TaxTMI 
TaxTMI 
2019 (7) TMI 167
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.... Obligation" is capital receipt and not an income chargeable to lax, 2. The appellant submits that the following observations/findings of the learned Commissioner of Income tax (Appeals) are not at all relevant to the issue under consideration:- (a) The sum of Rs,12.75 cores given by the appellant to Memoric Pictures Pvt, Ltd. (MPPL) as share application money was received back as loan to appellant; (b) The treatment to the aforesaid transaction of loan, share application and assignment of loan in the books of the appellant, MPPL and Champions Pictures Pvt. Ltd. (CPPL); (c) The appellant and the other companies have changed their accounting period under the Companies Act, 3. (a) The appellant submits that the learned Commissioner of Income tax (Appeals) failed to take note of the distinction between loan taken for the purpose of business and the business of buying and selling of loan. (b) The appellant submits that the learned Commissioner of Income tax (Appeals) erred in holding that as MPPL and CPPL got merged with the appellant, it got the benefit of Rs, 11.64 Crores which was originally a loan and a capital transaction but d....
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....reduced the said amount from the taxable receipt on the ground that same constitute a capital receipt in the hands of the assessee and is not taxable. Thereafter during the course of assessment proceedings, the AO after noticing the said transactions issued show cause notices to the assessee as to why the profit on assignment of loan should not be added to the income of the assessee, which was replied by the assessee vide letter dated 21/11/2002 as under: - "Our client is not engaged in the business of buying and selling of loans and the aforesaid transactions was a one-time transaction. The difference arising on transfer of the obligations of repaying the loan cannot be treated as business receipt (there being no receipt at all) or profit arising out of business of the assessee company. Further, any amount, which is not a business receipt, cannot be taxed under the head "Profit and Gains of Business or Profession". We may further submit that: * Our client received a sum of Rs. 12 crores as a loan. Receipt of money, as loan, can never be "income" in the hands of our client. * Our cline was able to obtain a "benefit" because CPPL agreed to repay the loan o....
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....r deduction has been made is in existence in that year or not or (b) ------ " On perusal of the aforesaid section, it can be observed that where an assessee has: * Claimed as deduction in computing his taxable profits for any year, any loss, expenditure , or trading liability; or * Has been allowed as deduction in computing his taxable profits for any year, any loss, expenditure, or trading liability and where the assessee has obtained any benefit by way of remission or cessation of such loss, expenditure, or trading liability then in such an event, the amount so claimed/allowed as deduction is chargeable to tax in the year of such remission/cession. In the present case: * Our client had taken a loan of R. 12 crores from MPPL which has been subsequently assigned to CPPL at a discounted present value * Such loan is not in the nature of "loss", "expenditure" or "trading liability" * Our client has neither claimed nor has been allowed to claim any deduction in computing its taxable profits for any year in respect of such amount. Therefore, the provisions of section 41(1) of the Act are not applicable to the instant case. Thus, no a....
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....O also brushed aside the contentions of the assessee that assessee has not claimed any deduction in the computing the taxable profits for any year in respect of such amount /loan. The Hon'ble Supreme Court decision in CIT vs T.V.Sundaram Iyengar & Sons Ltd. [(1996) 222 ITR 344 was heavily relied by the AO wherein Hon'ble Supreme court has held that if a common sense view of the matter was taken, the assessee because of trading operation, had become richer by the amount which it transferred to its profit and loss account. The money had arisen out of trading transactions. The Court held that although the amounts received originally were not of income nature, but the amounts remained with the assessee for a longer period unclaimed by the trade parties. By lapse of time, the claim of deposit became time barred and it become a trade surplus. The AO also referred to CIT vs Aries Advertising Pvt. Ltd. 255 ITR 510 wherein the Madras High Court after relying on the decision of Hon'ble Apex Court in the case of CIT vs. T.V. Sundaram Iyengar & Sons Ltd. (Supa). Finally the Ld. AO relying on various decisions as stated above added Rs. 11.64 crores to the income of the assessee under the head p....
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....and not Rs. 12 crore. A perusal of the balance-sheet of M/s. MPPL for the F.Y. 2000-01 shows that the share application money of Rs. 12.75 crore was returned back to the appellant company though the loan advance of Rs. 12 crore continues to appear in the balance-sheet. Thus, the sum of Rs. 12.75 crore given by the appellant company to M/s. MPPL as share application money was received back as loan on the same day. It is also informed by the appellant that M/s. MPPL and M/s. CPPL amalgamated with Cable Care Telecom Ltd. w.e.f. 30/6/2002. On 1/7/2002 Cable Care Telecom Ltd. amalgamated with the appellant company. The scheme of amalgamation was duly approved by the Hon'ble Mumbai High Court. 16. The transaction was shown in the books of account of the three companies KL the following manner: In the books of Cable Corporation of India Ltd.: Balance sheet as on Manner of transaction 31/3/2000 a. The share application money of crore Rs. 12.75 shown as advance for was allotment of shares head loans and under advances the b. Since the loan was discounted the loan amount of Rs. 12 crore does not appear in the balance-sheet. However, gain on assi....
