ITO 8(3)(1), MUMBAI vs. SANTOGEN SILK MILLS LTD, MUMBAI
What did the Tribunal hold?
The Tribunal found that the nature of the loan (term loan for machinery vs. loan for stock-in-trade) is crucial. Since the AO did not ascertain this, the matter was restored to the AO to verify the utilization of the loan for capital assets or working capital.
What were the facts?
The Assessing Officer (AO) taxed the principal amount of a loan waiver under Section 28(iv) of the Income Tax Act. The assessee had already disclosed the interest waiver as income. The CIT(A) allowed relief to the assessee, relying on a previous tribunal decision for an earlier assessment year.
What were the issues?
Whether a loan waiver is taxable as business income under Section 28(iv), and if so, whether the nature and utilization of the loan are relevant factors.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cases cited in this judgment(4)Show listHide list
Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.
- CIT v. T.V. Sundaram Iyengar & Sons Ltd.223 citing222 ITR 344 · 1996 · SC · Read judgment
- Mahindra & Mahindra Ltd. v. CIT147 citing261 ITR 501 · 2003 · HC
- Solid Containers Ltd. v. DCIT74 citing308 ITR 417 · 2009 · HC
- CIT v. Ramaniyam Homes Pvt. Ltd.48 citing68 Taxmann.com 289 · 2016 · HC
Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SANJAY ARORA, AM & SHRI PAWAN SINGH, JM
सुनवाई क� तार�ख / : 30.5.2016 Date of Hearing घोषणा क� तार�ख / : 22.6.2016 Date of Pronouncement आदेश / O R D E R Per Sanjay Arora, A. M.: This is an Appeal by the Revenue directed against the Order by the Commissioner of Income Tax (Appeals)-18, Mumbai (‘CIT(A)’ for short) dated 04.12.2012, partly allowing the Assessee’s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for the assessment year (A.Y.) 2009-10 vide order dated 30.12.2011.
The Assessing Officer (A.O.), relying on the decisions in the case of Solid Containers Ltd. vs. Dy. CIT [2009] 308 ITR 417 (Bom) and CIT v. T. V. Sundaram Iyengar and Sons Ltd. [1996] 222 ITR 344 (SC), brought the principal amount of the (A.Y.2009-10) ITO vs. Santogen Silk Mills Ltd.
loan waiver of Rs.460.93 lacs – allowed to the assessee during the year by M/s. Karur Vyasa Bank Ltd. and Indian Bank (per the One Time Settlement Scheme (OTS) arrived at with them), to tax u/s. 28(iv) of the Act, which reads as under; the assessee having already disclosed the interest waiver of Rs.345.17 lacs allowed along with as income u/s.41(1), the same having been allowed as deduction for A.Y. 2008-09: ‘Profits and gains of business or profession 28. The following income shall be chargeable to income- tax under the head " Profits and gains of business or profession",- (i)……… (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession’ Without prejudice, he also invoked section 41(1) of the Act. The credit of the principal waived to the capital reserve account was found by him as of no moment. However, relying on the decision by the Tribunal in the assessee’s own case for A.Y. 2007-08, the ld. CIT(A) allowed relief to the assessee. Aggrieved the Revenue is in appeal.
The ld. Authorized Representative (AR) would before us submit that the issue stands covered in the assessee’s favour by the order by the tribunal for A.Y. 2007-08, since followed by the first appellate authority, so that the same be adopted for the current year as well. The ld. Deparmental Representative (DR), on the other hand, relied on the assessment order, adding that the issue is covered in favour of the Revenue by the decisions afore-referred.
We have heard the parties, and perused the material on record. We may, to begin with, reproduce the operative part of the impugned order: ‘6. Moreover, the Hon’ble Tribunal vide order dated 18.10.2012 has decided this issue in the case of the appellant for the A.Y. 2007-08 by holding as under: “We have perused the loan agreements filed in the Paper Book. It is found that loan from ICICI Bank Ltd. was a term loan for purchasing
(A.Y.2009-10) ITO vs. Santogen Silk Mills Ltd. machinery by the appellant-company. As far as loan from ADCB is concerned AR fairly conceded that said loan was against hypothecation of stock and not a term loan. He admitted that it was a revenue receipt. As the loan sanctioned by the ICICI Bank was not for carrying out business activity of the assessee ratio laid down by the Hon’ble Supreme Court and Hon'ble Bombay High Court in the cases of T. V. Sundaram Iyengar & Sons Ltd. (supra) and Solid Container Ltd. (supra) respectively are not applicable to the facts of the case under consideration. As far as loan from ADCB is concerned, we are of the opinion that same is taxable as it was advanced for stock in trade. In these circumstances, the waiver granted by the ADCB amounting to Rs.1.33 crore has to be taxed as taxable income for the year under consideration whereas waived amount of Rs.3.06 crores by ICICI Bank has to be excluded from the taxable income.” Since the facts of the present case are squarely covered by the decision of the Hon’ble Tribunal in assessee’s own case for A.Y. 2007-08, therefore, following the same decision the addition made by the Assessing Officer is deleted and ground of appeal is allowed.’ The decision by the tribunal for A.Y. 2007-08, insofar as it allows relief to the assessee, is based on the waiver of a term loan (from ICICI Bank) for the purchase of machinery. The same stands on a different footing, and is covered in the assessee’s favour by the decision in Mahindra & Mahindra Ltd. vs. CIT [2003] 261 ITR 501 (Bom), even otherwise binding on this tribunal. In fact, the tribunal has clearly held that the loan of ADCB, being toward stock-in-trade, the benefit arising on it’s waiver is taxable. There is no finding at any stage of the proceedings as to the profile of the loan/s waived, and the manner of its’ utilization, i.e., whether for capital asset/s or for working capital of the business, i.e., toward financing the same. The matter is accordingly restored back to the file of the A.O. to verify and examine the assessee’s claim/s as being either an advance for and utilized for the acquisition of capital assets and/or toward working capital or regular business purposes, so that it would stand to be assessed only in case of, and to the extent of the latter. No doubt, the Hon’ble High Court in CIT vs. Ramaniyam Homes (P.) Ltd. [2016] 68 taxmann.com 289 (Mad) has held that a loan/advance, even if for a capital asset, would on its’ waiver yield a (A.Y.2009-10) ITO vs. Santogen Silk Mills Ltd. benefit arising in the course of business, assessable u/s. 28(iv), the decision in Mahindra & Mahindra Ltd. (supra), being by the Hon'ble jurisdictional High Court, shall prevail. The said decision, as well as that in Solid Containers Ltd. (supra), stand in fact considered and endorsed by the said Court in CIT vs. Xylon Holdings Pvt. Ltd. (ITA No. 3704 of 2010). The A.O. shall, upon issuing his findings, decide the matter in terms of the decision by the Hon'ble jurisdictional High Court in Solid Containers Ltd. (supra) and/or, as the case may be, Mahindra & Mahindra Ltd. (supra). We decide accordingly.
5. In the result, the Revenue’s appeal is allowed for statistical purposes. Order pronounced in the open court on June 22, 2016 Sd/- Sd/- (Pawan Singh) (Sanjay Arora) �या�यक सद�य / Judicial Member लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated : 22.06.2016 व.�न.स./Roshani, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. आयकर आयु�त(अपील) / The CIT(A) 3. आयकर आयु�त / CIT - concerned 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER,
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