TaxTMI 
TaxTMI 
2021 (10) TMI 736
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.... in ITA No. 142/Alld./2017 for ay: 2007-08, in memo of appeal filed with Income-Tax Appellate Tribunal, Allahabad Bench, Allahabad (hereinafter called " the tribunal"), reads as under:- "1. Because the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts to confirm the impugned addition made by the Assessing Officer on account of write-back of Government Loan to the tune of Rs. 7292.72 lakhs being waiver of loan duly approved by the Ministry of heavy Industries and Public Enterprises as revival package for financial restructuring of sick Public Sector Enterprises, without making any reference to the relevant section of the Income Tax Act, 1961 under which he has made such addition which is a mandatory practice for making any such disallowances or additions. 2. Because the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts to confirm the addition made by the Assessing Officer by referring to certain decisions of the Court, the facts of which are clearly different from the facts of the appellant's case. 3. Because the Ld. Commissioner of Income Tax (Appeals) has erred on facts to confirm the addition Rs. 7292.72 lac....
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....ed on the assessee. The assessee duly participated in the proceedings conducted by Revenue u/s. 147/148 of the 1961 Act. During the course of aforesaid reassessment proceedings, the assessee requested AO to furnish reasons recorded by the AO for reopening of the assessment u/s. 147/148 of the 1961 Act. The reasons recorded by Revenue for reopening of the assessment by invoking provisions of Section 147/148 of the 1961 Act were duly furnished by AO to the assessee. Thereafter, the assessee filed return of income 'under protest' on 14th February, 2014, in pursuance to notice dated 16.01.2014 issued by AO u/s. 148, wherein income declared by assessee in the aforesaid return of income filed was 'Rs. Nil', whereas Book Profit for MAT u/s. 115JB was declared at (-) Rs. 34,90,58,000/-. Thereafter, the AO issued statutory notices under Section 143(2) and 142(1) of the 1961 Act, which was claimed by Revenue to have been duly served on assessee. The assessee raised various objections against initiation of the proceedings u/s. 147/148 of the Act, which objections were stated to be disposed off by AO vide order dated 9th Feb., 2015. So far there is no dispute between rival part....
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....as these loans were granted to meet capital expenditure, and hence its waiver as per AO will not be taxable. But as per AO, the write off/waiver by Government of 'Non-Plan Government Loans' shall be taxable in the hands of the assessee as the said loans were granted by Government to assessee to meet revenue expenditure. The AO vide notice issued u/s. 142(1) of the 1961 Act, dated 13.02.2015 asked assessee to explain as to why the said amount of write off/waiver of 'Non-Plan Government Loans' by Government amounting to Rs. 72.9272 crores may not be added to the income of the assessee as income from 'Profits and Gains from Business or Profession', under the normal provisions of the 1961 Act. The assessee submitted before the AO during the course of reassessment proceedings that ' as a part of the relief measures and basically to improve the financial and net worth of the company, the said Government loans have been waived; these waivers have come by way of a relief/revival measures and are different from cessation of any liability in respect of any trading transactions, and as such the said amount was not included in the taxable income. There is no provisi....
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....for trading purposes and the assessee has rightly treated the said waiver of loan by Government of 'Non Plan Government loan' as revenue receipts by crediting the same to its P&L Account. Thus, the AO by following the ratio of decision of Hon'ble Supreme Court in the case of T.V. Sundaram Iyenger and Sons Limited(supra), which was followed by Hon'ble High Court(s) in the case of Solid Containers Limited(supra) and Logitronics Private Limited (supra) held that the said 'Government Non-Plan Loan' written back amounting to Rs. 72.9272 crores is an income of the assessee from the business and accordingly the AO made additions to the income of the assessee of the aforesaid amount, vide reassessment order dated 31.03.2015 passed by the AO u/s. 147 read with Section 143(3) of the 1961 Act. 4. Aggrieved by an reassessment order dated 31.03.2015 passed by AO u/s. 147 read with Section 143(3) of the 1961 Act, the assessee filed first appeal with Ld. CIT(A). The assessee challenged the taxability of the said write back of 'Non-Plan Government Loans' amounting to Rs. 72.9272 crores claiming the same to be capital receipts not chargeable to income-tax. The Ld.....
