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PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
These three appeals are by three different assessees against three separate orders of the Ld. CIT(A), pertaining to AY 2015-16.
Representatives of both sides agreed that the underlying facts in the issues are identical in respect of the all appellants. On such concession, we heard the appeal in ITA No.2320/Del/2019.
Briefly stated the facts of the case are that the opening capital of the assessee during the year under consideration was (-)60,49,227/- which became Rs.(-)
31,30,15,182/- at the end of the year. The Assessing Officer found that the capital of the assessee has increased by Rs.2,91,90,644/-. When asked, the assessee explained that the main factors for increase in the capital are current year’s business income of Rs.14,63,875/- and a sum of Rs.2,31,98,954/- which was written off out of ABN AMRO’s loan account. The assessee explained that the offer letter from the M/s Roayl Bank of Scotland dated 23/01/2012 for one time settlement of the loan was accepted. On perusal, the AO found that the assessee has taken loan jointly with his brother Shri Sunil Bansal and Pawan Bansal (other two appellants under consideration). The AO further observed that the total outstanding balance in the loan account was Rs.1532.79 lakh which comprising of principal of Rs.1342.52 lakhs and unpaid interest of Rs.190.27 lakhs . The AO further noticed that the bank had given offer to pay a sum of Rs.706.23 lakh in full and final settlement of complete outstanding amount.
According to the AO, the total outstanding balance of the loan related to the assessee was Rs.384.91 lakhs and the assessee has transferred waived off amount of Rs.2,31,98,954/- in the capital account of the assessee, therefore, the assessee was asked to explain why waived the amount should not be treated as income u/s 28(iv) of the Income Tax Act, 1961 (hereinafter ‘ the Act’).
The assessee filed a detailed reply claiming that the provisions of section 28(iv) of the Act did not apply on the facts of the case and in support of relied upon several judicial decisions.
After considering the submissions of the assessee, the AO was of the opinion that the provisions of section 28(iv) of the Act squarely apply on the facts and heavily drawing support from the decision of the Hon’ble Supreme Court in the case of T.V. Sundaram Iyengar & Sons. The AO made the addition of Rs.2,31,98,954/-. The assessee carried the matter before the Ld. CIT(A) but without any success.
Before the Ld. CIT(A), reliance was placed on the decision of the Hon’ble Supreme Court in the case of Mahindra & Mahindra Mills Ltd. However, the ld. CIT(A) was convinced that the facts of Mahindra & Mahindra Mills Ltd. are clearly distinguishable from the facts of the assessee’s case and drawing support from the decision of the Hon’ble Supreme Court in the case of T.V. Sundaram Iyenger & Sons confirmed the additions made by the AO.
Before us, the counsel for the assessee reiterated that the provisions of section 28(iv) of the Act apply on the facts of the case in hand and once again relied upon the decision of the Hon’ble Supreme Court in the case of Mahindra & Mahindra Mills Ltd. 404 ITR 1.
Per Contra, the Ld. DR strongly supported the findings of the Ld. CIT(A).
