TaxTMI 
TaxTMI 
2019 (9) TMI 974
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.... the basis for apportionment of Hire installment into principal and finance income, has been adopted by the assessee consistently over the years. The Hire purchase agreement entered into with the clients provides for recognizing the income /expenses, as the case may be, on ESM basis. So, the assessee recognised the hire purchase income on ESM basis both for Book and Income Tax purposes upto the previous year ended 31.03.2000 relevant to Assessment year 2000-01. From previous year 2000-01 onwards, it followed IRR method for the apportionment of the Hire installment into principal and finance charges component as prescribed by the Accounting Standard on Leases (AS 19) issued by the Institute of Chartered Accountants of India. Though it switched over to IRR method for Books to comply with the Accounting Standard, however, it continued to follow ESM for recognizing the Hire purchase income for Income Tax purposes as sec 145(1) required the assessees to compute the profits and gains of business or profession or Income from other sources in accordance with either on cash or mercantile system of accounting regularly employed by them. The assessment position regarding the same in the earli....
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.... held as under: "6. Having perused the aforesaid Judgements, we are of the clear opinion that the later decision of Andhra Pradesh High Court relied on by the learned counsel for the Revenue does not help the case of the Revenue and Andhra Pradesh High Court itself distinguished the facts before it from the Madras High Court decision in the case of Ashok Leyland (Supra). Admittedly, the Assessee has been following the same method of E.M.I for bifurcation of its income into Principal and interest component for all these years in question. The S.O.D method gives higher finance charges (interest) for the initial years and lower finance charges (interest) for the later years, i.e, the Sum of Digits is sum total of the number of years e.g. If the Hire Purchase Agreement is for 10 years, the SOD is 55 (1+2+3+4+5+6+7+8+9+10 = 55). Therefore, total financial charges for the first year would be 10/55, for the second year 9/55, for third year 8/55 and so forth which would clearly give higher financial charges for interest taxable in the first year. This SOD method even though adopted by the Assessee in its Book of Accounts on the basis of Guidelines issued by the Institute ....
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....the demand was stayed in view of the Madras High Court's stay order and the Ld.CIT(A)'s order for earlier years. However, in the regular assessment for the assessment year 2003-2004, the provision for NPAs which was reversed during the year was included in the taxable income for the year for the reason that the issue was allowed by the CIT(A) in the earlier years and if it is allowed for this assessment year, it would amount to double deduction. 5.1 For the assessment years 2004-05 and 2005-05 also, the provision for NPAs was reversed in the books and it was included in the taxable income of the respective year. Before the AO, the assessee pleaded that this issue has to be treated consistently following the stand taken in the assessments made in the earlier years. However, the AO has rejected the assessee's plea stating that the issue is in appeal before the ITAT and the matter has not reached finality. On appeals, the assessee pleaded before the Ld.CIT(A) that its claim is an admissible business deduction, without prejudice to such claim, the reversal of provision during the respective assessment year should be deducted from the taxable income consistent with the st....
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....so referred to application of s.176(3A) which states that "Where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance. The AO stated that the assessee has earned the receipts from recovery of bad debts of the amalgamating company by its own efforts during the year. Alternately, if recovery of bad debts have to be removed from income, then the expenditure attributable to earning of such income also should have been estimated by the assessee and added to the income and that the income generated by incurring business expenditure can certainly be categorized as business income. As such, the receipts of recovery of bad debts would represent the assessee's taxable income and held that such recovery of bad debts is taxable u/s 41 (4) of the Act in the assessment years 2004-05 and 2005-06, respectively, in the case of amalgamated company i.e., the assessee. He further stated that any income....
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....easoning. The decision of Hon'ble Madras High Court in the case of P.K. Kaimal (supra) relied on by the appellant is also out of context. The above decision is with regard to dissolution of erstwhile firm and the business was taken over by the assessee as proprietor which means the erstwhile firm is out of scene completely. In the instant case, it is the issue of amalgamation and the amalgamating company has merged with the amalgamated company along with its assets and liabilities .including bad debts relatable to it. The meanings of "dissolution", "amalgamation" and "merger" as per New Oxford Advanced Learner's Dictionary are as under: "Dissolution: (i) the Act of officially ending a marriage, a business agreement or a parliament, (ii) the process in which something gradually disappears, (iii) the act of breaking up an organisation etc. Amalgamation: (i) If two organisations amalgamate or are amalgamated, they join together to form one large organisation, (ii) to put two or more things together so that they form one. Merger: The act of joining two or more organisations or businesses into one. In view of the above meanings, in th....
