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The Commissioner of Income Tax-8, Mumbai Versus Perfect Thread Mills Pvt Ltd, Mumbai

2015 (8) TMI 19 - BOMBAY HIGH COURT

Principal amount of loans waived off by the financial institutions / banks - whether do not represent the assessee's taxable income in terms of Section 41(1) r.w.s.28(iv) as the loans were taken for the purpose of acquisition of capital assets? - Held that:- Be that as it may, the loan being taken was undisputedly in the Capital field then its waiver should also be in the Capital field. The sine quo non for application of Section 41(1) of the Act is that a deduction must have been claimed by ass .....

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r money. In this case also the waiver of loan is not a benefit or perquisite in kind but the right to recovery money of ₹ 79.81 lakhs is given up. Thus the issue stands concluded by the decision of this Court in Mahindra & Mahindra and the addition of Explanation 10 to Section 43 of the Act, does not in any manner impact the binding nature of this Court's order in Mahindra and Mahindra.

Loan amount had been taken for the purchase of machinery / fixed assets being on capital acco .....

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. The impugned order relates to the Assessment year 2009-2010. 2. Mr.Pinto learned counsel for the Revenue urges the following question for our consideration, as question of law. "Whether, in the facts and circumstances of the case and in law, the Tribunal was justified in upholding the view of the CIT(A) that the principal amount of loans waived off by the financial institutions / banks do not represent the assessee's taxable income in terms of Section 41(1) r.w.s.28(iv) of the Act as .....

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t Assessee had entered into one time settlement with it's creditors viz.financial institution / Scheduled bank. As per the scheme of settlement, the financial institutions wrote off the principal amount of ₹ 1.05 crores loan advanced to Respondent Assessee. During the assessment proceedings the assessee contended that out of the total amount of ₹ 1.05 crores written off by the financial institutions an amount of ₹ 25.88 lakhs of loan not being in the capital field were offe .....

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allowed the Respondent Assessee's appeal. It held that the loan amount of ₹ 79.81 lakhs had been taken for the purchase of machinery / fixed assets being on capital account and not on trading account would not be hit by Section 41(1) r.w. section 28(iv) of the Act. In coming to the above conclusion reliance was also placed upon the decision of this Court in Mahindra And Mahindra Ltd. Vs Commissioner of Income Tax 2003 261 ITR 501 Bom. 5. On further appeal by the Revenue before the Tri .....

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aken for purchase of fixed assets and the same was waived. Further the Tribunal held that the waiver of a loan by a creditor would not amount to grant of subsidy, grant or reimbursement. Accordingly, the Revenue's appeal was dismissed. 6. The grievance of the Revenue is that in view of Explanation 10 to Section 43(1) of the Act the waiver of a loan would amount to a subsidy grant or reimbursement and thus, the costs of the fixed assets relating to which there is grant of subsidy, grant or re .....

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not convert the said loan into an income of the Respondent Assessee. In any even the Explanation 10 to Section 43 of the Act would apply only in cases of grant of subsidy or reimbursement or grant by whatever name called. A waiver of a loan is not in the nature of subsidy, grant or reimbursement. It may also be pointed out that in the present facts there was an arrangement arrived at between the creditors i.e. financial institutions / schedule banks on one hand that the Respondent assessee to re .....

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