TaxTMI 
TaxTMI 
TaxTMI 
2020 (2) TMI 416
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....debt and nor shares in the instant year but hybrid instrument is factually and legally misconceived and therefore untenable. 1.3 That various judgments relied upon by the learned Commissioner of Income Tax (Appeals) to bring to tax the aforesaid capital receipt are wholly inapplicable to the facts of the case of the appellant company. 2. That the learned Commissioner of Income Tax (appeals) has further erred both in law and on facts in upholding the disallowance of claim of deduction of following business expenditure incurred by the appellant company by invoking section 40(a)(ia) of the Act: Sr. No. Particulars Amount (Rs.) i) Interest and processing charges paid to Indian Overseas Bank, Hongkong 98,41,570/- ii) Loan processing charges paid to HSIIDC Ltd. 2,28,370/- Total 1,00,69,940/- 2.1 That the learned Commissioner of Income Tax (Appeals) while upholding the disallowance has failed to appreciate that sum of Rs. 98,41,570/- represented payment made to a banking company to which Banking Regulation Act was applicable and was a resident and therefore section 195 of the Act had no application and thus invocation of section 40(a)(i) of the Act w....
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....o assessment year 2008-09 from two overseas entities. As a result of exchange fluctuation, the FCCB loan at the beginning of the instant year stood at Rs. 44,97,59,000 (Rs. 40,41,71,000 + Rs. 4,55,88,000). During the previous year relevant to the assessment year, the assessee bought back the FCCB at a discount of 24% of the face value of the FCCB and thus, repaid a sum of Rs. 33,45,96,810/-. The discount on buyback of FCCB was of Rs. 9,46,73,015/-which was credited to reserve and surplus account as "discount on FCCB bought back". According to the assessee, the loan through the FCCB being a capital receipt, the discount thereon was also capital receipt and therefore, the discount on FCCB was not chargeable to tax. It was also contended that FCCB was not claimed or allowed as deduction in any previous year, thus, it was not covered under section 41(1) of the Act and it is not income chargeable to tax in the year under consideration. But according to the Assessing Officer, the FCCB are convertible into equity shares and intention and the motive of the company in issue of the FCCB was to raise funds as part of capital of the company for the purpose of the business of the company and su....
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....ess could only be considered under section 28(iv) of the Act. According to the Ld. counsel in the instance case, sum brought to tax represents loans outstanding at the beginning of the year and also outstanding at the close of the year thus, it was apparent that there was no benefit and in absence of any benefit, there can be no income that can referred to tax under section 28(iv) of the Act. The Ld. counsel submitted that the debt waved or foregone cannot partake the effect of income either under section 41 (1) or section 28 of the Act, as held in the case of CIT Vs Mahindra and Mahindra Ltd (supra). He also relied on the decisions of the Hon'ble Delhi High Court in the case of CIT Vs Phool Chand Jiwan Ram, 131 ITR 37 (Del). 3.6 The Ld. DR, on the other hand, also filed a paper book containing pages 1 to 329 and relied on the finding of the lower authorities. He submitted that expenses on raising the FCCB has been claimed as revenue expense, then the discount on repayment of FCCB should also be treated as revenue receipt. 3.7 We have heard rival submissions and perused the relevant material on record. The assessee raised FCCB in the earlier year and during the year repaid with ....
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....less specifically exempted, are chargeable to tax. Loan taken is not normally a kind of receipt which will be treated as income. However, when a part of that loan is waived off by the creditor, some benefit accrues to the assessee. Question is what would be the character of waiver of part of the loan at the hands of tHe assessee? Waiver definitely gives some benefit to the assessee. Whether it is to be treated as capital receipt? If it is so, then only capital gains tax would be chargeable under section 45 or else, whether remission of loan is no income at all? The answer to these questions would depend upon the purpose for which the said loan was taken. If the loan was taken for acquiring the capital asset, waiver thereof would not amount to any income exigible to tax, but on the other hand, if the loan was taken for trading purpose and was treated as such from the very beginn ing in the books of account, the waiver thereof may result in the income, more so when it was transferred to the profit and loss account. [Para 23]" 3.8 The Hon'ble High Court has laid down test for holding the amount of waiver of loan as capital or trading receipt. If the amount of the loan has been utili....
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....t or taxable as a remission of liability under Section 41 (I) of the IT Act. 12. The first issue is the applicability of Section 28 (iv) of the IT Act in the present case. Before moving further, we deem it apposite to reproduce the relevant provision herein below:- '28. Profits and gains of business or profession.- The following income shall be chargeable to income-tax under the head "Profits and gains of business profession",- (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; 13. On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record that the amount of Rs. 57,74,064/- is having received as cash receipt due to the waiver of loan. Therefore, the very first condition of Section 28 (iv) of the IT Act which says any benefit or pe....
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....t the same was covered in the tax deduction. That it is submitted that the payment has been made to a branch of an Indian Bank on which neither the provisions of Section 194 or those of Section 195 are applicable. That in support of the appellants averments, a copy of the confirmation from the bank is also enclosed (page 60 attached) herewith mentioning that the payment is made to a branch of the Indian Bank and hence the provisions of Tax deduction are not applicable. That it is accordingly submitted that the disallowance has been incorrectly made. I have considered the argument above and find that the certificate issued by the bank is dated 19.01.2011 which nowhere mentions the nature of transaction with the bank and the payment made is either interest charges or processing charges paid to an Indian Bank. Even otherwise the expense is in relation to extending External Commercial Borrowing (ECB) facility provided to the appellant for discounting of FCCB which has connotation of service and as such making payment to the bank for any kind of contractual services is liable for deduction at source. The payment made even if it is assumed is to an Indian Bank, still it would be cover....