TaxTMI 
TaxTMI 
2021 (6) TMI 609
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....A No.767/Del/2014 2. Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing of Power Cable, Jelly Filled Telephone Cables & Optical Fibre Cables. Its finished products are supplied mainly to Government Departments, Railway, DOT/BSNL/MTNL/PSU, MNCs & Other Companies. It filed its return of income on 29.09.2009 declaring nil income. During the course of assessment proceedings, the AO observed that the assessee suffered a total forex loss of Rs. 30,21,30,000/- during the year out of which Rs. 15,71,07,600/- pertained to non-depreciable assets of Rs. 59,43,53,142/- including investment of Rs. 24,82,23,001/-. After excluding the amount of investment balance of Rs. 34,61,30,141/- was in respect of following items i. Land Rs. 6,17,61,000/- ii. Land of KKR Phase-II Rs. 24,04,66,312/- iii. Issue expenses Rs. 4,39,02,829/- 3. He observed that out of the above loss of Rs. 15,71,07,600/-, a loss of Rs. 12,50,03,577/- was deducted from the income in computation of income though it was not debited to P & L account thereby reducing the income/enhancing the loss by this amount. This loss of Rs. 12,50,03,577/- rel....
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....from computation being loss on foreign exchange fluctuation during the year." 5. Subsequently, the assessee filed another letter dated Nil filed on 15.12.2011 and explained as under:- "Exchange fluctuation of Rs. 12,50,03,577/- for prorate borrowings used for other purposes has been claimed as an expenditure. In computation of income assessee has also added back exchange fluctuation of Rs. 3,47,25,600/- which was written off to profit and loss account as FCMITDA written off during the year. Exchange fluctuation of Rs. 3,21,04,023/- for pro rata borrowing used for investment in Paramount Holding Ltd. has not been claimed as an expense nor capitalized. FCMITDA written off during the year of Rs. 3,47,25,600/- has been added back to computation of income and foreign exchange fluctuation of Rs. 12,50,03,577/- pertaining to non-depreciable assets has been claimed as deduction from computation being loss on foreign exchange fluctuation during the year 6. However, the AO was not satisfied with the explanation given by the assessee. According to him, the explanation given by the assessee does not say anything about the allowability of such claim as to how, w....
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....f any transaction in the relevant year. He analysed AS-11 and noted that AS-11 requires that every transaction in foreign currency has to be recorded at the prevailing rate of exchange as on the date of transaction. Also profit or loss arising due to exchange difference in respect of each item during an accounting period is to be recognized as income or expense in the period in which it arises. According to him the relevant term is transaction. Also that the profit or loss arising on account of such transaction incurred during the relevant account period would be considered. He noted that no transaction has taken place in the year under question in this case i.e. no payment has been made to any person. The entire proceeds were utilized in the A. Y. 2007-08 and 2008-09. The foreign exchange borrowings were for the purposes of repayment which fell beyond the accounting year and liability to such a loss did not occur in the year under consideration. Thus, the assessee has claimed loss of Rs. 12,50,03,577/- on account of non depreciable assets. Further, the assessee has not made any transactions for repayment of the loans or for payment towards the assets during this year. The lo....
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....herefore, issued a show cause notice to the assessee proposing to reduce the cost of the assets to the tune of Rs. 12,65,54,992/- and disallow depreciation on this amount. 9.3. Rejecting the various explanation given by the assessee, the learned CIT(a) directed the AO to disallow depreciation of Rs. 1,56,34,104/- by observing as under:- "I have considered the submission of the appellant. 5.24. Section 43A in brief states the following: 1. ) Where the assessee has acquired any assets from a country outside India. 2. ) The assets are acquired for the purpose of business or profession. 3. ) Consequent to change in rate of exchange there is increase/decrease in the liability of the assessee expressed in Indian currency towards cost of the assets or repayment of money borrowed for acquiring capital asset atongwith interest in foreign currency. 4. ) Such increase or reduction in the liability shall be added or deducted from the actual cost of assets as and when paid or received. " 5.25. As can be seen from the provisions the appellant should have acquired the assets from outside India. The appellant has itself categoricall....
