TaxTMI 
TaxTMI 
TaxTMI 
2021 (6) TMI 899
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....r of income tax, Circle - 10 (1), New Delhi (the learned AO) p partly allowing that appeal. However the learned CIT - A confirmed the addition of Rs. 99,512,500, upheld the disallowance of depreciation of Rs. 89,311 and upheld the addition of Rs. 1,654,200 on account of interest income. Therefore assessee is aggrieved and has preferred this appeal raising following grounds of appeal:- "1. a) In upholding the addition of Rs. 99,512,500/- merely on the basis of presumptions and suspicions, treating the amount as revenue in nature, ignoring the various judicial pronouncements and material on record. b) in upholding that the amount of Rs. 99,512,500/- [US dollars 51,25,000/- remitted by Tabcorpon account of unconditional and irrevocable standby letter of credit issued by National Australian Bank and adjusted against loan received from GECSI, was revenue receipt and that the amount had been utilized for the repayment of loans and giving loans for the purpose of business and not for acquiring any capital asset. c) in upholding that amount of Rs. 99,512,500/- on account of waiver/ remission of loan in terms of Deed of Termination and Release dated 12th October,2007 executed by the a....
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....file of the ld AO to decide the issue in accordance with that decision. 5. The ld DR vehemently supported the orders of the lower authorities and submitted that the whole of the amount received on account of waiver of loan is revenue receipt in nature. 6. We have carefully considered the rival contentions and peruse the orders of the lower authorities. Coming to the Ground No. 1 the ld AO noted that in the tax audit report in form 3CD the assessee has disclosed that sum of Rs. 9,95,12,500/- as capital receipt which is not credited in the profit and loss account. The facts relating to the above sum shows that MS Apollo International Ltd was a company engaged in the business of export etc. Encorp e services was a division of Apollo International Ltd engaged in the lottery business. In terms of the various resolution passed a subsidiary company of Apollo International formed in the name of Encorp E Services company engaged in the business of internet services etc. on 20/05/2013 Apollo International Ltd entered into business agreement with M/s Jupiter International Pvt. Ltd, an Australian company with a purpose to establish online lottery business and several agreements were signed ....
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....me to the notice of the appellant company that the Lottery terminals installed by M/s Jupiter International Pvt.ltd have failed due to one hardware and software fault or the other. The problem of failure of the terminals was discussed in detail at the meeting held between M/s Jupiter International and Encorp at Sydney on 29.04.2004 and 30.04.2004 at Melbourne. Both the parties agreed to take actions to rectify the situations. As per Para-2 of Minutes of dated 30.4.2004 it was agreed by M/s Jupiter International Pvt.ltd that under the current circumstances, Apollo can source other compatible terminals from other manufacturers in consultation with M/s Jupiter International Pvt.ltd. In return for this, Jupiter International Pvt.ltd will charge fee as per terminals which will compensate Jupiter International Pvt.ltd. for its investment in the terminal software and hardware and loss of profit on sale of the extra 4000 J 6000 Terminals. Apollo suggested that Jupiter International Pvt.ltd quote minimum fee in the interest of business in India. Various other business proposals were also explored between the parties from time to time to overcome the above problem but the same did not mate....
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....nt of existing debts. The loan from GECSI was not connected with the running of business of the appellant. It is not a trading transaction. Any surplus arising out of capital transactions would necessarily be capital in nature. Therefore, such receipts have been treated as capital receipts. The submission of the appellant as well as the copy of the loan agreement entered into with G.E. Capital Services India Ltd. has been gone through, it is seen that loan was raised to re-finance the existing debt and to make payment of license fee and installation of additional POS. It was also mentioned in the purpose that borrower shall apply all amounts raised by it hereunder in or towards satisfaction of such obligations and for no other purposes. The loan raised by the appellant was credited to the overdraft account of the appellant in ICICI Bank and which was utilized for repayment of overdraft of Rs. 1215 lacs. The loan was also utilized for repayment of loan of Bank of Rajasthan of Rs. 505 lacs. The appellant has also paid Rs. 430 lacs to MAC Solutions (a sister concern of the appellant as loan). This payment has been described as paid to business associates. It is seen from the bal....