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....rred along with the numerous other rights comprising the subject of the transfer ... From the above decision, it is clear that if a business along with its assets and liabilities is transferred from one owner to another there is no reason why a debt so transferred should not be entitled to the same treatment in the hands of the successor. The recovery of debt is a right transferred along with the numerous other rights to the successor company. The Supreme Court has come to this conclusion while dealing with an issue of whether money owed by a debtor under a transaction with the predecessor firm can be written off as irrecoverable in the accounts of the successor assessee in a subsequent year and claimed as bad debt by it u/s 36(1 )(vii) - held as yes. Applying the same analogy, the bad debts pertaining to erstwhile amalgamating companies can be taken as income of the succeeding amalgamated companies for all practical purposes and offered to tax as per the provisions of the Act. (c) The A O has also relied on the provisions of s.176(3A) quoted supra which states that if there is any discontinuance of business by any person any sum received after such discontinuance....
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....covered Rs. 2,33,79,628 and Rs. 3,80,40,407/- from the bad-debts written off by the erstwhile amalgamating companies viz. India Equipment Leasing Ltd, Aparajitha Finance Company Ltd, Balika Finance Company Ltd, Paramjyothi Finance Company Ltd and Sundaram Finance Services Ltd during the assessment years 2004-05 and 2005-06, respectively. The Ld. CIT(A) upheld the additions U/s 28 r.w.s176 (3A) and also U/s 56 of the Act. The amalgamating companies have joined the amalgamated company, i.e., the assessee company, means that they have transferred their business along with their assets and liabilities to the amalgamated company, i.e., the assessee company. Therefore, after the amalgamation, the amalgamated company i.e., the assessee company, has all the rights the amalgamating companies had in their business which were transferred to it and also it owes all the liabilities the amalgamating companies owe and transferred to it. In exercise of such rights only, the assessee company recovered Rs. 2,33,79,628 and Rs. 3,80,40,407/- during the assessment years 2004-05 & 2005-06 respectively, from the bad-debts written off by the erstwhile amalgamating companies and therefore such recoveries a....
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....e in its original grounds of appeal however being advised by its counsel the appellant prays to add it as an additional ground of appeal. For the reasons stated above and those that may be adduced at the time of hearing, the Hon'ble ITAT may be pleased to allow the appeal of the Appellant as additional ground and grant such relief/relief's considering the facts and circumstances of the case. 7.1 We heard the rival submissions and admit the additional ground. This issue pertains to allowance of business origination cost of Rs. 4,35,19,418/- as against Rs. 14,05,87,044/- claimed by the assessee on the ground that the assessee itself deferred the said amount to the subsequent years in the books. The AO observed that the assessee incurred Rs. 14,05,87,044/- towards commission given to direct market agents for procurement of business. This amount represented upfront expenditure incurred in the course of business. In the books of account, the business origination cost was apportioned over the tenure of the contracts in order to determine the financial performance and pricing of each contract. Accordingly, Rs. 4,35,19,418/- was charged to P&L a/c for this year and the ....
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..... The next issues are against the directions of the Id. CIT(A) to the Assessing Officer to allow : (1) the capital loss of Rs. 86,09,134/- on account of sale of Sundaram Mutual Fund (dividend option) to the assessee without reducing the dividend income of Rs. 76,16,755/- claimed as exempt, in contravention to the provision of sec. 94(7) and (2) to allow the capital loss of Rs. 74,94,659/- on account of sale of units of Sundaram Bond Saver - Bonus Option Unit. 8.1 On the issue number 1 : The assessee company invested Rs. 1,80,00,000/- in Sundaram Mutual Fund in Bond Saver Scheme Dividend on 7-11-2003. On the same day, a loan of Rs. 1,50,00,000/- was also taken from HDFC bank @ 5.25% which was subsequently repaid on 14-11-2003. Same day dividend of Rs. 76,16,755/- was declared by mutual fund as this was the record date for declaration of dividend. This amount of dividend was received by company on 13-11-2003. These units of mutual fund were sold on 13-2-2004 for Rs. 93,90,866/- and loan of Rs. 1,50,00,000/- was repaid to HDFC Bank and a capital loss of Rs. 86,09,134/- has been claimed by the company and the amount of dividend received has been claimed as non taxable. 8.1.1 The ....