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....sions of the Income tax Act, 1961 (briefly "the Act"). 2.1. That on the facts and circumstances of the case and in law, the CIT(A) has erred in not appreciating that foreign currency convertible bonds were issued for the purpose of business and hence, increase in liability on account of foreign currency fluctuation was for the purpose of business and as such was allowable because utilization of bond proceeds does not affect the purpose for which the foreign currency loan through FCCBs were raised. 3) That on the facts and circumstances of the case and in law, the CIT(A) has erred in enhancing the income of the Appellant by Rs. 1,56,34,104/- being the depreciation allowed by the Assessing Officer on utilization of FCCB proceeds towards depreciable assets. 4) That on the facts and circumstances of the case and in law, the CIT(A) has erred in upholding the disallowance of Rs. 8,53,916/- under section 14A of the Act read with Rule 8D of Income tax Rules, 1962. 4.1. That on the facts and circumstances of the case and in law, the CIT(A) has erred in not appreciating that no interest bearing funds were utilized to earn exempt income. 4.2. That ....
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....84,67,408 + 3,21,04,023} was not claimed. (ii) In respect of loss of Rs. 12,65,54,992/- being the loss attributable to acquisition of indigenous depreciable assets, depreciation was allowed; (iii) Loss of Rs. 12,50,03,577/- was disallowed by the Assessing Officer, for it related to acquisition of nondepreciable assets. 15. He submitted that in the first appeal, the grievance of the assessee was confined to the loss of Rs. 12,50,03,577/- and the assessee did not claim the remaining loss nor it was allowed by the AO. However, the learned CIT(A) in his order dated 11.11.2013, not only upheld the disallowance of loss of Rs. 12,50,03,577/- but also enhanced the income by Rs. 1,56,34,104/- i.e. depreciation on exchange loss of Rs. 12,65,54,992/- on acquisition of indigenous depreciable assets allowed by the AO was withdrawn. He submitted that though foreign exchange fluctuation loss of Rs. 12,65,54,992/- was an allowable deduction, however, the assessee under misappreciation of the legal position restricted its claim to depreciation only. 15.1. Referring to various decisions, he submitted that it is well settled that if an assessee, under a mistake, misconception ....
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....gated. 18. The Hon'ble Supreme Court in the case of NTPC Ltd. (Supra) has reiterated the wide powers that the Tribunal has in admitting the additional ground. It has been held that the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that non-taxable item is taxed or a permissible deduction is denied, there is no reason as to why the assessee should be prevented from raising that question before the Tribunal. 18.1. The Hon'ble Bombay High Court in the case of CIT vs Pruthvi Brokers Shareholders Pvt. Ltd. 349 ITR 336(Bom.) has held that the assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. Various other decisions relied upon by the learned counsel for the assessee a....
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.... otherwise accounted for also be adjusted to account for any increase or decrease in the liability of the enterprise, as expressed in the reporting currency by applying the closing rate, for making payment towards the whole or a part of the cost of the assets or for repayment of the whole or a part of the monies borrowed by the enterprise from any person, directly or indirectly, in foreign currency specifically for the purpose of acquiring those assets." 20.5. Recognition of exchange difference under AS-11 (Revised 2003) read as under: "Exchange difference arising on the settlement of monetary items or on reporting an enterprise's monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, should be recognized as income or as expenses in the period in which they arise, with the exception of exchange differences dealt with in accordance with paragraph 15." 20.6. Referring to pages 60-63 of the paper book-II, he submitted that though AS-11 (revised 2003) was notified on 7.12.2006, however, Schedule-VI to the Companies Act continued to provide that effect of exchange fluctuation be a....