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....is treated as revenue receipt in the hands of the appellant which was on account of loan taken for business purposes. It is also seen that remission of loan was in-connection with the business agreement entered with the Tabcorp and the discharge was related to the non functioning of the lottery business properly. Therefore, the surplus received on account of remission was intriguingly connected with the business of the appellant and such receipts are revenue receipts in the hands of the appellant. Therefore, the Assessing Officer was justified in treating the remission of loan to the extent of Rs. 9.95.12.500/-as revenue receipts and taxed the same in the hands of the appellant. In the result, this ground of appeal is dismissed. In this regard, reliance is placed on following judicial pronouncemems;- Express Newspapers Pvt. Ltd. v. Commissioner of Income-tax 119971 227 ITR 0325-BUSINESS INCOME OR INCOME FROM OTHER SOURCESASSESSEE DISCONTINUING BUSINESS OF PUBLISHINGNEWSPAPERS-MACHINERY AND VEHICLES LET TO SISTERCONCERN-LETTING DOES NOT RELATE TO BUSINESSMACHINERY AND VEHICLES NOT EXPLOITED AS COMMERCIALASSET-HIRE CHARGES ASSESSABLE AS INCOME FROM OTHERSOURCES-NOT AS BUSIN....
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....r vehicles could not be considered to be commercial assets. The income derived by letting the machinery and the motor vehicles was income from other sources. In the course of the assessee's business as a dealer in shares, the assessee borrowed moneys from various sharebrokers. The interest provided for in the accounts in respect of such borrowals was claimed as a deduction and was allowed as such in computing the income of the assessee in the earlier years. Subsequently, at the time of settlement of accounts with the sharebrokers, the amount due to them on account of interest was settled at a figure lower than the figure provided in the accounts. As a result, the amounts thus given up were written back in the accounts as income. These sums were brought to tax under section 41(1) of the Income-tax Act, 1961. This was confirmed by the Tribunal. On a reference: Held:- that there were two basic requirements for the application of section 41(1) of the Act. One was that there must be an allowance or deduction in the assessment for any year in respect of loss or expenditure or trading liability incurred by the assessee. The other was that subsequently during the previous year the asse....
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....be considered to be under a separate business venture. The supply of airconditioning facility alone could not be separated from other amenities provided by the assessee to the tenants and considered as a business venture done by the assessee. The charges received for supplying the air-conditioning facility had to be assessed under the head "Other sources", instead of under the head "Business income". Logitronics P. Ltd. v. Commissioner of Income-tax 120111333ITR 0386- INCOME-BUSINESS INCOME-WAIVER OF LOAN TAKEN BY ASSESSEE FOR BUSINESS ACTIVITY-ASSESSABLE AS BUSINESS INCOME-INCOME-TAX ACT, 1961, SS. 2(24), 28(IV), 41(1). INCOME-BUSINESS INCOME-INVESTMENT COMPANY TAKING LOAN AND INVESTING FOR LONG-TERM IN SHARES-NO COMMUNICATION AND NO CLAIM FOR MANY YEARS BY LENDER AND UNSECURED LOAN WRITTEN BACK-REMISSION OF LIABILITY- NO DEDUCTION CLAIMED IN RESPECT OF LOAN-- NOT INCOME- INCOME-TAX ACT, 1961, S. 41(1). If a loan was taken for acquiring a capital asset, waiver thereof would not amount to any income exigible to tax. On the other hand, if the loan was for trading purpose and was treated as such from the very beginning in the books of account the waiver thereof may result in ....
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....e business of financing, the assessee advanced loans at interest. Such loans were advanced out of interest free own funds available with the assessee in the form of share capital and reserves or out of borrowed funds in the form of loans. The loans borrowed were to augment the funds available with the assessee to be advanced on interest. Such loans borrowed were a source of funds. It could not be said that the assessee was in the business of borrowing and advancing loans. The money borrowed was only a source of funds. The Tribunal found as a fact that the amount of loan was not used in financing business. Thus, the addition of Rs. 25 lakhs made by the Assessing Officer on account of unsecured loan written back was rightly deleted by the Tribunal. Deputy Commissioner of Income-tax * Circle 4(1), New Delhi v. Logitronics (P.) Ltd. [20101127ITD 16 (DELHI) Section 41(1), read with section 28(iv), of the Income-tax Act, 1961 - Remission or cessation of trading liability - Whether where capital assets are acquired by obtaining a loan and subsequently, loan amount is waived by other party, principal amount of loan waived by other party cannot be brought to tax under section 28(iv) or un....
