TaxTMI 
TaxTMI 
2014 (1) TMI 1939
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....,75,000/- on account of alleged remission of liability in respect of unsecured loans from Bodies Corporate on the unjustified and arbitrary ground that the same represents the income of the Appellant Company within the meaning of section 28(iv) read with Section 2(24) of the Income-tax Act, 1961. 2. That the order dated 01.04.2013 passed u/s 250(6) of the Income Tax Act by the Ld. CIT(A) Jammu is against law and facts on the file in as much as he was not justified in rejecting /denying claim made by the Appellant Company that it had become defunct and no assessment could be made as the Registrar of Companies had struck off its name from the record under the provisions of section 56 of the Companies Act, 1956 and it was not in existence on the relevant date on the ground that the case laws cited in support of such assertion are for company which were dissolved and there was a difference between a dissolved company and a defunct company." 3. M/s. Prang Finance & Investment Company Pvt. Ltd; Jammu in ITA No.356(Asr)/2013 has raised following grounds of appeal: "1. That the order dated 01.04.2013 passed u/s 250(6) of the Income Tax Act by the Ld. CIT(A) Jammu is ag....
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....ing liability. In the instant case, the same was in the nature of loan given by the company. Again vide letter dated 30.01.2006, the assessee intimated that the capital gain arise only in case of "Transfer of a Capital" and section 2(47) of the Act defines "Transfer" whereas section 2(14) defines "Capital asset". In the above case neither the unsecured loan nor interest accrued there on was a capital asset as also the waiver thereof was a Transfer by the assessee company." The assessee company was intimated vide this office letter No. ITO/W-II(2)/JMU/2005-06/1323 dated 17.02.2006 that no question of capital gain was raised by this office on the contrary the assessee company was asked as to why Rs.1,00,75,000/- may not be added to its income as a business income in terms of section 2(24) read with section n28 f the Act. In response to this letter the assessee company again intimated that: "As far as your proposal to charge tax on non recovery off loan of Rs.1,00,75,000/- u/s 2(24) r.w.s. 28 of the Act is concerned, we object to the same on the ground that it does not contain any income element. The non recovery of loan cannot be considered as Profit & Gain....
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....usiness transactions. The Hon'ble Supreme Court in the case of Hoshiarpur Electric Supply Co. vs. CIT (1961) 41 ITR 608 (SC) has held that classification of the receipts in the form of accounts is not of any importance in considering whether the receipt is taxable as revenue receipt. Also in the case of Kettlewell Bullen & Co. Ltd. vs. CIT (1964) 53 ITR 261 (SC) has been held that the form in which the transaction which gives rise to income is clothed and the same which is given to it are irrelevant in assessing the eligibility of receipt arising from a transaction to tax. Similarly in the following two Court cases the ratio of the judgment is totally identical with the issue in hand although the facts are slightly different. There is no dispute in the instant case also that the money was received in the course of the carrying on the business of the assessee and moneys had arisen out of ordinary trading transactions. Although the amounts received originally were not of income nature, the amount remained with the assessee for a long period, is now no longer payable and became a definite trade surplus. Where a new asset came into being automaticall....
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.... and this trading liability has allowed deduction in an earlier year and something has, later on, been recovered in respect of such liability and such liability has either been remitted or has ceased to exist, only then section 41(1) will come into operation. Therefore, unsecured loans are endowed with the character of capital receipts and cannot be classified as trading liabilities in any manner. He relied upon the decisions of various courts of law, as relied upon before the ld. CIT(A). He also argued that the decisions relied upon by the AO are not applicable in the present facts and circumstances of the case, on the similar lines, as submitted before the ld. CIT(A). 7.1. The Ld. counsel for the assessee argued that the company had ceased to exist and had been declared defunct by virtue of provisions of section 566 of the Companies Act, 1956, as is evident from the Company Master Data obtained from records of the Ministry of Corporate Affairs, copy placed on record. The said fact of the company being declared as a Defunct Company was also disclosed in the return of income filed for the year under dispute. Therefore, the assessee company ceased to exist as on the date of asses....
