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TMI Blog2003 (2) TMI 511X X X X Extracts X X X X X X X X Extracts X X X X ..... 1992-93 to A&R Bilt Packaging Systems Ltd. There was another company under the name and style of Andhra Pradesh Rayons Ltd., which was incorporated in 1975 and it carried on business of rayon grade, wood pulp. Pursuant to another company, M/s. WIMCO Ltd. selling its shares in A&R Bilt Packaging Systems Ltd. to M/s. Ballarpur Industries Ltd., a company belonging to what is popularly known as Thapar Group, A&R Bilt Packaging Systems Ltd. became a subsidiary of Ballarpur Industries Ltd. (BILT). By its order dated 7-2-1995, Board for Industrial & Financial Reconstruction (BIFR) sanctioned the amalgamation or merger of A&R Bilt Packaging Systems Ltd. with M/s. Andhra Pradesh Rayons Ltd. and consequently the amalgamating company, i.e., A.R. Bilt Packaging Systems Ltd. lost its identity. 4. Andhra Pradesh Rayons Ltd., subsequently changed its name to APR Ltd., vide fresh certificate of incorporation dated 28-8-1995. That is how in the present appeal, which was filed in May, 1998, the appellant is shown as APR Ltd., and not Andhra Pradesh Rayons Ltd. The APR Ltd., again changed its name to BILT Paper Holdings Ltd., vide fresh certificate of incorporation dated 12-1-2001 apparently because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arified that the name of the assessee is shown by the learned Commissioner in his impugned order under section 263 as A.P. Rayons Ltd., which is a mistake, and it should have been correctly shown as 'APR Ltd.', because, as on the date of the order, i.e., 25-3-1998, A.P. Rayons Ltd., which apparently stood for Andhra Pradesh Rayons Ltd., changed its name to APR Ltd. 5. Now, we may turn to the issue on hand. The facts of the case lie in a narrow compass. Swedish company, M/s. Akarlund & Rausing AB was one of the promoters of the AP Packaging Systems Ltd. vide agreement dated 23-4-1991, a copy of which may be seen at pages 33-34 of the appellant's paper-book filed before us, the Swedish company agreed to lend 7-Million Rupees to the promotee company. The said loan was unsecured and did not carry any interest. Relevant clauses and recital of the said agreement read as under- "..... Whereas, the Lender being one of the Promoters of the borrower company vide their letter dated 22-10-1990 have agreed to grant to the borrower an interest free unsecured loan in Swedish Kronor equivalent to ₹ 7.00 Mns. (Rupees Seven Million only) as part of rehabilitation of the Borrower. Wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aging Systems Ltd. A copy of this certificate may be seen at page-40 of the assessee's paper-book. Subsequently, the loan was increased to ₹ 70,54,725, and this enhancement was approved by the Ministry of Finance of Government of India, vide its letter dated 8-10-1991. A copy of this letter is filed at page 37 of the assessee's paper-book. Receipt of this unsecured interest free loan of ₹ 70,54,725 has been reflected in the Balance-Sheet of the assessee-company as on 31-3-1992 in Schedule-C thereunder. 6. Vide letter dated 22-3-1993 addressed by the Swedish Company to M/s. Ballarpur Industries Ltd. the former sold its shareholding in A&R Bilt Packaging Ltd. for a nominal purchase price of ₹ 1 enblock to M/s. Ballarpur Industries Ltd. The Swedish company also agreed inter alia to renounce the loan of ₹ 70,54,725 given by it to M/s. A&R Bilt Packaging Ltd. Clause-4 of the said letter, which is relevant for our purpose reads as under- "4. As at 31-3-1992 the Company, A&R Bilt Packagings Ltd. was in debted for the following secured loan funds- (a)Term loans from Financial institutions and Banks including : (1) Foreign Currency Loans (Rupees tied up as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mposed upon AB Akerlund & Rausing on account of it being a shareholder of the Company. This indemnity shall survive the termination of this agreement in case this agreement is not given effect to in view of any reasons set out in sections 3 & 5 hereof." Apart from the renunciation of the loan, the Swedish company also renounced the amounts due to it for the royalty payment of ₹ 13,93,470 and also certain other payments due to it for sale of machinery etc. 7. With the above background in mind, we may not turn to the issue on hand, for the assessment year 1994-95, M/s. APR Ltd., M/s. Andhra Pradesh Rayon Ltd. as the assessee was then styled, filed a return on 28-11-1994, declaring an income of ₹ 1,36,73,777. The return was initially processed under Section 143(1)(a) and finally, the assessment under section 143(3) was also completed on 29-3-1996 on a total income of ₹ 1,82,46,846. However, neither in the intimation under section 143(1)(a) nor in the assessment under section 143(3), the Assessing Officer considered any addition on the basis of renunciation of the loan of ₹ 70,54,725 by the Swedish company. AB Akerlund & Rausing in favour of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade surplus." In the instant case, the assessee received the amount as a secured loan and in exercise of the contractual right, the Swedish Company waived repayment of the same. In such an event, the amount which was waived should be treated as income of the assessee." 8. The above order of the Commissioner has been assailed before us. Some of the grounds taken before us in this appeal read as under- "4. It is contended that the transaction of obtaining loan is not a 'trading transaction' and, therefore, the same cannot be considered as income exigible to income-tax and thus the order under section 263 is wrong, invalid and without jurisdiction. 5. The reliance and application of the ratio laid down by the Hon'ble Supreme Court of India in T.V. Sundaram Iyengar & Sons Ltd. 222 ITR 344, is wrong, erroneous and the said ratio should have been held to be not applicable to the facts and circumstances of the appellant's case. 6. The loan had been obtained by another company and waived by the lender in favour of that another company and the successor company cannot be burdened with tax with regard to such amount as the outstanding loan taken over is capital transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's case are totally different. The loan of ₹ 70,54,725 was not received in the course of a trading transaction. It was received as a loan, and was reflected as a loan in the books of the assessee. When the loan is renounced by the Swedish company, it did not change its character, but remained a capital receipt, notwithstanding its transfer to the credit of the Profit & Loss Account in the books of the assessee. In this context, reliance is placed upon the decision of the Apex Court in the case of K.M.S. Lakshmanier & Sons v. CIT [1953] 23 ITR 202, wherein a distinction was made between advances of monies received towards purchase price and other security deposits received from customers and dealings with them, and it was held in the context of Excess Profits Tax Act, 1940, that the former was not borrowed money, whereas the latter was borrowed money. It is also claimed that the amount of loan was originally received by another company, viz., A.R. Packaging Systems Ltd., even though that company stood merged with assessee during the relevant period. The amount received as a capital receipt by another company, does not become a revenue receipt in the hands of the assessee- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the discussion reads as under- "On the other hand, a more recent decision of the English Court of Appeal in Davies v. The Shell Company of China-(22 ITR Suppl.1), which Mr. Pathak brought to our notice, is more in point. A British company, which sold petroleum products in China through Chinese agents, required the latter to deposit with the company a sum of money in Chinese dollars to be held as security against possible default by the agents in payment for the products consigned to them and to be rapaid when the agency came to an end. These deposits were, during the war, transferred to the United Kingdom for reasons of safety and were there held in sterling. Subsequently, when the Chinese dollar depreciated in relation to sterling, the amounts required to repay the deposits in Chinese dollars were much less than the sums held by the company as the sterling equivalents of the deposits, and the question arose whether such deposits were trading receipts or receipts of a capital nature. In holding that they were capital receipts and the profit was therefore a capital gain, Ujenkins, L.J., who delivered the leading judgment, observed :- "If the agent's deposit had in truth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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