PR COMMISSIONER OF INCOME TAX JAIPUR-II vs. MS MODERN SYNTEX INDIA LTD

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ITA/87/2018HC RajasthanRJHC02018831201812 April 20187 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the loan taken was a capital investment and was always treated as a liability in the capital account. Consequently, its wiping out would naturally be considered as a reduction of capital liability. The Court found that the contention taken by the appellant (revenue) was required to be accepted, and the view taken by the Commissioner of Income Tax (Appeals) was required to be restored, reversing the decision of the Tribunal. The issue was answered in favour of the assessee and against the department. The Court noted that the loan was a capital investment and treated as a liability, and its remission would naturally go towards wiping out capital liability. The Court also referred to its own previous judgment in Modern Syntex (India) Ltd. vs. Assistant Commissioner of Income Tax, which had framed a similar substantial question of law regarding the remission of principal loan amounts and their falling under Section 28(iv). The Court ultimately held that no substantial question of law arose and dismissed the appeal.

What were the facts?

The appellant, Pr. Commissioner of Income Tax, Jaipur-II, Jaipur, challenged a judgment and order of the Income Tax Appellate Tribunal (ITAT) that allowed the appeal of the assessee, M/s Modern Syntex (India) Ltd. The dispute concerns the deletion of an addition of Rs. 69,62,000 made by the Assessing Officer (AO) on account of remission of the principal amount of a loan. The AO's action was based on the premise that such remission constituted a benefit or perquisite arising from business, falling under Section 28(iv) of the Income Tax Act, 1961. The ITAT had previously allowed the assessee's appeal, leading to the present appeal by the revenue.

What were the issues?

1. Whether, in the facts and circumstances of the case, the ITAT was justified in law in deleting the addition of Rs. 69,62,000/- made by the Assessing Officer on account of remission of the principal amount of loan? This question turns on the interpretation of Section 28(iv) of the Income Tax Act, 1961. Assessee's Contention: The assessee argued that the remission of a principal loan amount obtained from financial institutions and banks does not constitute a benefit or perquisite arising from business and therefore does not fall within the ambit of Section 28(iv) of the Act. The assessee relied on various High Court judgments, including those from Bombay, Madras, and Gujarat, interpreting Section 28(iv) to exclude benefits in cash or money and requiring the benefit to arise from business. The assessee also referred to a decision of the Delhi High Court in CIT vs. Jindal Equipments Leasing and Consultancy Services Ltd. Revenue's Contention: The revenue supported the ITAT's judgment. It relied on Supreme Court decisions in Polyflex (India) Pvt. Ltd. vs. Commissioner of Income Tax and CIT vs. T.V. Sundaram Iyengar and Sons Ltd. These judgments dealt with situations where amounts received in the course of trading transactions or amounts that become the assessee's own money due to limitation or other rights are taxable.

Which sections of the Income-tax Act were involved?

Section 28(iv),Section 41(1),Section 28(i)

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. 87/2018 Pr. Commissioner Of IncomeTax, Jaipur-II, Jaipur. ----Appellant Versus M/s Modern Syntex (India) Ltd., A-4, Vijay Path, Tilak Nagar, Jaipur Raj ----Respondent For Appellant(s) : Mr. K. D. Mathur with Mr. Prateek Kedawat on behalf of Mr. R. B. Mathur For Respondent(s) : HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS

Judgment 12/04/2018

1.

By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal of the assessee.

2.

Counsel for the appellant has framed the following questions of law:- “Whether

in the facts

and circumstances of the case, the ITAT was justified in law in deleting the addition of Rs.6962000/- made by the Assessing Officer on account of remission of principal amount of loan. Whether

in the facts

and circumstances of the case, the ITAT was justified in holding that remission of principal amount of loan obtained from financial institution and banks, does not constitute a benefit or perquisite arising from business and does not fall within the ambit of Section 28(iv) of the Act.”

(2 of 7) [ITA-87/2018]

3.

The Tribunal has followed the judgment of this Court in Modern Syntex (india) Ltd., A-4, Versus Assistant Commissioner of Income Tax, Circle 6, Jaipur in D. B. Income Tax Appeal No.147/2010 & other connected matters, decided on 08.08.2017, which reads as under:-

1.

By way of these appeals, the appellants, in one appeal assessee and in another appeal the department, have challenged the judgment and order of the tribunal whereby the tribunal has partly allowed the appeal filed by the assessee and allowed the appeal of the department.

2.

This Court while admitting the Appeal No.147/2010 on 12.04.2010 has framed following substantial question of law:- “Whether the remission of principal amount of loan 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 Act?”

2.

1 While admitting Appeal No.123/2016 on 04.04.2017

has framed

following substantial question of law:-

“Whether in the facts and circumstances of the cae and inlaw, the ITAT was justified in deleting the additions of Rs.29,40,94,000/- made by the Assessing Officer on account of remission of principal amount of loan.”

3.

Learned counsel for the appellant submits in Tax Appeal No.145/2010 decided on 26.04.2017 alongwith other connected appeals. This court while deciding the appeal in favour of the assessee has held as under:-

4.

Counsel for the appellant contended as under:-

(3 of 7) [ITA-87/2018] "

7.

