TaxTMI 
TaxTMI 
2019 (6) TMI 915
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....ing the provisions of section 28 (iv) of the Act and some of the judicial pronouncements. 1.2 The Ld. CIT(A) and Assessing officer failed to appreciate the details submissions made by the appellant and the rule of law laid down in various decisions relied upon by the appellant in this behalf. 2. That the appellant craves the right to add, amend or delete any grounds of appeal before it is finally disposed off. 3. The brief facts relating to the issue are that the assessee presently is a Proprietor of M/s Mack Hosiery, which concern was earlier a Partnership firm constituted in the year 1988 and dissolved on 30.09.2002, which was taken over by the assessee as his proprietorship concern along with assets and liabilities whatsoever. The loan to the firm taken from M/s Punjab National Bank (PNB) was also owed up / taken over by the assessee in his proprietorship concern. 4. The assessee owed Rs. 3,78,93,001/-, split into term loan of Rs. 84,83,001/- and cash credit limit of Rs. 2,94,10,000/- as on 31.12.2006 which had become non-performing assets (NPA). Accumulated interest for the period of NPA i.e. from 1.4.2003 to 31.12.2006 of Rs. 1,93,64,729/- was neither b....
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....any amount of money aggregate value of which exceeds Rs. 50,000/- is received, without consideration, by an individual or HUF, in any previous year from any person or persons on or after the first day of April, 2006, the whole of aggregate value of such sum shall be chargeable to income tax under the head 'income from other sources'. The assessee has received amount of Rs. 2,39,93,001/- on account of waiver of loan by PNB and the same is also taxable under section 56(2) (vi) of the Act. In view of the discussion above, addition of Rs., 2,38,93,001/- is upheld." 8. Being aggrieved by the confirmation of addition of Rs. 2,38,93,001/- by the CIT(A), the assessee filed appeal before this Tribunal. Simultaneously, department also filed an appeal before this Tribunal contending that the CIT(A) Ludhiana had crossed his jurisdiction while directing AO to verify whether in earlier years the assessee had claimed the expenditure on interest on loan that was waived by Bank. That the CIT(A) has no jurisdiction to restore or set aside an issue to Assessing officer as per sub section 1 of section 251 of the Act. 9. Disposing of the appeals i.e. Appeal No. ITA No.154/Chd/2011 (assessee's app....
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....e of Solid Containers Ltd (supra) treated the same as taxable income of the assessee. The Ld. CIT(A) held that the aforesaid working capital loan of Rs. 1,85,44,140/- resulted in a benefit to the assessee in the shape of remission of a liability, therefore, directed the Assessing officer to restrict the addition to Rs. 1,85,44,140/- as against the total addition of Rs. 2,38,93,001/- made by the Assessing officer. 11. Aggrieved by the above order of the CIT(A), the assessee has come in appeal before us. 12. We have heard the rival contentions and have gone through the record. At the outset, Ld. Counsel for the assessee has submitted that neither the provisions of section 28 (iv) and 41(1) nor of section 56(2)(vi) of the Income Tax Act were applicable to the facts of the present case. He has therefore, submitted that the Assessing officer as well as the Ld. CIT(A) have not correctly appreciated the proposition of law laid down by the Hon'ble Supreme Court in the case of T.V.Sundram Iyengar & Sons Limited' (supra) and Hon'ble Madras High Court in the case of CIT Vs. Aries Advertising (P) Ltd. 255 ITR 510 (Mad.) and by the Hon'ble Bombay High Court in the case of Soli....
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....ate transaction. Under the circumstances, the waiver of part of the loan amount cannot be said to be a benefit or perquisite arising from business or profession to the assessee. "Section 41 (1) and its applicability in the instant case: Properties chargeable to tax - "41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in busine....