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....fession. Therefore, section 28(Iv) of the Act, can be invoked in respect of benefit or perquisite other than cash. Therefore, remission of liability cannot be sought to be taxed with reference to section 28(iv). He relied upon the decision of the Hon'ble Supreme Court in the case Commissioner of Agricultural Income Tax vs. Kerala Estate (1986) 161 ITR 155 (SC), Hon'ble Bombay High Court in the case of Mahindra and Mahindra Ltd. vs. CIT (2003) 261 ITR 501 (Bom.), Hon'ble Gujarat High Court in the case of CIT vs. Alchemic Pvt. Ltd. (1981) 130 ITR 168 (Guj.) and in the case of CIT vs. New India Insurance Ltd. (1993) 201 ITR 208 (Guj) and Hon'ble Delhi High Court in the case of CIT vs. Jubiliant Securities Pvt. Ltd. (2011) 333 ITR 386 (Delhi) . 7.5. The Ld. counsel further argued that the Company did not carry on any business activity and therefore the question of trading liability arising therefrom and consequent taxability on account of remission does not arise. He relied upon the decision of the Hon'ble Delhi High Court in the case of CIT vs. Jubiliant Securities Pvt. Ltd. (2011) 333 ITR 386, as mentioned hereinabove. 7.6 He also argued that he has raised an additional ground ....
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....ugh the assessee has not provided the interest expenses and interest income during the impugned year for the reasons best known to assessee. The said loans according to us has been raised during the course of business and the same were advanced during the course of business as a matter of main object of the assessee. The assessee has used the said loans for day to day business operation in the normal course during the year when loans were raised and advanced. No capital assets has been purchased on raising of such unsecured loans. 9.1. As regards the arguments made by the Ld. counsel for the assessee that the provisions of section 41(1) are not applicable, in this regard as per Note-4 of Schedule 7 of the audited balance sheet as on 31.3.2004 relevant to assessment year 2004-05 i.e. the impugned year, it has been mentioned that a sum of Rs.1.00 crore was advanced to M/s. Orson Electronics Limited and this company went into liquidation whereby a provision for bad and doubtful debt was made alongwith interest thereon. The conduct of the assessee by treating the money advanced as bad and doubtful debt suggests that it has received the money in the course of trading i.e. the money l....
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....able as referred to by the ld. CIT(A) in the present facts and circumstances of the case are as under: i) Rollatiners Ltd. vs. CIT (69 DTR 128 (Delhi ) dated 30.08.11 ii) CIT vs. T.B.Sundram Iyengar & Sons Ltd. 136 CTR 444 (SC) iii) Solid Containers Ltd. vs. Dy. CIT 222 CTR (Bom) 455 9.3. In the case of Rollatiners Ltd. vs. CIT (69 DTR 128 (Delhi ) in which the decisions of Logitronics (supra) has been discussed and it has been held by the Hon'ble Delhi High Court that loan taken by the assessee utilized towards day to day business operation is chargeable to tax u/s 28(iv) as also section 41(1). Para 6 & 8 of the said judgment are reproduced as under: " 6. Thus, on writing off the said loans/part loans, benefit had arisen to the assessee. As per the Tribunal, when the money/loan was received in the course of carrying on business even if it was treated as loan at the time of receipt which was of capital nature on the waiver had become assessee‟s own money which was even taken to profit and loss account. This benefit was in the revenue field as the money had been borrowed for day to day affairs and not for the purchase of machinery. Thus, ....
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.... High Court applied the decision in T.V. Sundaram Iyengar & Sons Ltd. (supra) distinguished its decision in Mahindra & Mahindra Ltd.(supra) and held that the waiver of loan taken for business purposes, the amount is retained in the business and as such, the amount that initially did not have the character of income becomes income liable to tax. 9.6. As regards the argument with regard to section 28(iv), the same cannot help the assessee since the definition has expanded the ambit of income and not reduced the definition and therefore, the decisions relied upon by the ld. counsel for assessee in this regard cannot be made applicable to the facts and circumstances of the present case. 9.7. As regards the argument made by the ld. counsel for the assessee that the company has now become defunct, we concur with the views of the ld. CIT(A) given in para 4.13 of his order, which for the sake of convenience are reproduced as under: "4.13. The appellant has taken an additional argument during the course of hearing that the appellant company has now become defunct and no assessment cana be made as the registrar of company has struck off the appellant company from the record. T....