TMI Blog2007 (2) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... ined earnings directly or indirectly, hence, on this count also the address of capital reserve created by the assessee cannot be termed as income. All the receipts mentioned in section 28 have inherently of income nature except in case or receipt under a Key Man Insurance Policy which is a recovery of expenditure already allowed as deduction. Hence, prima facie, the loan received by an assessee in the course of business is not envisaged an income. Now, coming to specific provisions of sub-section (iv) of section 28 it is also in connection with the value of any benefit or perquisite arising from business which means that such benefit or perquisite should be in the nature of income from the very beginning or it must have characteristics of income before it becomes chargeable at a later stage, if the original transaction is completed as designed. As stated that no material has been brought on record to show that the loan agreements provided for such waiver at subsequent stages, hence, this receipt cannot be construed as a benefit within the meaning of section 28( iv ) of the Act. In the present case, the assessee has not such special right or privilege. The only privilege wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case of T.V. Sundaram Iyengar Sons. Ltd. ( supra ) was not applicable. The assessee also submit- ted that in the case of the assessee no deduction was either claimed or allowed earlier, hence, provisions of section 41(1) were also not applicable. The Assessing Officer, however, held that the borrowing of loan, though not a trading receipt, but it was a receipt of the assessee-company in the ordinary course of its business and also the fact that it was not credited in the P L account made no difference. The Assessing Officer, accordingly, held that if it was liable to be treated as income of the assessee under section 28( iv ) of the Act. Aggrieved by this, the assessee carried the matter into the appeal before the learned CIT(A) wherein, the assessee pointed out that the assessee had borrowed interest-free loan from Industrialisation fund for Developing Countries and Palsgaard Industry in 1991-92 which was utilized to repay the overdraft liabilities of the banks and other current liabilities. Subsequently, when the assessee was not in a position to repay the loan due to continuous losses, it requested the Financial Institutions for waiver of loan who remitted Rs. 92,45,61 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8( iv ) are not applicable. It was also pointed out that the amount of remission was directly transferred to capital reserve without routing the same through P L account and these two facts clearly distinguished this case from the case of T.V. Sundaram Iyengar Sons Ltd. ( supra ). The learned counsel further contended that in the present case it was a positive act of remission and such remission was duly approved by the Reserve Bank of India (RBI) unlike claim becoming time-barred by way of limitation in the case of T.V. Sundaram Iyengar Sons Ltd. ( supra ). The learned counsel further contended that decision of the Hon ble Supreme Court was not an authority for applicability of provisions of section 28( iv ) of the Act. The learned counsel, once again reiterated that all transactions of business might not necessarily be of the nature of trading operations whereas all transactions of trading operations would necessarily be part of the business and in the case of T.V. Sundaram Iyengar Sons Ltd. ( supra ) the Hon ble Apex Court was concerned with the transactions of the nature of trading operations, hence, the present case was clearly distinguishable on this count also. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments by stating that in the case of Mahindra Mahindra Ltd. ( supra ) the Hon ble jurisdictional High Court had not considered the decision of the Hon ble Supreme Court in the case of T.V. Sundaram Iyengar Sons Ltd. ( supra ), hence, that this decision could not be treated as conclusive on this issue. The learned Departmental Representative further emphasised on the fact that what was important was the fact that these monies were received in the course of business and referred to the observations of Hon ble Supreme Court at page 353 of the report in the case of T.V. Sundaram Iyengar Sons Ltd. ( supra ) to contend that although the Hon ble Court generally observed that the money was received in the course of trading transactions but the conclusive observations were that the money was so received in the course of carrying of his business, hence, ultimately the ratio of this decision was to be read in the sense what could be logically deduced from the decision. The learned Departmental Representative placed strong reliance on the decision of Hon ble jurisdictional High Court in the case of CIT v. Ratilal Bacharilal Sons [2006] 282 ITR 457 (Bom.) for this propositio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as taxable in the year of credit of the same to the P L account. However, the issue before us is strictly with reference to the applicability of provisions of section 28( iv ) of the Act, hence, we are eventually required to deal with this section only. However, before proceeding with the matter on this aspect, we would prefer to deal with the findings of the learned CIT(A) that even if the amount was of capital nature originally but it changed its character to revenue nature by positive act of remission. If this view is accepted then there can be some other consequences in the sense that concept of capital receipt v. revenue receipt or capital loss v. revenue loss would become meaningless and also the scheme of the Act to tax receipts of revenue nature as income except capital receipt as capital gains in specified case would also become meaningless. For example, at present business losses of revenue nature are allowed in computing the business income, however, business losses of capital nature are not so set-off. In case an assessee gives an advance for purchase of capital asset and i.e. not received back by the assessee in nor any machinery is supplied by the other party, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not the money received in the course of trading operations. We find it difficult to accept this proposition. We have gone through the decision in the case of T.V. Sundaram Iyengar Sons Ltd. ( supra ) and it is observed that the Assessing Officer in that case had held that surplus had arisen as a result of trade transactions, the amount had a character of income and had to be added as income of the assessee for the purpose of the income-tax assessment. However, the learned CIT(A) had held that in the first instance, these amounts were not revenue receipts, but were capital receipts which was negatived by the Tribunal. Thus, the fact that these receipts arose from trading operations was never under any dispute and the only question which was referred to was whether in spite of arising from trading transactions and not being of the revenue nature at the point of receipt, could such receipts would change its character on its remission. Thus, it was not a case of change of character if original receipt which was of capital nature initially and was not a part of trading transactions. Accordingly, we are of the view that the observations of the Hon ble Apex Court cannot be given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. Now, coming to specific provisions of sub-section ( iv ) of section 28 it is also in connection with the value of any benefit or perquisite arising from business which means that such benefit or perquisite should be in the nature of income from the very beginning or it must have characteristics of income before it becomes chargeable at a later stage, if the original transaction is completed as designed. As stated earlier that no material has been brought on record to show that the loan agreements provided for such waiver at subsequent stages, hence, this receipt cannot be construed as a benefit within the meaning of section 28( iv ) of the Act. Further, the words "benefit" or "perquisite" have been used in this sub-section, which have to be read together and would draw colour from each other. Normally, the term "perquisite" denotes meeting out of an obligation of one person by another person either directly or indirectly or provision of some facility or amenity by one person to another person and from the very beginning, the person providing such facilities or concessions knows that whatever is being done is irretrievable to him as it has been granted to a person as a privil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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