MODERN SYNTEX (INDIA) LIMITED vs. ASSISTANT COMMISSIONER OF INCOME TAX

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ITA/266/2018HC RajasthanRJHC02082382201804 October 2019Author: MOHAMMAD RAFIQ,NARENDRA SINGH DHADDHA4 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court allowed the appeals filed by the assessees (D.B. Income Tax Appeal Nos. 266/18 and 267/18) and dismissed the appeals filed by the revenue (D.B. Income Tax Appeal Nos. 270/18, 285/18, 286/18, and 295/18). The Court held that the substantial question of law involved was squarely covered by its previous judgment in Modern Denim Ltd. vs. Assistant Commissioner of I.T., Jaipur. In that judgment, the Court had reversed the ITAT's decision and restored the CIT(A)'s view, following the Bombay High Court's ruling in Mahindra and Mahindra Ltd. vs. Commissioner of Income Tax. The principle established was that income taxable under Section 28(iv) must be a benefit or perquisite arising from business, and Section 28(iv) does not apply to benefits received in cash or money. The Supreme Court's dismissal of civil appeals against the Mahindra and Mahindra Ltd. judgment further solidified this position. Consequently, the remission of loan liabilities by banks was not considered taxable income under Section 28(iv).

What were the facts?

The appeals before the High Court involved multiple assessment years and concerned the taxability of loan amounts waived by banks and financial institutions, which were subsequently written back by the assessees. The revenue filed appeals against the Income Tax Appellate Tribunal's (ITAT) decisions that remitted the issue to the Assessing Officer for verification of the nature of the loans. The assessees also filed appeals against the ITAT's judgments that remitted matters back to the CIT(A), who had previously deleted additions made by the Assessing Officer regarding the waiver of liabilities. The core of the dispute revolved around whether such waivers constituted business income taxable under Section 28(iv) of the Income Tax Act, 1961.

What were the issues?

1. Whether the remission of the principal amount of loans obtained from financial institutions and banks constitutes a benefit or perquisite arising from business and would fall within the ambit of Section 28(iv) of the Income Tax Act, 1961? (Question of law) Assessee's Contentions: The assessees argued that the remission of loan liabilities, even if waived by banks, does not constitute income taxable under Section 28(iv). They relied on the High Court's own judgment in M/s. Modern Denim Ltd. vs. Assistant Commissioner of I.T., Jaipur, D.B. Income Tax Appeal No.145/2010, which followed the Bombay High Court's decision in Mahindra and Mahindra Ltd. vs. Commissioner of Income Tax. This judgment held that Section 28(iv) applies only to benefits or perquisites arising from business and not to benefits in cash or money. Revenue's Contentions: The revenue's appeals were against the ITAT's orders that remitted the issue for verification. The judgment does not explicitly record the revenue's specific arguments against the taxability of the waived loans, but their appeals imply a contention that such waivers should be taxed.

Which sections of the Income-tax Act were involved?

Section 28(iv)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 285/2018 Pr. Commissioner Of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus M/s Modern Threads (India) Ltd., A-4, Vijay Path, Tilak Nagar, Jaipur. Pan- AABCM 1850 A ----Respondent Connected With D.B. Income Tax Appeal No. 266/2018 Modern Syntex (India) Limited, A-4, Vijay Path, Tilak Nagar, Jaipur ----Appellant Versus Assistant Commissioner Of Income Tax, Circle-6, Jaipur ----Respondent D.B. Income Tax Appeal No. 267/2018 Modern Syntex (India) Limited, A-4, Vijay Path, Tilak Nagar, Jaipur. ----Appellant Versus Assistant Commissioner Of Income Tax, Circle-6, Jaipur. ----Respondent D.B. Income Tax Appeal No. 270/2018 Pr. Commissioner Of Income Tax, Jaipur-Ii, Jaipur. ----Appellant Versus M/s Modern Denim Ltd., A-4, Vijay Path, Tilak Nagar, Jaipur (Rajasthan). ----Respondent D.B. Income Tax Appeal No. 286/2018 Pr. Commissioner Of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus (2 of 4) [ITA-285/2018] M/s Modern Denim Ltd., A-4, Vijay Path, Tilak Nagar, Jaipur (Rajasthan). ----Respondent D.B. Income Tax Appeal No. 295/2018 Pr. Commissioner Of Income Tax, Jaipur - II Jaipur ----Appellant Versus M/s Modern Denim Ltd., A-4 Vijay Path Tilak Nagar Jaipur (Rajasthan) ----Respondent For Appellant(s) : Shri Prateek Kedavat on behalf of Shri R.B. Mathur for Revenue For Respondent(s) : Shri Sunil Nath for assessee HON'BLE THE ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE NARENDRA SINGH DHADDHA

Judgment 04/10/2019 (PER HON’BLE MOHAMMAD RAFIQ, J.)

The appeal nos.270/18, 285/18, 286/18 and 295/18 have been filed by the revenue against the judgement of Income Tax Appellate Tribunal, whereby the Tribunal remitted the issue to the record of the Assessing Officer for limited purpose of verification of the fact as to the nature of loan taken by the assessee, which was waived off by the bank/financial institutions under one time settlement and written back by the assessee during the assessment year.

The appeal nos.266/18 and 267/18 have been filed by assessee against the judgement of the Tribunal, which remitted the matter back to the CIT(A) by relying on certain judgements, whereas CIT(A) on consideration of the judgement of this Court in (3 of 4) [ITA-285/2018] the own case of the assesee dated 26.4.2017 deleted the addition made by the Assessing Officer treating the remission of liability on account of waiver from bank/financial institutions and adding the No.145/2010 and other 4 connected matters dated 26.4.2017 where the substantial question of law was whether the remission of principal amount of loan obtained from financial institutions and banks constitutes a benefit or pre-requisite arising from business Commissioner of Income Tax Vs. Mahindra and Mahindra Ltd.- (2003) 261 ITR 501 (Bom), which held that income which can be taxed under Section 28(iv) must not only be referable to a benefit or perquisite, but it must be arising from business and that Section 28(iv) does not apply to benefits in cash or money. It is also not disputed that judgement of the Bombay High Court was upheld by the Supreme Court by dismissing the Civil Appeal No.6949-6950 of 2004, the Commissioner vs. Mahindra and Mahindra Ltd. through M.D. and other connected appeals by judgement dated 24.4.2018. Even the SLPs filed against the judgement of this Court in M/s. Modern Threads (I) Ltd., supra

(4 of 4) [ITA-285/2018] were also disposed of in view of judgement of Mahindra and Mahindra Ltd., supra dated 24.4.2018. In view of above, while the appeal nos. 266/18 and 267/18 preferred by the assessee are allowed, the appeal nos.270/18, 285/18, 286/18 and 295/18 filed by the revenue are dismissed. Office to place a copy of this order in each connected matter. (NARENDRA SINGH DHADDHA),J (MOHAMMAD RAFIQ),Acting CJ RAVI SHARMA /40-45

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