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....the balance period of such long term monetary item but not beyond 31st March, 2011." 20.10. Referring to paper book page 42, he submitted that the exercise of option is allowed by Companies (AS) Amendment Rules, 2009. He submitted that pursuant to exercise of option by Companies (AS) Amendment Rules, 2009, the assessee exercised the option of adjusting exchange difference in AY 2009-10. 20.11. Referring to page 34 r.w. page 42 of the paper book, he submitted that from Note 7 to Accounts r/w Note 9 to Schedule-E to the balance sheet as on 2009, it is clear that though the option was exercised in AY 2009-10, however, effect was given w.e.f. AY 2008-09, inasmuch as, depreciation of Rs. 8,53,890/- on forex gain claimed in AY 2008-09 was deducted from the gross block and was taken to general reserve. 20.12. The learned counsel for the assessee submitted that the stand of the department is inconsistent. In the preceding assessment year i.e. 2008-09, there was foreign exchange gain of Rs. 4,72,43,028/- (page 56 r/w 63 of paper book). By the revised return filed on 3.11.2009, income of Rs. 40,83,13,502/- was declared. In computing the income, net profit of Rs. 50,32,29,300/- as pe....
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....utilized in AY 2007-08 & 2008-09. As on 31.03.2009, the liability was in Rupee terms Rs. 138,21,30,000/- whereas on 31.03.2008 it was Rs. 1,08,00,00,000/-. Thus, the amount of Rs. 30,21,30,000/- was the difference between the two figures. Out of the forex loss of Rs. 30,21,30,000/-, Rs. 3,21,04,023/- and Rs.l,84,67,407/- were not claimed as a deduction. Rs. 12,65,54,992/- was the amount which pertained to acquisition of indigenous fixed assets. This was added to the cost of the assets by the assessee and depreciation was claimed on this amount and this depreciation was claimed as an expense in the P & L A/c. The amount of Rs. 12,50,03,577/- was claimed as loss from income. This loss as per the assessee pertained to non depreciable assets. 22.1. We find the loss of Rs. 12,50,03,577/- (proportionate to non-depreciable assets) claimed as deduction was disallowed for the reason that the loss pertained to capital assets (land) and was required to be capitalized in the value of such asset. Since, asset acquired was not depreciable, therefore, loss cannot be allowed. We find that the learned CIT(A) upheld the action of the AO on the ground that no transaction has taken place duri....
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....he gain for the assessment year under consideration would also has to be taxed as income. In view of the above discussion, following the decision of the Hon'ble Supreme Court in the case of CIT v Woodward Governor India P. Ltd. (supra), where it is held that AS-11 is mandatory and required to be followed in computing the income and the decision of the Hon'ble Delhi High Court in the case of CIT vs Virtual Soft Systems Ltd.(supra), holding that it is the duty of the AO to follow accounting standards and following the rule of consistency, we hold that the foreign exchange loss of Rs. 12,50,33,577/- should be allowed as revenue expenditure. Ground no.2 and 2.1 filed by the assessee are accordingly allowed. 23. Ground no.3 relates to enhancement of the income of the assessee by Rs. 1,56,34,104/- being the depreciation allowed by the Assessing Officer on utilization of FCCB proceeds towards depreciable assets by the CIT(A). The additional ground relates to the allowability of foreign exchange fluctuation loss of Rs. 12,65,54,992/- as an allowable deduction u/s 37 of the I.T. Act, 1961. 23.1. The learned Counsel for the assessee submitted that exchange loss of Rs. 12,65,54,992/-....
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....that it does not apply to acquisition of indigenous assets (para 10.4 of the order). (iii) Loss was allowable on the basis of generally accepted accountancy principles. Increased liability due to exchange loss cannot be loaded to the actual cost u/s 43(1) of the Act. Loan has no bearing on the cost of the asset. Transaction of loan was distinct and independent transaction in comparison to acquisition of assets as has been held in CIT v. Tata Iron & Steel Co. Ltd. (1998) 231 ITR 285 (SC) (paras 10.5 & 10.6 of the order). 23.3. He submitted that on exactly similar facts and circumstances, the Co-ordinate Bench of the Tribunal in ACIT v. M/s. KEI Industries Ltd. [ITA No.1433/Del/2014 & ITA No.528/Del/2016 dated 3.12.2020] have allowed depreciation on enhanced cost for the assessment years 2009-10 and 2012-13. Considering the issue, the Hon'ble Tribunal in para 10 of the order (page 47 to 50 of its order) has observed that: "It is, therefore, clear that though Section 43A apply to the assets acquired from abroad, still the A.O. without justification applied Section 43A for making the disallowance of depreciation against the assessee. Section 43A thus could....