We have given a thoughtful consideration to the orders of the authorities below. In our considered opinion, the decision of the Hon’ble Supreme Court relied upon by the Ld. AO and upheld by the ld. CIT(A) in the case of T.V. Sundaram Iyenger is misplaced and has been wrongly applied. In our considered view that applicability of section 28(iv) of the Act has been discussed by the Hon’ble Supreme Court in the case of Mahindra & Mahindra Mills Ltd. 404 ITR 1, wherein, the Hon’ble Supreme Court has reversed the decision of the Hon’ble Madras High Court in case of CIT vs Ramaniyam Homes Pvt. Ltd. 384 ITR 530. The relevant findings of the Hon’ble Supreme Court read as under:-
12) The first issue is the applicability of Section 28 (iv) of the IT Act in the present case. Before moving further, we deem it apposite to reproduce the relevant provision herein below:- “28. Profits and gains of business or profession.—The following income shall be chargeable to income-tax under the head “Profits and gains of business profession”,-- x x x (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; ” 13) On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record that the amount of Rs. 57,74,064/- is having received as cash receipt due to the waiver of loan. Therefore, the very first condition of Section 28 (iv) of the IT Act which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the present case. Hence, in our view, in no circumstances, it can be said that the amount of Rs 57,74,064/- can be taxed under the provisions of Section 28 (iv) of the IT Act. 14) Another important issue which arises is the applicability of the Section 41 (1) of the IT Act. The said provision is re-produced as under:
“41. Profits chargeable to tax.- (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,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or ” 15) On a perusal of the said provision, it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under Section 41 of the IT Act. The objective behind this Section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. It is undisputed fact that the Respondent had been paying interest at 6 % per annum to the KJC as per the contract but the assessee never claimed deduction for payment of interest under Section 36 (1) (iii) of the IT Act. In the case at hand, learned CIT (A) relied upon Section 41 (1) of the IT Act and held that the Respondent had received amortization benefit. Amortization is an accounting term that refers to the process of allocating the cost of an asset over a period of time, hence, it is nothing else than depreciation. Depreciation is a reduction in the value of an asset over time, in particular, to wear and tear. Therefore, the deduction claimed by the Respondent in previous assessment years was due to the deprecation of the machine and not on the interest paid by it. 16) Moreover, the purchase effected from the Kaiser Jeep Corporation is in respect of plant, machinery and tooling equipments which are capital assets of the Respondent. It is important to note that the said purchase amount had not been debited to the trading account or to the profit or loss account in any of the assessment years. Here, we deem it proper to mention that there is difference between ‘trading liability’ and ‘other liability’. Section 41 (1) of the IT Act particularly deals with the remission of trading liability. Whereas in the instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, we find no force in the argument of the Revenue that the case of the Respondent would fall under Section 41 (1) of the IT Act. 17) To sum up, we are not inclined to interfere with the judgment and order passed by the High court in view of the following reasons: (a) Section 28(iv) of the IT Act does not apply on the present case since the receipts of Rs 57,74,064/- are in the nature of cash or money.
(b) Section 41(1) of the IT Act does not apply since waiver of loan does not amount to cessation of trading liability. It is a matter of record that the Respondent has not claimed any deduction under Section 36 (1) (iii) of the IT Act qua the payment of interest in any previous year. 18) In view of above discussion, we are of the considered view that these appeals are devoid of merits and deserve to be dismissed. Accordingly, the appeals are dismissed. All the other connected appeals are disposed off accordingly, leaving parties to bear their own cost.
A similar view was taken by the Hon’ble High Court of Bombay in the case of CIT vs Xylon Holdings (P.) Ltd. [2012] 211 taxman 108 (Bom.), wherein, Hon’ble Bombay High Court has not only considered the judgment of Hon’ble Supreme Court in the case of Mahindra & Mahindra Mills Ltd. but has also considered the decision in the case of T.V. Sundaram Iynger, the relevant findings of the Hon’ble Bombay High Court read as under:-