We do not find any merit in this preliminary submission of the learned Counsel for the assessee. The assessing officer had made the addition in terms of Section 41(1) of the Act read with Section 28(i) of the Act, which was upheld by the Commissioner (Appeals). No doubt, the Tribunal has held that Section 41(1) does not apply to which legal position is constituted (sic-conceded) by the learned Counsel for the revenue before us, the revenue still wants that the addition be sustained under provisions of Clause (iv) of Section 28 of the Act. The revenue is not disputing the facts on the basis of which decision of the Tribunal is based. Submission is that on these very facts, provisions of Section 28(iv) of the Act shall be attracted. It is a pure question of law and therefore, the amended ground as raised by the revenue can be allowed. The position in MCorp Global (P) Ltd. (supra) was entirely different. In that case, the transaction in question was treated as lease transaction in the earlier assessment years and depreciation was granted on that basis.

However,

in the assessment year in question, the same very transaction was treated as financial transaction and depreciation was disallowed. It was in this backdrop, the Supreme Court opined that the depreciation given to the assessee could not be withdrawn, (sic) when the finding of fact that the transaction in question was leased

and not financial transaction had become final and had not been challenged.

8.

With this, we proceed to examine this aspect on its own merit, viz., whether provisions of Section 28(iv) of the Act are attracted in the given case. Thus, what is to be seen is that as to whether the written off amount of Rs. 1,46,53,065 in its books of accounts by JSPL amounts to the value of any (4 of 7) [ITA-87/2018] benefit

or perquisite

whether convertible into money or not can be treated as "profits and gains from business". The prerequisites for attracting the said provisions are: (i) Benefit or perquisite arising in the course of business is of the nature, other than cash or money. It is for this reason expression "whether convertible into money or not" is mentioned in Clause (iv). Bombay High Court has interpreted this very Clause in the case of Mahindra & Mahindra Ltd. v. CIT MANU/MH/0199/2003 : (2003) 261 ITR 501 (Bom) in the following manner: The-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. Secondly, Section 28(iv) does not apply to benefits in cash or money see CIT v. Alchemic

(P)

Ltd. MANU/GJ/0053/1980 : (1981) 130 ITR 168 (Guj).”

4.

1 The same view taken by the Madras High Court in The Commissioner of Income Tax vs. M/s Innvol Medical India Ltd. (2013) 219 Taxman 123 (Mad); Iskraemeco Regent (2011) 331 ITR 317 (Mad); Mahindra and in ITA No.3704/2010 decided on 13.9.2012 and decision of Gujarat High Court in Commissioner of Income Tax-I vs. Gujarat it has observed as under:- “We are inclined to think that in a case where a statutory levy in respect of goods dealt in by the assessee

is discharged

and subsequently the amount paid is refunded, it is the first clause that (5 of 7) [ITA-87/2018] more appropriately applies. U will not be a case of benefit accruing to him on account of cessation or remission of trading liability. U will be a case which squarely falls under the earlier clause, namely, "obtained any amount in respect of such expenditure". In other words, where expenditure is actually incurred by reason of payment of duty on goods and the deduction or allowance had been given in the assessment for earlier period, the assessee is liable to disgorge that benefit as and when he obtains refund of the amount so paid. The consideration whether there is a possibility of the refund being set at naught on a future date will not be a relevant consideration. Once the assessee gets back the amount which was claimed and allowed as business expenditure during the earlier year, the deeming provision in Section 41(1) of the Act comes into play and it is not necessary that the Revenue should await the verdict of higher Court or Tribunal. If the Court or Tribunal upholds the levy at a later date, the assessee will not be without remedy to get back the relief.”

5.

1 He also relied upon the decision of wherein it has been held as under:- “The principle appears to be that if an amount is received in course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, commonsense demands that the amount should be treated as income of the assessee. The assessee had received deposits in course of its business which were originally treated as capital receipts. Some of the deposits were neither claimed by nor returned to the depositors. There is no dispute

(6 of 7) [ITA-87/2018] that the deposits were received in course of the carrying on of the business of the assessee. Although it was treated as deposit and was of capital nature at the point of time it was received, by influx of time the money has become the assessee's own money. What remains after adjustment of the deposits has not been claimed by the customers. The claims of the customers have become barred by limitation. The assessee itself has treated the money as its own money and taken the amount to its profit and loss account. There is no explanation from the assessee why the surplus money was taken to its profit and loss account even if it was somebody else's money. In fact, as Atkinson, J. pointed out that what the assessee did was the commonsense way of dealing with the amounts. Therefore, the amount was taxable as trade receipt in the hands of the assessee.”

6.

We have heard counsel for the parties.

7.

In view of the above, even otherwise the loan which was taken was capital investment and always treated in the capital account as liability and if it is so, it will naturally go as wiping out the capital liability.

8.

In that view of the matter, the contention taken by the appellant is required to be accepted. The view taken by the CIT(A) is required to be restored and that of the tribunal is required to be reversed.

9.

In view of the above, the issue is answered in favour of the assessee

and against

the department.

4.

In that view of the matter, issues in both the appeals are answered in favour of the assessee and against the department.

5.

The appeal of the assessee is allowed and that of the department is dismissed. “

(7 of 7) [ITA-87/2018]

4.

Hence no substantial question of law arises. The appeal stands dismissed. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J B.M.G/Gourav/87

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