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.... Finance Corporation of India Ltd. (supra), the depreciation may be allowed to the Assessee. 23.7. Referring to the decision in the case of DDIT v. Staubil A.G. India Branch Office (ITA No.3703/Mum/2005 para 14 to 20 of the order), he drew the attention of the Bench to the same and submitted that following ground was raised by the Department: "2. On the facts and the circumstances of the case and in law, the Id. CIT (A) erred in holding that the Assessing Officer was not justified in disallozving depreciation of Rs. 18,636/- on capitalization of exchange control fluctuation arising on foreign currency borrowing from its head office relatable to fixed assets acquired in India without appreciating that section 43A is not applicable in the present case." 23.8. He submitted that In this case, out of foreign currency loans, assessee had acquired premises in India. In the computation income enhanced liability on account of currency fluctuation was added to the fixed assets stating that "additions to the fixed assets include loss of foreign exchange rates at the year-end which is added to the written down value of the block of assets". The Assessing Officer disallowed depre....
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....uring the year because the assets were acquired in earlier years runs contrary to the judgment of Hon'ble Supreme Court in the case of CIT v. Tata Iron and Steel Co. Ltd (1998) 231 ITR 285, wherein, it was laid down that transaction of loan was distinct and independent transaction in comparison to acquisition of assets. 23.12. We find an identical issue had come up before the Tribunal in the case of ACIT v. M/s. KEI Industries Ltd. in ITA No.1433/Del/2014 & ITA No.528/Del/2016 order dated 3.12.2020, wherein the Tribunal had allowed depreciation on enhanced cost for the assessment years 2009-10 and 2012-13 by observing as under:- "10. We have considered the rival submissions. The assessee explained before the authorities below that in assessment year under appeal, the assessee had capitalized a sum of Rs. 27,37,25,941/- on account of exchange rate fluctuation in respect of machineries bought in India from the foreign funds raised through FCCBs. No repayment of loan by way of FCCBs was made during the year under appeal. However, increase in any liability on account of prevailing exchange rate was shown in the balance-sheet under the Head "Unsecured Loans" the fluctuations....
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....the authorities below. The Ld. D.R. has not pointed-out any infirmity in the Order of the Ld. CIT(A) in allowing the depreciation to the assessee as per Law. We, therefore, do not find any merit in this Ground No.2 of the appeal of the Revenue and the same is accordingly dismissed." 24. Since, the assessee in the instant case has attributed the increased liability of Rs. 12,65,54,992/- to the cost of the assets and the depreciation was allowed, therefore, although the assessee has a good case to argue that exchange fluctuation loss attributable to depreciable assets acquired in India is an allowable revenue expenditure, however, it would require tedious exercise of modifying assessments for number of year. Therefore, we hold that the assessee is entitled to depreciation on exchange loss and the additional grounds raised by the assessee for AY 2009-10 becomes in-fructuous. It is held in the case of CIT v. Industrial Finance Corp of India Ltd. (2009) 185 Taxman 296, that revenue expenditure (loss) is allowable in the year in which it is incurred but where the assessee has spread it over, the Court would allow the benefit. We find merit in the argument of the learned counsel ....
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.... has no grievance. He submitted that out of investment of Rs. 27,39,71,001/- investment of Rs. 24,82,23,001/- (Rs. 24.82 Cr) was made on 3.8.2007 in the equity shares of Paramount Holding Ltd, Cyprus, a subsidiary company. Dividend from foreign subsidiary is taxable, therefore, section 14A has no applicability-CIT v Suzlon Energy Ltd. (2013) 354 ITR 630 (Guj.) 25.3. Referring to page 35 of the paper book, he submitted that the remaining investment of Rs. 2,57,48,000/- (Rs. 2.57 Cr) was made in earlier years as under:- i. Investment of Rs. 1,68,000/- in the shares of "Haryana Financial Corporation" was made in the assessment year 1996-97 and ii. Investment of Rs. 2,55,80,000/- in the shares of "Paramount Wires & Cables Ltd." another subsidiary company was made in the assessment years 2000-01 and 2001-02. 25.4. Notwithstanding the above, the Assessing Officer required the assessee to submit calculation of disallowance under Rule 8D. The same was submitted under protest (page 4 of assessment order). Excluding the suo-moto disallowance, the Assessing Officer made further disallowance of Rs. 26,92,582/- which is not justified. He accordingly submitted that no dis....
