PR. COMMISSIONER OF INCOME TAX vs. M/S MODERN THREADS (INDIA) LTD.

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ITA/285/2018HC RajasthanRJHC02088076201804 October 2019Bench: 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 (Appeal Nos. 266/18 and 267/18) and dismissed the appeals filed by the revenue (Appeal Nos. 270/18, 285/18, 286/18, and 295/18). The Court held that the remission of the principal amount of loans obtained from financial institutions and banks does not constitute a benefit or perquisite arising from business that would fall within the ambit of Section 28(iv) of the Act. The reasoning was based on the principle that Section 28(iv) applies to benefits or perquisites arising from business, and it does not apply to benefits in cash or money. The Court followed its own previous judgment in Modern Denim Ltd. vs. Assistant Commissioner of I.T., Jaipur, which in turn relied on the Bombay High Court's decision in Mahindra and Mahindra Ltd. vs. Commissioner of Income Tax, a decision that was upheld by the Supreme Court. The ratio decidendi is that a waiver of a loan principal by a financial institution is not income taxable under Section 28(iv) as it is not a benefit or perquisite arising from business in the manner contemplated by the section.

What were the facts?

The appeals before the High Court involved multiple assessment years and concerned the taxability of loan amounts waived by banks/financial institutions and written back by the assessees. The Income Tax Appellate Tribunal (ITAT) had remitted the issue to the Assessing Officer for verification in some cases. In other cases, the ITAT had remitted the matter back to the CIT(A), who had previously deleted the addition made by the Assessing Officer. The assessees had argued that the waiver of loan liability did not constitute income taxable under Section 28(iv) of the Income Tax Act, 1961. The revenue contended that such waivers were benefits arising from business.

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? Assessee's contentions: The assessee argued that the remission of loan liability on account of waiver from banks/financial institutions does not constitute income taxable under Section 28(iv) of the Act. They relied on the judgment of the High Court in their own case, Modern Denim Ltd. vs. Assistant Commissioner of I.T., Jaipur, D.B. Income Tax Appeal No.145/2010 and other connected matters dated 26.4.2017, which followed the Bombay High Court's decision in Mahindra and Mahindra Ltd. vs. Commissioner of Income Tax. Revenue's contentions: The revenue contended that such waivers are benefits arising from business and are therefore taxable under Section 28(iv) of the Act.

Which sections of the Income-tax Act were involved?

Section 28(iv)

AI-generated summary — verify with the full judgment below

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 same back to the total income of the assessee. Learned counsel for the parties are ad idem that the substantial questions of law involved in this matter are squarely covered by the judgement of this Court in Modern Demin Ltd. vs. Assistant Commissioner of I.T., Jaipur, D.B. Income Tax Appeal 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 and would fall within the ambit of Section 28(iv) of the Act. This Court in the aforesaid judgement while allowing the appeals filed by the assessee reversed the judgement of the Income Tax Appellate Tribunal and restored the view taken by the CIT(A) following the judgement of Bombay High Court in Mahindra and Mahindra Ltd. vs. Commissioner of Income Tax and 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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