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....pellant company and initially the Bonus scheme was not there in the Sundaram Bond Saver Institutional Scheme and this option was made available from 5.3.2004. The AO further stated that carving out a bonus scheme itself is against the objective of the above scheme. He came to the conclusion that the entire scheme of giving bonus to the big investors is a colourable device as the appellant company is holding 100% shares and therefore the benefit derived by investment at this scheme for five days and claiming loss of capital loss of Rs. 74,94,659 is disallowed. Accordingly, the AO relying on the decision in the case of McDowell And Co.Ltd v. Commercial Tax Office, 154 ITR 148 SC, disallowed the amount claimed as short term capital loss. On appeal, the Ld.CIT(A) held, inter alia, that "the argument of the appellant is that the entire transaction of purchase and sale of the shares and declaration of dividends by Sundaram Mutual Fund is regulated by SEBI and schemes are launched only after getting approval from them. Therefore, the question of influencing Sundaram Mutual Fund by the appellant company does not arise. The Id.AR has further submitted that when compared to the corpus of Sun....
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..... Per contra, the Ld.AR supported the order of the Ld.CIT(A) taking us through the relevant portions of the Ld.CIT(A) order. 8.4 We heard the rival submissions and gone through relevant material. In the light of the Special Bench decision of the Tribunal in its order dt. 15th July, 2005 reported as Walfort Share & Stock Brokers Ltd. vs. ITO & Anr. (2005) 96 TTJ (Mumbai)(SB) 673, which has been affirmed by the Bombay High Court vide its judgment dt. 8th Aug., 2008 reported in Commissioner Of Income-Tax. vs Walfort Share And Stock Brokers (P) Limited, 310 ITR 421 and the Hon'ble Apex court's decision In Commissioner Of Income-Tax. vs Walfort Share And Stock Brokers (P) Limited. 326 ITR 1(SC), we find that on the facts and circumstances, supra, the reasonings of the Ld.CIT(A) on both issues, supra, do not require any interference and hence dismiss the corresponding grounds of the revenue on both issues. 9. The next issue pertains to disallowance of broken period interest on purchase/sale of securities for the assessment years 2004-05 & 2005-06 in ITA Nos.285 & 286 /Chny/2015 for AYs 2004- 05 & 2005-06 : 9.1 In the assessment order for the assessment year 2004-05 it is stated ....
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....as upheld by the Supreme Court in Vijaya Bank's case (187 ITR 541) d. Circular No.610 dt.31.7.91 issued by the CBDT clearly clarifies that the broken period interest cannot be taxed under business income by upholding the above Supreme Court decision. 9.3 The Ld.CIT(A) found that " in appellant's own case for AY. 2001-02, in the similar issue, the Hon'ble ITAT Chennai in ITA No.955/Mds/05 and ITA No.829/Mds/05 dated 31.7.2007 remitted the issue back to the file of CIT(A) by holding as under: "5.4 In both the cases, the Hon'ble High courts have held that since the investments were in the character of stock-in-trade, broken period interest will be revenue in nature. Since the present issue has not been examined from this point of view, we remit the issue to the file of Commissioner of Income-tax (Appeals) to consider the issue and give a finding accordingly. The assessee should be given adequate opportunity of being heard. 11.2.1 It is understood from the above decision of the IT AT, Chennai that if the investments are taken as stock-in-trade then broken period interest will become revenue in nature. In the instant case, the appel....
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....ndered u/s 18 of the Act which is no more in the statute from 01.4.1989 and hence it is clear that the Ld.CIT(A) has not appreciated the facts and circumstances of this issue properly. The courts have held that if the securities are regularly purchased and sold they could be stock in trade in such case the income or loss could be revenue in nature etc .The Hon'ble ITAT Chennai in ITA No.955/Mds/05 and ITA No.829/Mds/05 dated 31.7.2007 has also pointed out them, supra. In the facts and circumstances, these issue requires readjudication afresh and hence we deem it fit to remit the issues back to the AO for a fresh examination for the assessment years 2004-05 & 2005-06. The assessee shall place all the material on which it relies in support of its contentions and comply with the requirements of the AO in accordance with law. The AO is also is at liberty to conduct appropriate enquiry as deemed fit, however, the AO after affording due opportunity to the assessee decide these issues in accordance with law for the assessment years 2004-05 & 2005-06. The corresponding grounds of the revenue are treated is partly allowed for the assessment years 2004-05 & 2005-06. 10. The next is....