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...., claim made by a letter cannot be allowed. 28. Before the CIT(A), the assessee, relying on the decision of the Hon'ble Bombay High Court in the case of CIT vs Pruthvi Brokers Shareholders Pvt. Ltd. 349 ITR 336(Bom.) and various other decisions submitted that the jurisdiction of the appellate authorities to consider afresh a new ground or claim is not restricted to cases where such ground does not exist when the return was filed and the assessment order was made. It was accordingly held that the assessee can raise a new claim which was not made in the return or when the assessment order was made. It was further submitted that the department should be consistent in its approach and cannot take two different views in two different assessment years. 29. Based on the arguments advanced by the assessee, the learned CIT(A) held that since, the loss on account of Foreign Currency Monetary Item Translation Difference Account was treated as capital in nature in preceding years, therefore, department needs to be consistent in its approach and even receipt should be treated as capital in nature. He, accordingly directed the Assessing Officer to exclude the receipts from the total income....
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....sessee for raising funds are special bonds having an inbuilt option of conversion into equity at a premium. • Buyback of FCCBs is not buyback of shares. Buyback has been made by obtaining loan from Indian bank. Interest and finance charges have been charged to the profit and loss account. • During the preceding and current financial year, the assessee has capitalized the interest on the assets up to date of put to use and after that date interest has been charged to profit and loss account. • Since the project was completed during assessment year 2007-08 out of FCCBs proceeds, therefore finance cost on the project has ceased. • Even if it is accepted that waiver of interest is a capital receipt then the same should have been reduced from the cost of capital assets acquired from the FCCB proceeds u/s 43(1). 33. He accordingly made addition of the same to the total income of the assessee. 34. Before the learned CIT(A), the assessee submitted that the this issue stands decided in favour of the assessee by the decision of the Hon'ble Delhi High Court in the case of Logitronics Pvt. Ltd. vs. CIT (2011) 333 ITR 386(Bom.). It was a....
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....tead of interest payable on regular intervals). Such premium can be paid in either of the following 2 ways: I. Upfront discount in price at the time of issue II. Premium at the time of maturity. 4.6. The nature of the premium payable on bonds/debentures was a contentious issue and the same was examined by the Hon. Supreme Court in the case of Madras Industrial Investment Corporation Limited vs. CIT (1997) 225 ITR 802. It was held by the Hon'ble Court that the discount allowed by the borrower while issuing debentures constitutes revenue expenditure and that the same needs to spread proportionately over the life of debentures and be allowed as deduction on year to year basis. "10. Therefore, although expenditure primarily denotes the idea of spending or paying out, it may, in given circumstances, also cover an amount of loss which has not gone out of the assessee's pocket but which is all the same, an amount which the assessee has had to give up. It also covers a liability which the assessee has incurred in praesenti although it is payable in futuro. A contingent liability that may arise in future is, however, not 'expenditure'. It would also co....
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.... discount allowed on debentures/bonds at the time of issue or the premium paid on the same at the time of maturity constitute revenue expenditure in the hands of the borrower. 4.10. In this case, the appellant had undertaken to pay premium at the end of the tenure of the FCCBs. But, due to certain circumstances, the borrower and the lender agreed that part of the FCCBs be redeemed at discount prematurely. Thus, instead of paying premium, the appellant ended up receiving the same as far as the FCCBs thus redeemed are concerned. The question for consideration is: What tax treatment should be given to such constructive receipt by the appellant, i.e. whether it should be treated as revenue receipt or capital receipt? 4.11. Discount in the appellant's hands is nothing but negative premium in the hands of the lender/investor. If the premium payable/paid by the appellant on FCCBs constitutes revenue expenditure, it is axiomatic that the discount received by it on premature redemption of the same should constitute revenue receipt, i.e. income chargeable to tax. It would be absurd to say that the discount allowed by the appellant on debentures should be revenue expenditure....