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....ts were neither claimed by nor returned to the depositors and the assessee itself treated the said unclaimed/retained amount as its trade receipts by bringing it to its P&L a/c. On these facts, the Hon'ble Supreme Court held that- "if a commonsense view of the matter is taken, the assessee, because of the trading operation, had become richer by the amount which it transferred to its P and L a/c. The moneys had arisen out of ordinary trading transactions. Although the amounts received originally were not of income nature, the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of time, the amount attained a totally different quality. It became a definite trade surplus. The commonsense demanded that the amount should be entered in the P and L a/c for the year and be treated as taxable income." In view of the matter, the action of the A.O. is hereby upheld and his ground is dismissed." 5. Still aggrieved by appellate order dated 17.03.2017 passed by ld. CIT(A), the assessee filed second appeal with tribunal. This appeal was heard by Division Bench of ITAT, Allahabad Bench through Video Conferencing mode through Virtual....
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....ibunal on 12.08.2021(placed in file). It was submitted by ld. Counsel for the assessee that AO added the loan amount treating the same as Revenue, by relying on judgment of Hon'ble Supreme Court in the case of T V Sundrama Iyenger and Sons Limited(supra) and decision of Hon'ble Bombay High Court in the case of Solid Containers Limited(supra). It was submitted by ld. Counsel for the assessee that the AO made the additions without mentioning relevant and applicable provisions under the 1961 statute and hence on this short ground itself this addition is liable to be deleted. The ld. Counsel for the assessee drew our attention to the orders of authorities below and written submissions filed by it, and reference was drawn to para 6.2 and 6.3 (page 25/paper book) and it was submitted that the decision of Hon'ble Supreme Court in the case of T V Sundaram Iyenger and Sons Limited (supra) is not applicable on the facts of the instant case, as because in that case the taxpayer received security deposit but in the instant case, the loans to revive sick company were obtained by assessee from Government which is one of the major shareholder, and the said loans are now written off/wa....
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.... for sake of brevity. In brief, the assessee is a Public Sector Undertaking(PSU) under Central Government, Ministry of Heavy Industry, Ministry of Industry, Government of India., engaged in manufacturing of Pumps, Compressors and Gas Cylinders. As per details furnished by the assessee in paper book/page 136, the assessee has incurred heavy losses over last decade from 1998-99 onwards, so much so its networth was negative to the tune of (-) Rs. 117.15 crores, as at 31.03.2006. The assessee is a Sick Company registered with The Board for Industrial and Financial Restructuring(BIFR). The Government of India has been providing assessee with both Plan Government Loans as well Non-Plan Government Loans, from time to time to meet its financial requirements both capex and to meet its working capital requirements as well to recoup cash losses. The Plan Government loans are stated to be provided by Government of India to assessee to acquire capital assets and to meet capital expenditure, while Non Plan Government Loans are stated to be provided by Government of India to assessee from time to time to meet its working capital requirements towards meeting business expenses and to recoup cash lo....
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....ers, a proposal was placed before the Cabinet in its meeting held on 07.12.2006 for its approval. It is further intimated that competent authorities has, inter-alia, approved the proposal to waive Plan Government Loans and Non-Plan Government Loans to the tune of Rs. 102.75 crores as at 31.03.2006 and to waive off interest dues payable by the assessee to Government to the tune of Rs. 50.40 crores as at 31.03.2006, so that stand could be taken before the BIFR for taking the assessee company out of its purview. The assessee has accordingly, written back Plan Government Loans to Capital Reserves, and there is no dispute between rival parties so far as write back of Plan Government Loans are concerned. There is also no dispute so far as write back of interest due and payable by assessee to Government on both these Plan and Non-Plan Government loans are concerned, as the assessee has voluntarily and suo-motu offered such write back of interest for taxation in the return of income filed with Revenue. 6.2. Thus, the solitary dispute which has arisen between rival parties is with respect to taxability of write back of Non-Plan Government Loans amounting to Rs. 72.9272 crores by assessee....
