TMI Blog2013 (3) TMI 674X X X X Extracts X X X X X X X X Extracts X X X X ..... d for Industrial and Financial Reconstruction (BIFR) on 27th Sept 2000. Under the scheme of rehabilitation/reconstruction framed by the BIFR on 22.3.2007 the liability in respect of loans taken by the assessee from State Bank of India, Corporation Bank and IDBI was waived in the settlement with these banks and as a result of which a total amount of ₹ 1,74,13,829/- stood waived. The Assessing Officer has brought the said amount of ₹ 1,74,13,729/- to tax by holding that the assessee derived a benefit by way of one time settlement and the liability of the assessee is no more payable by the assessee. The Assessing Officer has placed reliance upon the decision of the Hon ble jurisdictional High Court in the case of Solid Containers Ltd. v. Deputy Commissioner of Income-tax reported in 308 ITR 417. The assessee challenged the action of the Assessing Officer before the Commissioner of Income Tax(Appeals) and contended that the amount of loan is of the nature of capital to the extent to the principle amount of loan. As far as the interest element is concerned, in the settlement under consideration, the interest has no role to play. Since the interest was already written ff and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 222 ITR 344 has held that the reduction of liability on account of term loan and other loan payable to the bank under one time settlement scheme does not result into the income to the assessee either u/s 28(i) or u/s 28(iv) or u/s 40(1) of the I T Act. 5. We have heard the rival submissions and carefully perused the relevant material on record. There is no dispute that the liability of the loan taken from the bank was reduced under the one time waiver as per the rehabilitation scheme of BIFR. The revenue has not disputed this fact that there is no element of interest in the amount waived under the BIFR scheme. 5.1 It is pertinent to note that it is not the case of remission or cessation of trading liability; but this is a case where the liability of loan taken from the banks was reduced as per the settlement arrived at during the proceedings of the Board of Industrial and Financial Reconstruction (BIFR) for the purpose of rehabilitation and reconstruction of the assessee which was a sick industrial undertaking. Therefore, there is no question of any enjoyment of loan benefits of reduction of the said liability in the ordinary business or trading activity by the assessee; b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the assessee not to pay. However, the intention of the debtor about not discharging his liabilities does not extinguish or cause cessation of his liability to discharge his debt so as to hold that he has by manifesting his intention has obtained some benefit in cash or benefit equivalent to that. 37. The Revenue has relied on the circumstances, as stated by the Incometax Officer, that claims have not been filed before the BIFR by the creditor. But it has not been brought to the notice that any provision exists under the Sick Industrial Companies (Special Provisions) Act, 1985, which requires the creditor of the sick industrial company to lodge their claims before the BIFR and if such claims are not filed before the BIFR, the same stand extinguished. As a matter of fact, the object of the Sick Industrial Companies (Special Provisions) Act, 1985, is to explore the possibility of rehabilitation of sick industrial undertaking for its financial vitality. If it is considered possible the BIFR may sanction scheme that may be proposed by the reviving agency. While the matter is pending before the BIFR certain rights of creditors remains suspended. But no provision has been bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and recovery proceedings could not have been initiated by the creditors, the action of the assessee in transferring the amount from suspense account to capital reserve fund resulted in it becoming trading surplus in his hands. Consequently, it was liable to be included as income in computing taxable income of the assessee under section 41(1) of the Income-tax Act, 1961. 40. The Supreme Court rejected the contention of the Revenue while upholding the order of the High Court by laying down the ratio that obtaining any amount or a benefit by virtue of remission or cessation is a sine qua non for the application of section 41(1). The mere fact that the assessee has made an entry of transfer in his account unilaterally will not enable the Department to say that section 41(1) would apply and the amount should be included in the total income of the assessee. 41. In coming to its conclusion the court relied on the larger Bench decision of the Gujarat High Court in the case of CIT v. Rashmi Trading [1976] 103 ITR 312 that the only meaning that can be attached to the words obtained , whether in cash or in any other manner whatsoever, any amount in respect of such loss or expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 254 ITR 434 (SC). It was a case in which the assessee engaged in a business of tea, spices, etc., had made a provision for purchase tax liability and necessary adjustment were made in the books of account. On that premises it was contended by the Revenue that the fact that the assessee itself took steps to write off the liability on account of purchase tax by making necessary adjustment in the books, which itself was indicative of the fact the liability ceased for all practical purposes and, therefore, the addition of the amount deeming the same as income of the year 1985-86 under section 41(1). But, what the assessee has done is not conclusive. As observed by the Tribunal, a unilateral action on the part of the assessee by way of writing off the liability in the accounts does not necessarily mean that the liability ceased in the eye of law. In fact, this is the view taken by this court in CIT v. Sugauli Sugar Works P. Ltd. [1999] 236 ITR 518 (SC). 46. In coming to this conclusion the court said that Explanation 1 to section 41(1) was inserted with effect from April 1, 1997, to section 41(1) and was not retrospective in operation and did not govern assessments prior to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not income in nature, the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of time, the claim of the depositors became time-barred and the amount attains a totally different quality. It becomes a definite trade surplus. 51. The assessee itself treated the money as its own money and took the amount to its profit and loss account. The amounts were assessable in the hands of the assessee. Suffice it to say that the Madras High Court relied on the decision of CIT v. T. V. Sundaram Iyengar and Sons [1996] 222 ITR 344 (SC) and upheld the contention. However, the decision of the Supreme Court in CIT v. Sugauli Sugar Works P. Ltd. [1999] 236 ITR 518 was not brought to the notice of the Madras High Court which was a later decision and the ratio of which fully governs the case nor the decision of the Supreme Court in Chief CIT v. Kesaria Tea Co. Ltd. [2002] 254 ITR 434 in which T. V. Sundaram was distinguished and it was held that section 41(1) of the Income-tax Act in like circumstances cannot be invoked. Therefore, in view of the two Supreme Court decisions clearly clinching the issue in one of which earlier decision in CIT v. T. V. Sund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en claimed as expenditure or trading liability in any of the earlier previous years. So far as waiver of interest is concerned, the assesseecompany itself has treated the same either as income or has not claimed the same as expenditure in the computation of income filed before the lower authorities. 4. We see no reason to interfere with the conclusions of the Tribunal as the same have been rendered on a correct appreciation of law. The principles enunciated in Mahindra and Mahindra Ltd. v. CIT [2003] 261 ITR 501 (Bom) are fully applicable and we see no reason to take a different view. 5.4 We further note that the coordinate Bench of this Tribunal in the case of M/s King Prawns Ltd (supra) after considering the decisions in the case of Solid Containers Ltd. (supra) as well as in the case of Sundaram Iyengar (T.V.) and Sons Ltd. (supra) has taken a view in paras 13 and 14 as under: 13. Coming to section 28(i), it is a general section, and all receipts cannot be considered as profits and gain of business. If that was the case, there was no necessity of incorporating section 28(iv), section 41(1) etc. When a receipt does not fall under any of the specific sub-section, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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