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....65 crores and depreciation would go down accordingly for the assessment year under consideration and the subsequent assessment years. This course of action, however, need not be resorted because the discount has been held to be income. 4.15. In view of the foregoing discussion, it is held that the discount received by the appellant at the time of premature redemption of FCCBs constituted revenue receipt and, hence, income chargeable to tax. The addition of Rs. 45.65 crores made by the AO is accordingly confirmed." 36. Aggrieved with such order of the learned CIT(A), the assessee is in appeal before the Tribunal. 37. The learned counsel for the assessee at the outset submitted that the issue of addition on account of buyback on FCCBs at discount is covered in favour of the assessee by the following decisions:- * CIT vs Mahindra & Mahindra Ltd. (2018) 404 ITR 1(SC) * Dy. CIT vs Pidilite Industries Ltd. (2019) 177 ITD 472(Mum.) * OK Play India Ltd. vs JCIT (ITA No.3402/D/2016 dated 13.01.2020) * ACIT vs M/s KEI Industries Ltd. (ITA No.1433/Del/2014 dated 03.12.2020) 38. He submitted that FCCB means a bond issued by an Indian compan....
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.... ".................Unless previously converted, redeemed or repurchased or cancelled, the Company will redeem these bonds at 145.54 percent of the principal amount on 23rd November 2011. Up to March 31, 2010 out of the total issue, FCCBs aggregating to USD 19.50 Million have been repurchased at discount. Balance of 'FCCBs' of USD 7.50 Million outstanding as on March 31, 2010 have been included and disclosed in the schedule of "Unsecured Loans". In view of these developments the Company expects that no premium would be payable and on that basis the same is not provided for. However, the premium, if paid would be adjusted against the Securities Premium Account. Accordingly maximum premium amount payable being Rs. 15,38,93,891/- (Previous year Rs. 62,94,22,002/-) would be accounted for and adjusted against Securities Premium Account in the year of such redemption of repurchase or cancellation." 40. Referring to the aforesaid note, he submitted it is clear that premium payable on redemption was not provided. He submitted that both before the Assessing Officer and the CIT(A) assessee has clarified that FCCBs were bought back at discount. Such FCCBs were shown in the ac....
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....n capital account. The distinction between principal amount of FCCBs and the premium payable on redemption has been overlooked by the Assessing Officer as well as the CIT(A). He submitted that the FCCBs is nothing but a loan. 40.3. Referring to the decisions already earlier cited, he submitted that the issue stands decided in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of Mahindra & Mahindra Ltd. (Supra). He submitted that the Hon'ble Supreme Court in the said decision has held waiver of loan can never to be taxed u/s 28(iv) nor u/s 41(1) of the Act. Referring to the decision of Mumbai Bench of the Tribunal in the case of DCIT vs Pidilite Industries Ltd. reported in (2019) 177 ITD 472(Mum.), he submitted that the Tribunal in the said decision has held that discount received by the assessee on buyback of foreign currency convertible bonds could not be taxed u/s 28(iv) as said receipt in hands of the assessee was in form of cash/money and further, such proceeds were utilized partly for ongoing capitalization programs and thus, same was capital receipt. 41. Referring to the decision of the Co-ordinate Bench of the Tribunal in the Case of OK Pl....
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.... further, such proceeds were utilized for ongoing capitalization programs and thus, same was capital receipt. We find force in the above arguments advanced by the learned counsel for the assessee on this count. It is an admitted fact that the FCCB proceeds were utilized for setting up of new manufacturing facility or expansion of manufacturing facility. The utilization of such proceeds for capital purposes has not been doubted by the Assessing Officer or learned CIT(A). We find an identical issue had come up before the Mumbai Bench of the Tribunal in the case of DCIT vs Pidilite Industries Ltd. (Supra), wherein, the Tribunal following the various decisions has upheld the action of the learned CIT(A) in deleting the addition made by the Assessing Officer and dismissed the appeal filed by the Revenue by observing as under:- "5.4 Upon careful consideration, it emerges that the assessee has repurchased certain FCCB during impugned AY at a discount of 25%. The fact that the proceeds of these bonds was utilized partly for investment in foreign subsidiaries and partly for ongoing capitalization programs remain unrebutted before us. In fact, the RBI's terms of issue of bonds prohi....