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....ia granted Non-Plan Loans to assessee from time to time from 1993 to 2006 to meet normal and regular business expenses such as Salaries, Gratuity, PF, VRS expenses, guarantee fee for availing cash credit facilities from bank etc. and also to recover cash losses incurred by assessee in normal course of business, and thus these loans were on revenue field to meet day to day normal business expenses, and were not granted for meeting capital expenditure or acquiring capital assets by the assessee. The said Non-Plan Loans aggregating to Rs. 72.9272 crores which were outstanding as on 31.03.2006 were waived/written off by Government of India in order to revive and rehabilitate the assessee. It is also an admitted position that these loans bear contractual obligation on part of the assessee to pay interest to Government of India regularly as per agreed terms. It is also an admitted position that the assessee was claiming regularly deduction from business income on account of interest payable on these loans, while filing return of income with Revenue. It is also an admitted position that normal and regular business expenses incurred/paid by assessee towards Salary, PF, Gratuity, leave enca....
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....rds Salaries, PF, Gratuity, VRS expenses etc. and to recoup cash losses from normal business operations, and these expenses are claimed as deduction from business income, while computing income chargeable to tax from year to year. The assessee is regularly incurring expenses which are higher than its income leading to losses, and the assessee has admittedly claimed carry forward of unabsorbed losses to be set off against income of subsequent years in terms of Section 72 of the 1961 Act. The proceeds of these Non Plan Government Loans were utilized to meet recurring business expenses and to recoup cash losses incurred in regular/normal course of business. Reference is drawn to decision of Hon'ble Supreme Court in the case of T V Sundram Iyengar and Sons Limited(supra), wherein in this case deposits were taken by the tax-payer which was a trade transaction. Originally the deposit bore the character of capital receipts, but later these deposits were not claimed by nor returned to the depositors. The Hon'ble Supreme Court held that the money by way of deposits was received by the taxpayer in course of carrying business, which were capital in nature at the point of time when it ....
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....ll divide the discussion into two parts, the first dealing with the statutory provisions and the second dealing with the decisions of various High Courts and the Supreme Court. STATUTORY PROVISIONS 18. The expression "income" is defined in Section 2(24) of the Act to include several things, some of which that may be of relevance for the case on hand, are as follows: (a) any sum chargeable to income tax under Clauses (ii) and (iii) of Section 28 or Section 41 or Section 59; (b) any sum chargeable to income tax under Clause (iiia) of Section 28; (c) any sum chargeable to income tax under Clause (iiib) of Section 28; (d) any sum chargeable to income tax under Clause (iiic) of Section 28; and (e) any sum chargeable to income tax under Clause (iv) of Section 28. 19. The expression "total income" is defined in Section 2(45) to mean the total amount of income referred to in Section 5, computed in the manner laid down in the Act. Under Section 5(1), the total income of any previous year, of a person who is a resident, includes all income from whatever source derived, which (i) is received or deemed to be received in In....
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.... to income-tax as the income of that previous year. 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 (hereinafter referred to as the first-mentioned person) and subsequently during any previous year- Explanation 1. - For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts. Explanation 2. - For the purposes of this sub-section, "successor in business" means- (i) where there has been an amalgamation of a company with another company, the amalgamated company; (ii) where the first-mentioned person is succeeded by any other person in that business or profession, the other person; (iii) where a firm carrying on a business or profession is succeeded by another firm, the other....
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....sall [1939] 7 ITR 316 (CA) to the effect that the taxability of a receipt was fixed with reference to its character at the moment it was received and that merely because the recipient treated it subsequently in his income account as his own, it would not alter that character. The Supreme Court noted that this test laid down by Lord Greene formed the basis of several judgments delivered by our courts. 26. After taking note of the principle of law laid down by Lord Greene, the Supreme Court considered a few decisions of different High Courts as well as the Supreme Court, where the Courts distinguished the decision in Morley. Thereafter, the Supreme Court pointed out that the amounts in question were not in the nature of security deposits held by the assessee for the performance of contract by its constituents. The Supreme Court also held that the unclaimed surplus retained by the assessee will be its trade receipt and the assessee itself treated the same as trade receipt by bringing it to the profit and loss account. 27. Finally, in T.V. Sundaram Iyengar & Sons Ltd. (supra) the Supreme Court took note of the opinion expressed by Atkinson, J in Jay's-The Jeweller....
