TaxTMI 
TaxTMI 
2019 (7) TMI 167
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.... 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 due to influx of time the same changed its character. (c) The appellant submits tha....
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....ands 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 on behalf of our client and for obtaining this benefit our client was required to pay a sum of only Rs. 0.36 crores. The question....
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....d 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 amount can be taxed in the hands of our client by virtue of section 41(1) of the Act. 4. The Ld. AO after considering the submissions of the assessee was not convinced therewith for various reasons. The Ld. AO r....
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.... 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 profit and gains from business by framing assessment u/s 143(3) dated 23/03/2013. 6. In the appellate proceedings the Ld. CIT(A), after taking into account the contentions of the assessee, dismissed the appeal of ....
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.... 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 assignment of loan obligation amounting to Rs. 11, 64,50,000 is shown as other income. 30/9/2001 a. The share application money of crore Rs. 12.75 shown as advance for was allotment of shares head 'loans and under advances.' the In the books of Memory Pictures P. Ltd.: Balance sheet as on Manner of transaction 30/6/2000 a. Share application money of Rs. 12.75 crore is shown as part of share capit....
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....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 received originally were not of income the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of time, the claim of the deposit became time-barred and the amount attained a totally different quality. It became a definite trade surplus. This ground of appeal is dismissed. 7. The Ld. AR submitted before the bench that the assessee has taken a loan of Rs. 12 Crores from M/s MPPL vide agreement dated 17/11/1999 which was to be repaid ov....
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....lity. 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 the sale tax under deferred sales tax scheme which is provided by the State Government to incentivize the a section of the trade and industry. The said decision of the special bench of the tribunal was further affirmed by the Bombay High court as reported in 369 ITR 717(Bom). The Hon'ble apex court in the case of CIT Vs Balkrishna Industries Ltd. (2017) 88 taxmann.com 273(SC) , the decision of he Hon'ble Bombay in the case of CIT Vs Sulzer India Ltd 369 ITR 717 (Bom) was consider....
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....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 Court. The Ld. DR also relied on the decision of Madras high Court in the case of CIT vs. Ramaniyam Homes (P) Ltd. (2016) 68 taxmann.com 289 (Madras) wherein it has been held that if the principal loan is waived off by the bank under one time settlement scheme , the same would constitute income falling under the head 28(iv) of the Act. The Ld. DR also relied on the case of Golden Tobacco Ltd. vs ACIT, ITA No. 9127/Mum/2004 AY 2001-02 dated 27/06/2018. Finally the Ld. DR submitted th....
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.... 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 under the head income from other sources but while computing the total income, the said income was reduced from the income on the ground that the surplus of Rs. 11.64 crores represented the capital receipt and therefore not taxable. It is also true that both companies M/S MPPL and M/S CPPL were amalgamated with the assessee later on with all consequences. So the issue before us is whether the surplus Rs. 11.64 Cr resulting from the assignment of loan to M/S CPPL under tripartite ag....
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.... 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 of future liability is not cessation or extinguishment of liability as the loan is to be repaid by the third party and therefore can not be brought to tax in the hands of the assessee. Similar issue has been decided by the special bench, Mumbai in the case Sulzer India Ltd Vs JCIT (Supra) which has upheld by Bombay High Court in the case of CIT Vs Sulzer India Ltd 369 ITR 717 (Bom).The view taken by the Bombay High Court has been affirmed by the Apex Court in the case of CIT Vs Balk....