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....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 present case. Hence, in our view, in no circumstances, it can be said that the amount of Rs. 57,74,064/- can be taxed under the provisions of Section 28(iv) of the IT Act. We agree with the submissions of Ld. AR that the propositions laid down in the above decision squarely apply to factual matrix before us. Therefore, the benefit to be received by the assessee has to be in some form other than in the shape of money so as to bring the same within the ambit of Section 28(iv). 5.6 Similar view has been....
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....'ble Bombay High Court in the case of Mahindra & Mahindra Ltd. (supra). If on an enquiry and verification, it transpires that the assessee has utilized the loan for the purpose of its business activity or trading activity, the amount of loan to the extent it has been waived by the bank shall be deemed to be the assessee's income chargeable to tax as per the decision of Hon'ble Bombay High Court in the case of Solid Containers Ltd. (supra), where the principle laid down by the Hon'ble Supreme Court in the case of TV. Sundaramlyengar& Sons Ltd. (supra) has been applied and followed. Under section 4 , the charging section, the charge of income-tax is upon the 'total income of the previous year'. The term 'income' is defined under section 2(24). In general, all receipts of revenue nature, unless 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 ....
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....a liability to pay back the principal amount along with the agreed rate of interest within a stipulated time. 11. It is a well-settled principle that creditor or his successor may exercise their "Right of Waiver" unilaterally to absolve the debtor from his liability to repay. After such exercise, the debtor is deemed to be absolved from the liability of repayment of loan subject to the conditions of waiver. The waiver may be a partly waiver i.e., waiver of part of the principal or interest repayable, or a complete waiver of both the loan as well as interest amounts. Hence, waiver of loan by the creditor results in the debtor having extra cash in his hand. It is receipt in the hands of the debtor/assessee. The short but cogent issue in the instant case arises whether 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 (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 prof....
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....nt were found to be correct. This fact is also not disputed by the A.O. The assessee has also satisfied the conditions of RBI to buy-back FCCBs. The assessee also proved on record that all the conditions of RBI in this regard have been made by assessee company. Section 41(1) of the I.T. Act would not apply because the amount of FCCBs was not allowed as expenditure or trading liability in earlier year. Further, no addition could be made under section 28(iv) of the I.T. Act. The assessee is in manufacturing business and has admittedly utilised the FCCBs by increasing the asset of the assessee company and most of them being depreciable asset which fact is also mentioned by the A.O. in the assessment order. Since the FCCBs were raised to use the proceeds for setting-up of new project and this fact is admitted by the A.O. in the assessment order, therefore, assessee used the loan to purchase the capital asset for the company. The ITAT, Delhi EBench, Delhi in the case of M/s. OK Play India Ltd., Roz-Ka-Meo Industrial Estate, Tehsil Nuh, District Mewat, Haryana vs., JCIT, Range-II, Gurgaon (supra), considering the Judgment of the jurisdictional Delhi High Court in the case of Log....
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....income chargeable to tax as per the decision of Hon'ble Bombay High Court in the case of Solid Containers Ltd. (supra), where the principle laid down by the Hon'ble Supreme Court in the case of TV. Sundaramlyengar & Sons Ltd. (supra) has been applied and followed. Under section 4, the charging section, the charge of income-tax is upon the 'total income of the previous year'. The term 'income' is defined under section 2(24). In general, all receipts of revenue nature, unless 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 take....
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.... is deemed to be absolved from the liability of repayment of loan subject to the conditions of waiver. The waiver may be a partly waiver i.e , waiver of part of the principal or interest repayable, or a complete waiver of both the loan as well as interest amounts. Hence waiver of loan by the creditor results in the debtor having ext a cash in his hand. It is receipt in the hands of the debtor/assessee. The short but cogent issue in the instant case arises whether 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 (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 no , arising from business or the exercise of a profession; 13. On a plain reading of Section 28(iv) of the IT ....