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Income Tax Appellate Tribunal, ‘SMC’ ‘C’ BENCH, CHENNAI
Before: Shri A. Mohan Alankamony
आदेश / O R D E R
This appeal by the assessee is directed against the order passed by the Ld. Commissioner of Income Tax (Appeals)-9, Chennai dated 20.02.2017 in for the assessment year 2007-08 passed u/s.250(6) r.w.s.143(3) of the Act.
The assessee has raised several grounds in its appeal, however the crux of the issue is that the Ld.CIT(A) has erred in upholding the addition made by the Ld.AO with respect to waiver of interest amounting to Rs.3,03,277/- by Nationalized bank as ‘income from other sources’.
The brief facts of the case are that the assessee is a limited company engaged in agricultural activities, filed its return of income for the assessment year 2007-08 on 28.10.2007 admitting ‘Nil’ income. Subsequently the case was selected for scrutiny under CASS and finally order was passed U/s.143(3) of the Act on 26.11.2009, wherein the Ld.AO treated the waiver of interest by Canara bank amounting to Rs.3,03,227/- as ‘income from other sources’. The Ld.AO opined that waiver of interest by the bank is a benefit accrued to the assessee and it is not derived from the business activity of the assessee. Therefore, the Ld.AO assessed the amount of Rs.3,03,227/- as the income of the assessee under the head ‘income from other sources’. On appeal, the Ld.CIT(A) upheld the order of the Ld.AO by observing as under:-
“6.3 Decision: 6.3.1 I have considered the observation of the AO in para 6.1 and the submission of the appellant in para 6.2. The appellant's contention is that. the expenditure incurred for earning agricultural income is not allowable expenses in the computation of total income, therefore, any remission by such expenditure is also not taxable. The appellant's contention is not acceptable. In the case of Ramaniyam Homes P. Ltd., 68 taxmann.com 289, the jurisdictional Madras High Court held that the waiver of a loan availed for acquiring a capital asset would amount to acquiring a benefit or perquisite which may not arise from 'the business' of the taxpayer but it certainly arises from "business". The High Court also held that there is no distinction between waiver of a loan taken for acquiring a capital asset and waiver of loan taken for trading activities and in accounting practice, such waiver would be either credited to P & L account or to the capital reserve and no such distinction exists.
6.3.2 In the case of the appellant, it is contended during the assessment proceedings as well as in the written submissions reproduced above that interest waiver is relating to the expenditure incurred for the business of agriculture and accordingly does not fall within the umbrella of Section 56. It is also contended that since income from business of agriculture is exempt, waiver relating to such business is also exempt. The submission of the appellant is legally incorrect. The income which is exempt u/s 10(1) is agricultural income arising out of agricultural operations. 'Trading in agricultural products is a business income which is assessable under the head income from business. The appellant refers to his activities as agricultural business and not agricultural operations; In that case, there is no question of exemption of agricultural business. Business income is always taxable even if agricultural products are traded. Agricultural income is not a business income, but such agricultural income only refers income arising from agricultural operations. Therefore, the AO is directed to ascertain the nature of activities. If the activities are business in nature, then the judgment of Madras High Court in the case of Ramaniyam Homes P. Ltd., is applicable and the waiver of interest arising from business is taxable u/s 28(iv) of the Act. If the activities are mere agricultural operations, the principle laid out in Ramaniyam Homes P. Ltd., is still applicable and the waiver of interest arising from non-business activity must be taxable under U1e head income from other sources. The appellant's reliance placed on the decision by Calcutta High Court in the case of B. Gupta (Tea) P. Ltd., is not applicable because in that case the High Court held that the sum received from the insurance company in respect of damages caused by hailstorm to growing crop belonging to the assessee represents agricultural income. The facts are not similar. This is not a case of either waiver of interest or loan.
6.3.3 In view of the above, subject to the directions given para 6.3.2, the addition of Rs.3,03,227/- is confirmed.”
Before us the Ld.AR submitted that the assessee is engaged only in agricultural activity and the loan obtained from the bank is also for agricultural operations. Since agricultural income is exempt from tax, the assessee is not liable to be taxed with respect to the waiver of interest because the loan amount was utilized for the assessee’s agricultural activities. The Ld.AR therefore pleaded that the addition made by the Ld.AO which was subsequently upheld by the Ld.CIT(A) may be deleted. The Ld.DR on the other hand relied on the orders of the Ld.Revenue authorities.
I have heard the rival submissions and carefully perused the materials available on record. From the facts of the case, it is apparent that the assessee is only carrying out agricultural operations, which is not disputed by the Ld.Revenue authorities. Therefore it is further evident that the assessee had not claimed the interest charged by the bank as expenditure which is allowable as deduction under the provisions of the Act. Hence, it cannot be said that the assessee had received any tangible benefit on the waiver of loan by the bank. In fact, the waiver of loan by the bank in the case of the assessee is only a notional 6 benefit and such notional benefit cannot be treated as income under the provisions of the Act. Further, I’m of the view that the decision cited by the Ld.CIT(A) is not relevant to the case of the assessee because in that case the assessee was carrying on business activity, the income arising out of which is taxable and the interest payable was claimed as allowable deduction. Therefore I hereby direct the Ld.AO to delete the addition made by him with respect to the waiver of interest amounting to Rs.3,03,227/-.
In the result, appeal of the assessee is allowed.
Order pronounced on the 23rd August, 2017 at Chennai.