TaxTMI 
TaxTMI 
2020 (4) TMI 32
X X X X Extracts X X X X
X X X X Extracts X X X X
....al receipt without properly appreciating the facts of the case and the material available on record?" 3. The facts giving rise to this appeal are as under: 3.1 The respondent-assessee filed its return of income declaring loss of Rs.(-) 152,85,63,518/for A.Y.200910. The Assessment Officer passed assessment order under Section 143(3) of the Act determining assessed loss at Rs.(-) 91,13,70,035/. 3.2 The Assessing officer made an addition of Rs. 8,07,35,116/- amongst others, on account of cessation of liability made U/s. 41(1) of the Act, which was part of the total amount of Rs. 182,87,27,185/- written off pursuant to one time settlement by the assessee with IDBI Ltd. and consortium of other banks. On verification of the details, it was found that an amount of Rs. 8,07,35,116/pertaining to PSB account of Indian Overseas Bank was credited to capital reserve and was not offered to tax on the ground that such waiver was towards outstanding principal loan amount and therefore, it was capital receipt. According to assessing officer, the said amount could not have been credited to the capital reserve of the company and therefore, it was liable to be added to income under sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n was made in the assessment year or earlier year no addition can be made under Section 41(1) for the same. Company's liability on account of principal amount of loan borrowed by it was not a trading liability for which the some deduction was claimed in earlier year and therefore its remission could not be deemed as income under the above provision. It has further been claimed by the appellant that even the interest which was claimed as deduction in the statement of total income in earlier years was offered for taxation under Section 43B of the Act. Since the amount of interest was disallowed the remission of interest also cannot be treated as income as it was never claimed as one. To examine whether the loan waiver can be treated as income by applying the provisions of Section 41(1) of the Act, it would be useful to examine the provisions of the Section: "4.1 (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 (herein after referred to as the first mentioned person) and subsequently during any previous year. (a) the first-mentioned person has ob....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in respect of such loss of expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof; then the amount would be treated or deemed to be profits and gains of the business or profession. In the present case any deduction has not been claimed on account of the principal amount of loan as well as the interest on such loan in earlier year. Therefore, after considering all the facts and the legal position I'm inclined to agree with the submission of the appellant's in so far as the claim of the appellant that the addition cannot be made under Section 41(1) as there is no remission or cessation of liability for which an allowance of deduction had been made in the assessment for earlier years. The claim of the appellant appears to be factually correct and therefore, the action of the AO in treating it as ceased liability under section 41(1) was unjustified. The same can therefore be not upheld. However, it is noted that the loan taken by the appellant has been waived by the creditor and some benefit has accrued to the appellant. In order to determine what is the character of waiver of the loan in the hands of the appellant fur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....redit, the assessee had transferred the unclaimed deposits to the profit and loss account. The view of the Assessing Officer was that since the unclaimed deposits had arisen as a result of trading transactions, therefore, the same represented income of the assessee. The deposits were of capital in nature at the point of time of receipts of the assessee could there character change by afflux of time. The Supreme Court answered this question in the affirmative holding that under certain circumstances, the deposits even if were shown as capital receipts, had attained the character of trading receipts. The Supreme Court relying upon its judgment in the case of Punjab Distilling Industries Ltd. Vs. CIT [1959] 35 ITR 519 did not approve the finding of the Tribunal that nature of the deposits received from the customers was capital. The ratio of the decision of T.V.Sundaram Iyengar & Sons Ltd's case (supra) is that the proposition that the quality and nature of a receipt for income tax purposes is fixed once and for all, when the receipt is received and that subsequent operation can change its nature, is not absolute and that in given cases by reason of subsequent ev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t in the case of Mahindra and Mahindra Ltd (Supra), allowed the appeal of the respondent-assessee by observing as under: "2.5 Heard the respective parties, perused the relevant materials available on record. We have also considered the judgment passed by the Hon'ble Madras High Court in the matter of Iskraemeco Regent Ltd. (supra) wherein it was held by the Hon'ble Court that waiver of loan even though a receipt may be in connection with the business, every such receipt is not a trading receipt. Amount referable to the loan obtained by the assessee towards the purchase of capital asset did not constitute a trading receipt. Further, Section 28 (iv) speaks of benefit or perquisite received in Kind. The same has no application to any transaction which involved money. It was further observed that loan received for the purpose acquiring capital assets did not constitute a trading liability and hence, Section 41(1) also has no application. 2.6 We have also considered the judgment passed in the matter of Mahindra and Mahindra Ltd. Vs. CIT reported in [2003] 182 CTR Born 34. 2.7 If the ratio of the judgment is applied to the instant case then we can safel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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", xxx (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; x x x" 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 perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the presen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng term that refers to the process of allocating the cost of an asset over a period of time, hence, it is nothing else than depreciation. Depreciation is a reduction in the value of an asset over time, in particular, to wear and tear. Therefore, the deduction claimed by the Respondent in previous assessment years was due to the depreciation of the machine and not on the interest paid by it. 16) Moreover, the purchase effected from the Kaiser Jeep Corporation is in respect of plant, machinery and tooling 13 equipments which are capital assets of the Respondent. It is important to note that the said purchase amount had not been debited to the trading account or to the profit or loss account in any of the assessment years. Here, we deem it proper to mention that there is difference between 'trading liability' and 'other liability'. Section 41 (1) of the IT Act particularly deals with the remission of trading liability. Whereas in the instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, we find no force in the argument of the Revenue that the case of the Respondent would fall under Section 41 (1) of the IT Act. 17)....