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....we are called upon to deal with in this case. In the case before the Delhi High Court, the assessee availed a loan from the State Bank of India, but failed to discharge its liability. The loan was categorized as a non performing asset and proceedings for recovery have been initiated. During the pendency of those proceedings, a One Time Settlement was arrived at and a portion of the loan as well as interest were waived. In the return filed by the assessee, they showed the interest waived as income, but not the amount of loan waived. The principal amount written off was directly taken to the balance sheet under the head 'capital reserve' and it was not offered for taxation. The Assessing Officer looked at the expanded meaning of the expression 'income' under Section 2(24) and held that the principal amount of loan written off was nothing but gain/income in the hands of the assessee by relying upon Section 28(iv) and 41(1). The assessee's first appeal was allowed by the Commissioner, but his order was reversed by the Income Tax Appellate Tribunal, forcing the assessee to file a tax case appeal before the High Court of Delhi. 30. In Logitronics, two substan....
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....s of account, the waiver thereof may result in the income more so when it was transferred to the profit and loss account. 34. In Rollatainers, the Delhi High Court was again concerned with a case where in terms of a corporate debt restructuring package worked out between the assessee and the bank, a portion of the principal and interest were waived. The Income Tax Appellate Tribunal held that the waiver of the working capital loan utilised towards the day-to-day business operations resulted in manifest in the revenue field and hence, was taxable in the year of waiver. 35. Finding on facts that the term loans in question were taken for the purchase of capital assets from time to time and these amounts did not come into the possession of the assessee on account of any trading transactions, the Delhi High Court reiterated the opinion rendered in Logitronics. 36. Therefore, the law as expounded by the Delhi High Court appears to be that if a loan had been taken for acquiring a capital asset, waiver thereof would not amount to any income exigible to tax. If the loan is taken for trading purposes and was also treated as such from the beginning in the books of a....
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....promptly. It is needless to point out that in such cases, the prompt payment of money itself brings forth a benefit in the form of an incentive or a rebate or a discount in the price of the product. We do not know why it should not happen in the case of waiver of a part of the loan. Therefore, the finding recorded in paragraph 27.1 of the decision in Iskraemeco Regent Ltd. (supra) that Section 28(iv) has no application to any transaction, which involves money, is a sweeping statement and may not stand in the light of the express language of Section 28(iv). In our considered view, the waiver of a portion of the loan would certainly tantamount to the value of a benefit. This benefit may not arise from "the business" of the assessee. But, it certainly arises from "business". The absence of the prefix "the" to the word "business" makes a world of difference. 40. We shall now turn our attention to the distinction sought to be made between the waiver of a portion of the loan taken for the purpose of acquiring capital assets on the one hand and the waiver of a portion of the loan taken for the purpose of trading activities on the other hand. 41. It appears that in so far....
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....extent of waiver. Alternatively, the amount representing the waived portion of the loan is shown as a capital receipt in the profit and loss account itself. These aspects have not been taken note of in Iskraemeco Regent Ltd.(supra) 44. In view of the above, the questions of law are liable to be answered in favour of the Revenue/appellant. Accordingly, they are answered in favour of the appellant/Revenue and the appeal filed by the Revenue is allowed. No costs." Reference is also drawn to decision of Hon'ble Bombay High Court in the case of Solid Containers Limited(supra) and decision of Hon'ble Delhi High Court in the case of Logitronics Private Limited(supra). The assessee has relied on the decision of Hon'ble Supreme Court in the case of Mahindra and Mahindra Limited(supra). In this case, the tax-payer decided to expand its jeep product line by including FC-150 and FC-170 models. The tax-payer entered into agreement with Kaiser Jeep Corporation(KJC) for purchase of dies, welding equipment's and die models. The said KJC also provided loan to the tax-payer with interest @6% repayable after 10 years in installments. The Principal amount of loan was later ....