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.... 41(1)of the Act. 19. After considering the rival submissions, we find force in the submissions of the Ld. Counsel for the assessee. As per section 41(1) of the Act, the assessee must have taken an allowance or deduction in earlier assessment year in respect of loss, expenditure or trading liability which has been remitted or ceased to exist in the relevant year to constitute the same as taxable income of the assessee. The loan in question though was taken by the assessee for the purpose of business / trading activity, however, in our view, the same was not out of the trading activity of the assessee. The liability of loan was not created or incurred in the course of business, rather, it was an independent loan transaction of the assessee with the bank and the assessee was not involved in any business activity with the bank. As submitted by the Ld. Counsel for the assessee, the assessee was not in a business of taking / lending of the loan and, hence, the amount of loan received by the assessee for the business of hosiery was not part of the trading activity of the assessee. Though, grant of loan on interest may be the part of banking business of the Lender Bank, but to take loa....
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....and not applicable on other persons as defined in sec. 2(31) of Income Tax Act 1961. That in the case in hand, the assessee is sole proprietor, whereas, in some other cases assessee may be partnership firm, body corporate or some other person. By virtue of provisions of this section, the assessee who is a person other than Individual and HUF cannot be brought to tax net. That this discriminatory treatment to tax Individuals and HUFs for waiver of loan is not correct interpretation of the provisions contained in the Statute. 21. The Ld. DR, on the other hand, has submitted that the assessee is an individual, hence the assessee clearly falls under the provisions of section 56(2) (vi) of the Act. That the assessee was under loan liability to the bank and that the waiver of remission of the liability of the part of the loan amount constitutes receipt in the hands of the assessee, which as per the provisions of section 56(2)(vi) is liable to the taxed as 'income from other sources'. 22. We have considered the rival submissions. The argument of the Ld. counsel is that the assessee cannot be discriminated as an individual vis-à vis partnership firm or a company, as the provis....
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....an become NPA. The bank, after considering the remote possibility of recovery of the said loan, thought it prudent to go for one time settlement with the loanee. Thereafter, the terms and conditions were settled and as per the terms and conditions, in the event of the loanee paying an amount of Rs. 140 lacs immediately, out of which Rs. 125 lacs to be deposited in third party account, which would be acceptable on the approval of the one-time settlement and execution of 'compromise agreement' at the cost of the loanee, the remaining of the loan was agreed to be waived /sacrificed by the bank. It was not a simple case of waiver without consideration, rather, the consideration of the waiver was the condition of depositing immediately the remaining part of the loan i.e. Rs. 140 lacs and performance of certain other formalities as per the agreement. It is not just a case where the bank has simply waived or remitted the loan amount, rather the bank to secure payment of Rs. 140 lacs, which otherwise the bank was feeling difficult to recover, was the consideration for settlement of the loan account. Hence, the amount received by the assessee as waiver or remission of loan amount cannot be ....
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....Although the amounts received originally was not of income nature, the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of long time, the claim of the deposit became time barred and the amount attained a totally different quality. It became a definite trade surplus. Atkinson, J. pointed out that in Tattersall's case no trading asset was created. Mere change of method of book-keeping had taken place. But, where a new asset came into being automatically by operation of law, common sense demanded that the amount should be entered in the profit and loss account for the year and be treated income. In other words, the principle appears to be that of an amount is received in course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's won money because of limitation or by any other statutory or contractual right. When such a thing happens, common sense demands that the amount should be treated as income of the assessee. In the present case, the money was received by the assessee in course of carrying on ....
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....assessee in the business as his own money. The underlined transaction was not an integral part of the business activity of the assessee. It is a case where the assessee had taken loan, part of the loan was used for capital assets in the shape of machinery etc. and the other part of the loan amount was used for trading assets / activities. The bank in this case while arriving at one time settlement did consider as to which part of the loan amount was used by the assessee for capital assets and which part of the loan amount was used for trading activity. The purpose of the loan, so far as the bank is concerned, was to get interest income on the loan advanced, though, for the security of the loan or otherwise the bank had given the loan for specific purposes, i.e. for capital assets or for trading activity separately. However, since the motive for settlement was recovery of the Non- Performing assets, hence, the bank clubbed and taken into consideration the entire defaulting amount against the assessee and settled for a receipt of certain sum out of the total amount outstanding against the assessee. Under the circumstances, for the purpose of waiver or settlement, it was irrelevant....