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....ssable under the head ‗business '. He, therefore, brought the amount ofRs. 2.91 crore to tax as income includible in the assessee's total income. On appeal, the Commissioner (Appeals) decided this issue in favour of the assessee by holding that the provisions of section 28(i) or 28( iv) or section 41(1) were not applicable to the assessee's case. On revenue's appeal : HELD : In the instant case, it was not in dispute that the assessee had taken or obtained loan from the 'S' bank and later, as a result of compromise between the assessee and ‗S' Bank, the outstanding liability of Rs. 1.90 crores towards interest payable on loan amount was waived, and since the assessee had obtained a deduction on account of interest payable on loan amount in the assessment of earlier years, the assessee credited the said amount of interest to the profit and loss account and also included the same in the total income in the return of income filed by it. Thus, there was no dispute with regard to the waiver of interest includible in the total income of the assessee for the year under consideration. However, a dispute had arisen between the department and the assessee with regar....
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.... adjudication with a direction to the assessee to furnish all the details and particulars of loan, and the purpose for which the loan taken from bank was utilized. All these informations were within the control and specific knowledge of the assessee and, therefore, it would be the duty of the assessee to prove and establish that the amount of loan taken from the bank was utilized for the purpose of acquiring capital assets. If on enquiry and verification, it transpired that the assessee had utilized the loan for the purpose of its business activity or trading activity, the amount of loan to the extent it had been waived by the bank, would be deemed to be the assessee's income chargeable to tax. The Assessing Officer would provide reasonable opportunity of being heard to the assessee. Be it mentioned here that, in case, the assessee failed to produce or furnish details or particulars about the purpose for which the loan amount was utilized, the Assessing Officer would draw adverse inference against the assessee, and would decide the issue in the light of the fact that the loan amount was obtained by the assessee in cash credit account, CTL and WCTL account by way of hypothecatio....
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....d in favour of the assessee. The ld DR supported the orders of the lower authorities. We have carefully considered that the above issue is squarely covered in favour of the assessee by the decision of the coordinate bench in ITA number 4460&4461/del/2011 for assessment year 2006 - 07 and 2007 - 08 wherein in paragraph number 23 the coordinate bench has dealt with this issue and in paragraph number 30 - 31 allowed the claim of the assessee following the decision of the honourable jurisdictional High Court in CIT versus Oswal Agro Mills Ltd 341 ITR 467. Therefore respectfully following the decision of the coordinate bench in assessee‟s own case we also direct the learned assessing officer to allow the depreciation of Rs. 89,311/- on assets in the premises sealed by the government of India due to ban on lottery business. Accordingly, ground number 2 of the appeal of the assessee is allowed. 9. With respect to ground No. 3 wherein the addition of Rs. 16,54,200/- on account of interest ICD given to MAC Solution Pvt Ltd was made. Fact shows that the assessee company is along with other parties entered into a joint venture agreement and formed a company for marketing of lottery. F....
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....ubmitted that assessee is following mercantile system of accounting, which is not permitted. According to mercantile system of accounting, the assessee is duty bound to recognize the income of interest. 11. We have carefully considered the rival contentions and peruse the orders of the lower authorities. The assessee has placed its audit and annual accounts at page number 66 onwards of the paper book. As per the report of the auditor the balance sheets, profit and loss account and the cash flow statement comply with the accounting standards referred to in subsection (3C) of Section 211 of the companies act, 1956. As per schedule - 12, significant accounting policies and notes on accounts, the basis of accounting is mentioned that the accounts are prepared on historical cost convention based on accrual method of accounting and applicable accounting standards. As per note number 12 the company has mentioned as Under:- "12. The company had given an intercorporate deposit (ICD) of Rs. 5 30 lakhs to MAC solutions private limited at the rate of 8% per annum interest rate in which the company also holds 10% equity shares. The company has received back Rs. 250 lakhs during the year 2005....
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....e said to be accrued to the assessee. The assessee has not produced any document/resolution/financial position of the companies to move the assessee has given ICD. Further paragraph number 8.2 of the accounting standard says that Interest accrues, in most circumstances, on the time basis determined by the amount outstanding and the rate applicable. Further in note number 12 of schedule 12 assessee itself has disclosed that company out of the total advance of Rs. 530 lakhs has received back Rs. 250 lakhs in financial year 2005 - 2006, Rs. 25 lakhs in the year 2006 - 2007 and Rs. 75 lakhs in the year 2007 - 2008. We are dealing with the case for the assessment year 2008 - 09 in which year the assessee has already recovered 75 lakhs. Further out of the total advance of Rs. 503 lakhs assessee has already recovered Rs. 3 00 lakhs. Therefore, we do not find any evidence placed before us or before the lower authorities to even remotely suggest that assessee is not able to recover the above sum. 14. In view of this we do not find any infirmity in the orders of the lower authorities in holding that interest has accrued to the assessee of Rs. 1,654,200/-. Accordingly, ground number 3 of the....