TMI Blog2013 (7) TMI 701X X X X Extracts X X X X X X X X Extracts X X X X ..... iture is held to be revenue in nature incurred wholly and exclusively for the purpose of business, it can be allowed in its entirety in the year in which it is incurred - when the spreading is done for over a period of six years and as the assessee respondent has no objection to such revenue expenditure being spread out, though it could have insisted for this amount to be allowed in the year under consideration, with no such objection having been raised, the Revenue would not succeed in this issue as the expenditure is held to be revenue in nature - Following decision of Madras Industrial Investment Corporation Limited Versus Commissioner of Income-Tax [1997 (4) TMI 5 - SUPREME Court] - Decided against Revenue. Income u/s 28(iv) - Held that:- If an amount is received in the course of a trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, common sense demands that the amount should be treated as income of the assessee - As the assessee company was not f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that waiver of such loans received in the course of business constitutes income receipt on being written off, by virtue of section 28(1) itself ? 2. We have exhaustively heard Shri K.M. Parikh, learned counsel appearing on behalf of Revenue and Shri Manish J. Shah, learned counsel appearing on behalf of respondent Assessee and with their assistance examined the orders of the Revenue authorities and other material brought on record. 3. The first question concerns disallowance made by the Assessing Officer of the sum of Rs.91.80 lakh under Section 14A of the Act towards interest and other expenses incurred in relation to exempted income of dividend. The Assessing Officer on the ground that the respondent assessee utilised the interest bearing borrowed funds for nonbusiness purpose disallowed such expenses to the tune of 10% of the dividend income. The Assessing Officer was of the opinion that the onus was not discharged by the respondent assessee to establish that the investment made which earned dividend which has been received during the Assessment Year 20042005, was out of its own funds and no borrowed funds have been utilised for making such investment on the basis of cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt's case, it is held that the Assessing Officer has failed to clearly show that any particular expenditure was incurred by the appellant to earn the exempt dividend income. Under the circumstances, the adhoc disallowance made of Rs.91,80,000/u/ s.14A of the Act is cancelled. 3.2 The Revenue challenged this ground before the Tribunal. The Tribunal was of the firm opinion that the respondent assessee's own funds were higher than the investment made by the respondent assessee and, therefore, it was not possible to hold that the interest bearing funds were diverted for making investment in shares and, therefore, under Section 14A of the Act, it held that there was no question of disallowance in respect of interest expenditure. For other expenses, the request was made for restoring the matter back to the Assessing Officer, however, the respondent assessee with a view to put an end to the entire dispute had agreed with disallowance of Rs.5 lakh, which according to the Tribunal was meeting the ends of justice and, therefore, the Tribunal had confirmed disallowance of Rs.5 lakh in respect of administrative expenses. 3.3 The learned counsel Shri K.M. Parikh appearing on behalf of Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree to adopt any reasonable and acceptable method. So, even for the preRule8D period, whenever the issue of section 14A arises before an Assessing Officer, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the said Act. Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the assessing officer will have to verify the correctness of such claim. In case, the assessing officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the assessing officer is to accept the claim of the assessee insofar as the quantum of disallowance under section 14A is concerned. In such eventuality, the assessing officer cannot embark upon a determination of the amount of expenditure for the purposes of section14A(1). In case, the assessing officer is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds for earning dividend during the assessment year under question. The dividend income earned was of Rs.9.8 crores and the estimate of expenditure was assessed at the rate of 10% of the total income. Had the Revenue been successful in establishing that the assessee had incurred the expenses to earn the dividend income from the borrowed funds, the entire discussion of application of Section 14A of the Act could be understood. However, when both the CIT (Appeals) and the Tribunal have noted that the assessee had sufficient funds available with it, which was more than the amount it invested for earning the dividend income, both these authorities have correctly approached the issue by setting aside the order of disallowance under Section 14A of the Act in respect of interest expenditure. When the very basis for employing Section 14A of the Act on factual matrix is lacking, the disallowance to the extent of 10% of dividend income was not permissible. When it transpires from record that the assessee's own funds were at higher than the investment made by it and with nothing to indicate that the borrowed funds were utilised for the purpose of investment in shares and for earning dividends, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said amount as business expenditure. It was held by the Apex Court that the amount spent was not in the nature of capital expenditure and was laid out or expended wholly and exclusively for the purpose of the assess's business and was therefore allowable as a deduction under section 10(2)(xv) of the Indian Incometax Act, 1922. The act of borrowing money was incidental to the carrying on of business, the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period, and it was irrelevant to consider the object with which the loan was obtained. 4.1 The assessee on being aggrieved by such order travelled to the CIT (Appeals), which considered this issue in detail. It noticed that the amount of Rs.60.13 crore had been waived under the CDR and interest had also been reduced for the financial year 20032004. The CIT (Appeals) on discussing various case laws held that the same cannot be considered to be having any enduring benefits. 4.2 The Tribunal on this very issue relied on the decision of the Madras Industrial Investment Corporation Ltd. v. CIT, reported in 225 ITR 802, wherein the similar quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture is held to be revenue in nature. Thus, the second question also does not merit any consideration. 5. The third question pertains to excluding the waived amount of Rs.60.13 crore out of the principal loans. What is found is that the Assessing Officer dismissed the claim of the respondentassessee of Rs.60.13 crore as a capital receipt essentially on two grounds. Firstly that the waiver of the principal amount of loan had made assessee richer by that amount and secondly, the liability to pay had seized. Therefore, this being a benefit or perquisite arising from the business, this has to be construed as an income under Section 28(iv) of the Act. A strong reliance was placed by the assessee on the decision of this Court rendered in the case of CIT v. Chetan Chemicals Pvt. Ltd., reported in 267 ITR 770 (Guj.). Assessing Officer, however, relied on the decision in the case of Commissioner of Income Tax v. T.V. Sundaram Iyengar and Sons Ltd., reported in 222 ITR 344, wherein the Apex Court held : If an amount is received in the course of a trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also fully applies to the facts of the appellant's case. In view of these circumstances, I am convinced that the amount of loans of Rs.60.13 crore waived by the financial institutions cannot be brought to tax as income u/s.28(iv) r.w.s. 41(1) of the IT Act. The addition so made of Rs.60.13 crore is, therefore, cancelled. 5.4 This issue was carried to the Tribunal. The Tribunal also concurred with the findings of the CIT (Appeals) in the following manner : 37. We have considered the rival submissions, perused the materials on record and gone through the orders of authorities below. We find that in the case of T.V. Sundaram Iyengar And Sons Ltd. (supra) the issue involved was regarding an amount received in the course of trading transaction even though it was not taxable in the year of receipt as being of revenue character. This dispute in that case was regarding credit balance outstanding in the name of customer of the assessee. Under these facts, it was held by Hon'ble Apex Court in that case that since amount in question was received in course of business transaction, the same is taxable when the liability seized to exist. In the present case, the facts are different. The am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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