 were Rs. 80,815, Rs. 82,171 and Rs. 1,09,650, respectively. Although the assessee credited these amounts to the profit and loss account, did not form part of the ....
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....Sri M.V. Seshachala, learned counsel appearing for the Revenue submitted that admittedly the assessee was carrying on the business of purchase and sale of debentures and they have lent money through a nominee to purchase their own debentures for which their nominee has paid interest to them and therefore, the benefit accrued to the assessee by discharging the liability of the debentures at a lower rate is a benefit accrued to them is in the nature of a trading receipt and liable to tax. Relying upon section 28(iv) of the Act, he submitted that the purchase of debentures at a lower rate should be understood as a benefit arising from the business carried on by the assessee. Per contra, the learned senior counsel Sri Sarangan appearing along with Sri Parthasarathy, learned counsel for the respondent, submitted that admittedly the assessee had issued debentures which in substance is a loan borrowed by the assessee for carrying on its, business which has been repaid by redemption of these debentures at a price lesser than the face value. That difference in the amount was shown in the accounts as surplus. On the date of redemption, the said surplus amount is taken into the profit and ....
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....or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) of clause (23C) of section 10." The term "income" starts with the word "includes" in the definition clause. Therefore, the list is inclusive and not exhaustive. The purpose of the inclusive definition is not to limit the meaning, but to widen its net. Though the inclusive definition adds several artificial categories to the concept of income but, on that account, the expression income does not lose its natural connotation. Income is a word, difficult and perhaps impossible to define in any precise general formula. It is a word of the broadest connotation. Even though the definition of income is inclusive the same shall be construed as comprehending only such things which are income according to the natural import of the term. This definition of income under the Act was the subject-matter of interpretation by the Supreme Court on several occasions. The Supreme Court in the case of CIT v. Chamanlal Mangaldas and Co. [1960] 39 ITR 8 hast held as under: "Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, ....
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....s certainly applicable in judging whether there has been income or not but, in every case, it must be applied with care and within well-recognised limits." Again the Supreme Court in the case of CIT v. T.V. Sundaram Iyengar and Sons Ltd. [1996] 222 ITR 344 after reviewing the entire case law on the point has approved the principle of law stated in Morely (H.M. Inspector of Taxes) v. Tattersall [1939] 7 ITR 316 (CA) where it was laid down that the 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 that did not alter that character. Though it was observed that in some cases, this principle has not been followed because of special facts, the principle as such has not been doubted. From the foregoing what emerges is that income-tax is a levy on income. The Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt. It is the income which has really accrued or arisen to the assessee that is taxable. Whether the income has really accrued or arisen to the assess....
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....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 years." This provision was also the subject-matter of interpretation by various courts. The Bombay High Court in the case of Mahindra and Mahindra Ltd. v. CIT reported in [2003] 261 ITR 501 was dealing with a case where the assessee had borrowed a loan and paid interest at the rate of 6 per cent, per annum for 10 years being the period of contract and he never got deduction for payment of interest under section 36(1)(iii) or under section 37 of the Act and the said loan was waived. In that context, the Assessing Officer held that credits became part of business income and prior to such waiver credit representing the said liability and accordingly, the same was taxable as business income, which finding was affirmed by both the appellate authorities. The High Court set aside the said order holding that the prerequisite of section 41(1) was not applicable. In order to apply section 41(1), the assessee should have obtained a deduction in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee.....
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....he aforesaid amount was trading receipt and therefore, rightly includible in the income of the assessee. The said case has no application to the facts of this case as the amount involved in this case is not an amount received by the assessee or the amount coming into the nets of the assessee and as such the said judgment has no application. In the instant case, admittedly the assessee had issued debentures which are redeemable after a period of ten years at the face value thereof. Though the debenture-holders sold the debentures before the stipulated period at a discounted price to the nominee of the assessee, the consideration paid to those debenture-holders was paid by the assessee as reflected in the books of account by a loan advanced to the nominee. Thereafter, on the due dates the assessee has redeemed those debentures for the purpose of accounting, the entire liability was shown as a liability at the price paid by the nominee of the assessee. In the balance-sheet, the entire amount due under the debentures was shown as a liability. After redemption, the difference in the amount was transferred to the profit and loss account and it was shown as surplus. It is obviously on ....