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2013 (1) TMI 289 - ITAT DELHIAdditions on loan converted into shares - CIT(A) deleted the addition made on account of waived loan u/s 28(iv) - Assessee Company was joint venture between Fortune Oceanic Products Limited & M/s Ookean Ltd., a Govt. owned trading organization of Estonia (Russia) - Held that:- The loan was taken for acquiring the capital asset in the form of trawlers. This loan was taken from Ookean Ltd. who is also a joint venture partner in the company. This loan was carrying on interest @ 6%. The interest accrued up to 31.03.1995 was taken into account. Thereafter, this amount remained unchanged. Since assessee incurred heavy losses the loan could not be repaid. The capital asset in the form of trawler was registered in assessee’s name and reflected in the books of account of the assessee and the same was used for business purposes. This amount was converted into the shares and share premium & was not taken to the profit & loss account. Therefore, this amount has not changed its character from capital to revenue. The liability was not ceased. The assessee has not derived any benefit out of this conversion of one liability to another liability. The ratio laid down in the case of T.V. Sundaram Iengar and Sons [1996 (9) TMI 1 - SUPREME COURT] is not applicable to the facts of the assessee’s case as decision of the Higher Forum cannot be made applicable without discussing the factual position involved - AO has invoked section 28(iv) which covers the benefits in perquisites received in kind and it has no applicability to any transaction which involves money. The loan was taken to invest in the capital asset. There was no waiver of the loan, therefore, conversion of the loan into share capital shall not constitute a trading receipt. As held in the case of CIT vs. Jindal Equipments Leasing and Consultancy Services Ltd. [2009 (12) TMI 364 - DELHI HIGH COURT] to attract the provisions of section 28(iv), the sum in question must be a benefit or perquisite arising in the course of business is of nature, other than cash or money. Keeping these facts in view, no fault in the order of CIT (A). Addition on account of share application money u/s 28 (iv) - CIT(A) deleted the addition - Held that:- The amount of Rs.5,43,50,000/- was pending for allocation of shares to Ookean Limited since 1995. During the year under consideration, the company has allotted shares. The outstanding share application money has not been carried out to the profit & loss account, thus in such a situation, the provisions of section 28(iv) cannot be made applicable - no fault in the order of CIT (A). Addition on account of cessation of liabilities u/s 41 - CIT(A) deleted the addition - Held that:- The amount of outstanding liability of Rs.67,75,839/- has been converted into the share capital plus premium. The creditors have confirmed the allocation of the shares in their favour. Conversion of the outstanding liability into shares cannot be termed as cessation of liability. Thus no fault in the order of the CIT (A). Applicability of ratio of decision of Hon'ble Supreme Court in the case of Mcdowell & Company [1985 (4) TMI 64 - SUPREME COURT] - revenue appeal that CIT(A) erred in allowing the relief on these three counts above and assessee company having accumulated losses exceeding Rs.20 crores allotted shares of face value of Rs.10 at a hefty premium of Rs.146.51 - Held that:- Reliance placed by the revenue on the case of Mcdowell & Co. cited supra has been considered in the case of Azadi Bachao Andolan vs. UOI [2003 (10) TMI 5 - SUPREME COURT] wherein held that if the court finds that notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the court might be justified in overlooking the intermediate steps, but it would not be permissible for the court to treat the intermediate legal steps as non est based upon some hypothetical assessment of the real motive of the assessee. Hon’ble Supreme Court also held that the Courts must dealt with what is tangible in an objective manner and cannot afford to chase a will of the wisp - order of CIT (A) confirmed - appeal of revenue dismissed.
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