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....assessee is not in the business of buying and selling loan. Obviously the assessee has obtained the loan for its business. It is abundantly clear that the assessee is not required to repay the loan as the loan was assigned CPPL for a sum of Rs. 35.50 Lac. From the facts narrated above it is also abundantly clear that the assessee company was amalgamated with MPPL and CPPL within two years with the result that no one is to pay anyone. In other words the^ identity of payer and payee has disappeared. Accordingly it can be concluded that the assessee got the benefit of Rs. 11.64 crore which was originally a loan and a capital transaction but due to influx of time the same has changed its character. In the facts and circumstances of the case, this is required to be treated as income of the assessee in view of Supreme Court's decision in the case of CIT vs. T.V. Sundaram lyengar & Sons Ltd. (222 ITR 344) wherein it was held that, if a commonsense view of the matter were taken, the assessee, because of the trading operation, had become richer by the amount which it transferred to its profit and loss account. The moneys had arisen out of ordinary trading actions. Although the amounts r....
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....cision of CIT Vs Mahindra & Mahindra Ltd. 404 ITR 001 (SC) and submitted that the order of the CIT(A ) is bad in law as it is against the provisions of Act and also contrary to ratio laid down by the Hon'ble Apex Court in the case of CIT vs Mahindra & Mahindra Limited (supra). The Ld. AR further submitted that in the present case the obligation to repay was taken over by the third company M/s CPPL and therefore, there is no question of cessation/extinguishment of any loan liability. The Ld. AR in defense of his arguments relied on decision of special bench in the case of Sulzer India Ltd Vs JCIT 2010 42 SOT 457(Mumbai Spl. bench). The Ld. AR submitted that in the said decision, the Hon'ble Special bench held that where under a scheme brought out by the State Government, if some dealer opted to pay the future liability at discounted value at net present value immediately then it would be similar case of collecting the amount of net present value of future liability and therefore, such payment of net present value of future liability could not regarded as remission or cessation of liability so as to attract the provision of section 41(1) of the Act where the dealers have collected th....
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....ng capital purchases though the same was utilized for purchase of shares. Therefore, it would not change the character of the transaction. The Ld. DR relied on the decision of Solid containers Ltd. Vs DCIT 2009 187 taxmann 192 Bombay wherein it is held that value of any benefit arising from business or excise of profession by way of extinguishment of the liability has to be taxed u/s 28 of the Act as it was directly arising out of business activity. The Ld. DR submitted that in this case the assessee has taken a loan for a business purposes which was written back during the year as a result of consent terms between the assessee and the lender. The assessee claimed a said loan a capital receipt and not covered u/s 41(1) of the Act. The Tribunal following the decision of Hon'ble Apex Court in the case of T.V.Sunderam Iyengar & Sons Ltd upheld the order of AO by treating the same as business receipt taxable under section 28 of the Act and the said order of the Tribunal was upheld by the jurisdictional High Court. The Ld. DR further contended that the case of Solid containers Ltd vs DCIT (supra) has not been considered in the Mahindra & Mahindra Ltd. (Supra) by the Hon'ble Supreme Cour....
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....) may be set aside and the appeal of the assessee allowed. 11. We have heard rival submissions and perused the material available on record including the decisions relied by the rival parties and impugned order of CIT(A) under challenge before us. The undisputed facts are that the assessee has borrowed a sum of Rs. 12.00 crores from M/s MPPL to be repaid over a period of 100 years. Undisputably the amount was utilized for the purchase of shares and the amount invested was Rs. 12.75 Cr as is apparent from the Balance Sheet as at 31 st March, 2000. The assessee is in the line of manufacturing of cable and trading thereof and not in the purchase and sale of shares and securities. Therefore, it is apparent from the facts before us that the loan was utilized for the purpose of purchase of shares which is not a trading activity of the assesse. It is also undisputed that the liability of loan of Rs. 12 crores to be discharged over a period of 100 years was assigned to the third parties M/s CPPL by making a payment of Rs. 0.36 crores in terms of present value of the future liability and the surplus resulting from assignment of loan liability was credited to the Profit & Loss Account ....
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....an also not be taxed u/s 41(1) of the Act as sine qua non for for bring a receipt u/s 41(1) is that there has to be allowance or deduction claimed by the assessee in respect of loss, expenditure or trading liability incurred. In the instant case before us the loan was utilized for purchasing shares which is capital asset in the business of the assessee and the surplus resulting from assignment of loan is a capital receipt not liable to be taxed either u/s 28(iv) or u/s 41(1) of the Act . In our considered view the case of the assessee is squarely covered ratio laid in the said decision by the Apex Court in the case of CIT Vs Mahindra & Mahindra Ltd (Supra). Accordingly the surplus arising from assignment of loan is not covered by the provisions of section 41(1) of the Act and consequently can not be brought to tax either u/s 28(iv) or u/s 41(1) of the Act. We further note that the surplus has resulted from the assignment of liability as the assessee has entered into tripartite agreement under which the loan was to be repaid by the third party in consideration of payment of net present value (NPV) of future liability. Thus surplus resulting from assignment of loan at present value o....