AI Drafter 
TaxTMI 
TaxTMI 
2019 (6) TMI 1481
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....s or the purpose of acquiring capital assets". 3. The issue in appeal lies within a very narrow compass of material facts. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had credited Rs. 4,42,95,650 to the profit and loss account "being the interest free unsecured loan it had obtained from Matrix Logistics Pvt Ltd in previous year, the liability of which ceased to exist on account of winding off of Matrix Logistics Pvt Ltd by the order of Hon'ble High Court of Gujarat". He also noted contention of the assessee that as it was a capital receipt, it could not be brought to tax. He was, however, of the view that "this is a cessation of liability squarely covered by the provisions of Section 41(1) of the Act". The arguments put forth by the assessee regarding in this regard and in response to show cause notice, requiring the assessee as to why the said receipt not be brought to tax, were rejected by the Assessing Officer. He was of the view that the credit being routed through the profit and loss account shows its revenue character, and that, in any other case, it could have been directly credited to capital reserve. The AO also noticed t....
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.... credited in the profit and loss account therefore it was clearly a taxable item in the hands of the appellant. As per the AO this loan received from the aforesaid party was used for the purpose of its regular business of share trading and therefore it was a trading liability arid not a capital liability"' However, thereafter the AO hold that even if he hold that Section 41(1) of the Act is not applicable. Section 28(iv) is clearly applicable. And if Section 28(iv] of the I.T. Act is not applicable then Section 41(1) of the Act is clearly applicable. The detailed discussion in this regard is made in para-3.2 to 3.9 of the assessment order. 2.5. On the other side, the appellant claimed that the said amount was the capital receipts. It has objected to the AO's observation that the appellant did not carry out any business activities as per the main objects of the Memorandum of Association and in support the details of its nature of income offered in the preceding years submitted and the same are reproduced as under:- Summary of Business Transactions as per Profit and Loss A/c. Rupees F.Y. Consumption/Purchase of goods ....
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....41 (1) conies into play when the deduction in respect of such liability has been allowed as a trading loss, expenditure or trading liability in earlier years as against the income of the appellant. Since In the instant case no such deduction of the unsecured loans from Matrix Logistics Pvt. Ltd. has been allowed, therefore, the condition of Section 41(1) has not been fulfilled so as to invoke the same in the case of the appellant. It has been contended by the appellant that this loan was interest free and unsecured and obtained and applied for the purpose of acquiring the capital assets by way of investment in shares. Thereafter this amount has been consistently shown as unsecured loan in the balance sheet as and such outstanding amount in the year under consideration was written off in the books of accounts and corresponding accounting entries were passed. Since the amount of loan written off credited to the profit and loss account was capital in nature and therefore the same has not been included in the return of income for the year under consideration. The argument made by the appellant in this regard was relevant and have the weight for the reason that no such expenditure in re....
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....hich is capital in nature has been written off the nature of receipts does not change and it remain capital only. The appellant has relied upon the judgement of Hon'ble Bombay High Court In the case of Mahindra & Mahindra Vs.CIT, 261 ITR 501 wherein it has been held that loan taken for acquiring capital assets when waived by the lender, either in whole or in part the amount of loan waive cannot be taxed as income since it does not have any semblance of revenue nature. Since in the instant case the unsecured loan taken by the appellant was for Ihe purpose investment in shares and such investment has been shown in the balance sheet and the appellant did not have any business of trading of shares, therefore, the investment was the capital in nature and hence the waiver of unsecured loans utilized for such capital investment is not the revenue receipts in view of the judgement discussed above. The argument of the appellant in this regard has the substance and same is accepted. 2.10. The appellant's further plea that all the credits made to the profit and loss account do not construed income chargeable to tax at all the times. The credits made to the profit and loss acc....
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....) of I.T. Act, 1922 which was corresponding to Section 28 of I.T. Act, 1961 by an assesses on its profits derived in the business carried on by him. If no business at all is carried on in that year liability to pay tax does not arise u/s. 10(1) of the Act, 1922 corresponding to Section 28 of I.T. Act, 1961. Following the ratio laid down by the Hon'ble Apex Court, no business income can be taxed in the year under consideration due to absence of any business activities having carried out in the year under consideration by the appellant. Thus, the judgement of Hon'ble Supreme Court is squarely applicable over the facts of the case. The reliance in this regard is also placed on the Supreme Court judgment In the case of New Savan Sugar & Gur Refining Co. Ltd. Vs. CIT (1969) 74 ITR 7 and Serial Ram Doongarmal Vs. CIT (1961) 42 ITR 392. As a matter of fact, the appellant had only earned the income from dividend and interest on FD which were taxable under the head of income from other source and no business income has been offered by the appellant. 2.13. It has also been noticed that the provisions of Section 28(iv) of the I.T. Act are also applicable only when the tax pay....
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.... trading of shares. In fact the appellant was engaged in the business of providing technological support services and the business of manufacture and trading of medical equipments which the AO himself has noted in Column No. 9 of the table at first page of the assessment order itself. 2.15. In fact the appellant had made the investment in shares and was treated as long term investment only in the balance sheets of the preceding years and not as stock-intrade. Accordingly, on sale of these shares the income derived was offered as capital gain u/s.45 of I.T. Act and the same has been taxed and accepted as such by the AO which itself proves the contention of the appellant of having no trading activities of shares. It is apparent from the copy of return of income for A. Y. 2006-07 that the appellant has shown the long term capital gain on sale of shares at Rs. 4,39,46,908/- under the head of income from long term capital gain and the AO has accepted the same as long term capital gain in the assessment completed u/s. 143(3) of the I. T. Act on 01/12/2008. Thus, the AOs observation that the appellant was engaged in trading of shares does not get established from the history of t....
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....ss activities in the year under consideration moreover the appellant did not derive any benefit in kind. The written off of the unsecured loans is also not the income in any of the clauses to Section 2(24) of the I.T. Act. Even the unsecured loans have been utilized for the purpose of investment in shares which was not the regular business activities of the appellant. These shares have been shown as long term investment in the balance sheet of the appellant in the preceding years and on sale of such shares the long term capital gain has been offered u/s.45 of I.T. Act which has not been disputed by the AO. Thus the nature of unsecured loans were not of trading liability but on account of capital. Therefore, the written off of the unsecured loan was capital receipts in the hands of the appellant which was not liable for taxation. Thus the addition made by the AO in this regard is found not accepted and hence the same is deleted." 4. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 5. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal ....
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....waiver of loan by the creditor is taxable as a perquisite under Section 28 (iv) of the IT Act or taxable as a remission of liability under Section 41 (1) 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....
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.... the contract but the assessee never claimed deduction for payment of interest under Section 36 (1) (iii) of the IT Act. In the case at hand, learned CIT (A) relied upon Section 41 (1) of the IT Act and held that the Respondent had received amortization benefit. Amortization is an accounting 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 deprecation 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 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 ....