“4) The Commissioner of Income Tax (Appeals) by an order dated 31/10/2008 allowed the respondent-assessee's appeal. The Commissioner of Income Tax (Appeals) held that the liability to repay a loan taken towards the purchase of a motor car which had ceased cannot be subjected to tax. This is for the reason that the extinguishment of the loan which was taken for the purchase of a capital asset like a motor car is not a revenue receipt. Hence, the same is not taxable. 5) The appeal by the revenue to the Tribunal on the aforesaid issue was dismissed by an order dated 13/8/2009. The Tribunal held that the cessation of liability to repay a loan taken to purchase a capital asset does not result in a revenue receipt. Further, the amount of Rs.29.17 lacs was not taxable under Section 41(1) of the Act as the same was not an expenditure incurred in the earlier years. The issue according to the Tribunal was covered in favour of the respondent-assessee by a decision of this Court in the matter of Mahindra and Mahindra Ltd. v. Commissioner of Income Tax reported in 261 ITR 501. Consequently, the Tribunal held that amount of Rs.29.17 lacs is not taxable either under Section 41(1) or 28(iv) of the Act. 6) In support of the appeal, Mr. Vimal Gupta, the learned Counsel for the revenue contends that the decision in the matter of Mahindra and Mahindra Limited (supra) would not be applicable in view of the subsequent decision of this Court in the matter of Solid Containers Ltd. v. Deputy Commissioner of Income Tax reported in 308 ITR 407. In the above case, this Court has distinguished the decision rendered in the matter of Mahindra and Mahindra Limited (supra) and held that waiver of loan taken for trading activity would become the assessee's income and be subject to tax. Alternatively, Mr. Gupta submits that the loan amount written off would be taxable under Section 28(iv) of the Act as a benefit arising from business. 7) As against the above, Mr. Pardiwalla, Counsel for the respondent-assessee submits that the issue arising in this appeal would stand covered by the decision of this Court in the matter of Mahindra & Mahindra Ltd. (supra). According to him, the decision of this Court in the matter of Solid Containers (supra) is not applicable as in that case the loan was taken for business purposes and not for purchase of a capital asset as in this case. So far as the alternative submission is concerned, Mr. Pardiwalla submits that Section 28(iv) of the Act would not apply to any benefit received in cash or money as in this case. This issue according to Mr. Pardiwalla is also covered by the decision of this Court in the matter of Mahindra & Mahindra Ltd. (supra).Therefore, he submits that the appeal should not be entertained. 8) We have considered the submissions. The issue arising in this case stand covered by the decision of this Court in the matter of Mahindra & Mahindra (supra).The decision of this court in the matter of Solid Containers (supra) is on completely different facts and inapplicable to this case. In the matter of Solid Containers (supra) the assessee therein had taken a loan for business purpose. In view of the consent terms arrived at, the amount of loan taken was waived by the lender. The case of the assessee therein was that the loan was a capital receipt and has not been claimed as deduction from the taxable income in the earlier years and would not come within the purview of Section 41(1) of the Act. However, this Court by placing reliance upon the decision of the Apex Court in the matter of CIT v. T.V. Sundaram Iyengar and Sons Ltd. 222 ITR 344 held that the loan was received by the assessee for carrying on its business and therefore, not a loan taken for the purchase of capital assets. Consequently, the decision of this Court in the matter of Mahindra and Mahindra Limited (supra) was distinguished as in the said case the loan was taken for the purchase of capital assets and not for trading activities as in the case of Solid Containers Limited (supra). In view of the above, the decision of this Court in the matter of Solid containers Limited (supra) will have no application to the facts of the present case and the matter stands covered by the decision of this Court in the matter of Mahindra & Mahindra Limited (supra). The alternative submission that the amount of loan written off would be taxable under Section 28(iv) of the Act also came up for consideration before this Court in the matter of Mahindra & Mahindra Limited (supra) and it was held therein that Section 28(iv) of the Act would apply only when a benefit or perquisite is received in kind and has no application where benefit is received in cash or money. 9) In view of the issue arising in this appeal being covered by the decision of this Court in the matter of Mahindra & Mahindra Ltd.(supra), no substantial question of law arises and both the questions are dismissed 12. As mentioned elsewhere, the Ld. CIT(A) has incorrectly applied the ratio laid down by the Hon’ble Supreme Court in the case of T. V. Sundaram Iyenger 222 ITR 344 whereas the ratio laid down by the Hon’ble Supreme Court in the case of Mahindra & Mahindra Mills Ltd. (supra) squarely applied on the facts of the case in hand and also the decision of the Hon’ble Bombay High Court in the case of Xylon Holdings (P.) Ltd. (supra).
Considering the totality of facts in the light of ratio laid down by the Hon’ble Supreme Court in the case of Mhaindra & Mahindra Mills Ltd. (supra), we direct the AO to delete the impugned disallowance from the hands of the all the appellants.
In the result, captioned appeals are allowed. The order is pronounced in the open court on 02/08/2019 Sd/- Sd/- [SUCHITRA KAMBLE] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER Delhi; Dated: 02/08/2019. P.S f{x~{tÜ? f{x~{tÜ? fÜA f{x~{tÜ? f{x~{tÜ? fÜA fÜA P.S fÜA P.S P.S Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR