TMI Blog2019 (7) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... view taken by the Bombay High Court has been affirmed by CIT Vs Balkrishan Industries Ltd [ 2017 (11) TMI 1626 - SUPREME COURT] wherein it has been surplus resulting from the payment of net present value of future liability is cessation/extinguishment of liability and therefore can not be taxed as trading receipt. The said decision was rendered in the context of surplus made by the assessee when it chose to pay the net present value of the liability which was to be discharged after seven years is paid at present value of future liability under a scheme floated by the State Govt. Under the scheme the sales tax collected under deferred scheme to incentivize the industry was to be paid after certain years but the Govt came with another scheme offering the industry to pay the present value of that sales tax liability to be discharged in future. Applying the same analogy to the assessee case, we hold that the assessee has assigned the loan by paying the present value of future liability and the surplus is not taxable as it is not cessation or extinguishment of liability. The decisions relied by the ld DR are also perused and found to be not applicable to the present case. We direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs, 11.64 Crores which was originally a loan and a capital transaction but due to influx of time the same changed its character. ( c) The appellant submits that the learned Commissioner of Income tax (Appeals) erred in relying on the decision of the Supreme Court in the case of CIT V T.V. Sunderam lyanger Sons Ltd. [222 ITR 344 (SC) as the said decision was not applicable to the facts of the appellant's case, there being no benefit on account of any trading operation. 4. The appellant submits that the Assessing Officer be directed to treat the Gain on Assignment of Loan Obligation' as a capital receipt and not as an income and to modify the assessment in accordance with the provisions of the Act. 5. Each of the above grounds of appeal are independent and without prejudice to each other. 6 The appellant craves liberty to add, to alter and /or amend the grounds of appeal as and when given. 3. The facts in brief are that the assessee company is engaged in the business of manufacturing and sales of cables. During the year, the assessee filed the return of income on 29/11/2000 decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores as a loan. Receipt of money, as loan, can never be income in the hands of our client. Our cline was able to obtain a benefit because CPPL agreed to repay the loan on behalf of our client and for obtaining this benefit our client was required to pay a sum of only ₹ 0.36 crores. The question is whether this benefit is Income and if so whether , it is taxable as Profits and Gains from Business or profession or as Capital Gains or as Income from Other Sources . It is submitted that a benefit arising to a person is not Income unless the Act specifically so provide, e.g. In relation to salary income, perquisites and benefits are specifically provided to fall within the scope of the term income under section 17(2) and (3) of the Act. In relation to business income, perquisites and benefit are specifically provided to fall within the scope of the term income under section 28(iv) of the Act. Since our client is not an individual who earns salary income, no portion of the benefit derived by it can be taxed as Salaries The benefit arising to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent value Such loan is not in the nature of loss , expenditure or trading liability Our client has neither claimed nor has been allowed to claim any deduction in computing its taxable profits for any year in respect of such amount. Therefore, the provisions of section 41(1) of the Act are not applicable to the instant case. Thus, no amount can be taxed in the hands of our client by virtue of section 41(1) of the Act. 4. The Ld. AO after considering the submissions of the assessee was not convinced therewith for various reasons. The Ld. AO referred to decision of CIT vs Karthikeyan, 201 ITR 866(SC) wherein, it has been held that the word income is inclusive and also referred to various sub clauses to section 2(24) which according to AO widens the import of word Income . The AO relied on the decision of Supreme court in the case of CIT Vs Kadambande (1992) 195 ITR 877(SC) wherein the Hon ble Supreme Court held that the word income does not include only the specific items as enumerated in the various sub-clauses but also all such receipts s which can be described as income in its nature and general meaning. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he trade parties. By lapse of time, the claim of deposit became time barred and it become a trade surplus. The AO also referred to CIT vs Aries Advertising Pvt. Ltd. 255 ITR 510 wherein the Madras High Court after relying on the decision of Hon ble Apex Court in the case of CIT vs. T.V. Sundaram Iyengar Sons Ltd. (Supa). Finally the Ld. AO relying on various decisions as stated above added ₹ 11.64 crores to the income of the assessee under the head profit and gains from business by framing assessment u/s 143(3) dated 23/03/2013. 6. In the appellate proceedings the Ld. CIT(A), after taking into account the contentions of the assessee, dismissed the appeal of the assessee by observing holding as under: 13. I have carefully considered the facts of the case and the submissions of the appellant. During the course of hearing of appeal, some further information was also obtained from the assessee. It is seen that complete facts have not been brought on record either by the A.O. or by the assessee in its submissions. On the basis of information obtained during the course of hearing of appeal it is seen that on 27/7/99 the appellant company applied f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19-11-1999 _, 253411 11,00,000 19-11-1999 253412 11,00,000 19-11-1999 253413 11,00,000 19-11-1999 253414 11,00,000 19-11-1999 253415 11,00,000 19-11-1999 253416 11,00,000 19-11-1999 253417 11,00,000 19-11-1999 253418 11,00,000 19-11-1999 253419 10,00,000 19-11-1999 253420 10,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Loan of ₹ 12 crore is shown in the name of Champion Pictures P. Ltd. shown under the head 'loans and advances. 31/3/2001 a. The share application money of ₹ 12.75 crore no longer appears in the balance-sheet. b. Loan to CPPL at ₹ 11.96 crore appears under the head 'loans and advances.' 30/6/2002 a. Loan to CPPL at ₹ 11,96 crore is shown under the head loans and advances.' In the books of Champion Pictures P. Ltd.: Balance sheet as on Manner of transaction 31/3/2000 a. The discounted value of loan at ₹ 35,29,427/-appears as part of unsecured loan. Note 2 to Schedule I states that the company has taken over the obligation towards repayment of interest free loan of ₹ 12 crore from another company repayable over 100 years for a consideration of ₹ 35,50,000/-. The said loan is reflected in the book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordinary trading actions. Although the amounts received originally were not of income the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of time, the claim of the deposit became time-barred and the amount attained a totally different quality. It became a definite trade surplus. This ground of appeal is dismissed. 7. The Ld. AR submitted before the bench that the assessee has taken a loan of ₹ 12 Crores from M/s MPPL vide agreement dated 17/11/1999 which was to be repaid over a period of 100 years. The ld AR submitted that the said loan was invested in the purchase of shares by referring to the copy of Balance Sheet as on 31st March, 2000 particularly Sch Loans Advances and a note was appended in Sch (9) to that effect that assessee had paid ₹ 12,75,00,000/- of the purchase of shares which has been shown under the head of Loans Advances pending the allotment of shares. The assessee entered into a tripartite agreement dated 01/03/2000 between M/s CPPL and M/s MPPL whereunder the assessee has assigned the said loan to CPPL at present value of ₹ 0.36 crores and thus there is credit balance of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to attract the provision of section 41(1) of the Act where the dealers have collected the sale tax under deferred sales tax scheme which is provided by the State Government to incentivize the a section of the trade and industry. The said decision of the special bench of the tribunal was further affirmed by the Bombay High court as reported in 369 ITR 717(Bom). The Hon ble apex court in the case of CIT Vs Balkrishna Industries Ltd. (2017) 88 taxmann.com 273(SC) , the decision of he Hon ble Bombay in the case of CIT Vs Sulzer India Ltd 369 ITR 717 (Bom) was considered and accepted. The ld AR submitted that in the case of The Ld. AR also submitted that the loan was utilized for the purpose of investments in shares and not used in connection with the business activities of the assessee at all and therefore that can not fall under section 41(1) the said extinguishment/cessation of liability is in the nature of capital receipt and can not be brought to tax u/s 41(1) of the Act as the necessary conditions contained therein are not satisfied in the case of the assessee. The Ld. AR submitted that the decisions relied upon by the lower authorities in the case of CIT vs. T.V.Sunderam Iyengar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainers Ltd vs DCIT (supra) has not been considered in the Mahindra Mahindra Ltd. (Supra) by the Hon ble Supreme Court. The Ld. DR also relied on the decision of Madras high Court in the case of CIT vs. Ramaniyam Homes (P) Ltd. (2016) 68 taxmann.com 289 (Madras) wherein it has been held that if the principal loan is waived off by the bank under one time settlement scheme , the same would constitute income falling under the head 28(iv) of the Act. The Ld. DR also relied on the case of Golden Tobacco Ltd. vs ACIT, ITA No. 9127/Mum/2004 AY 2001-02 dated 27/06/2018. Finally the Ld. DR submitted that since in this case the assessee has obtained benefit by way of extinguishment of loan taken from M/s MPPL as a result of assignment in favour of the M/S CPPL resulting into benefit of ₹ 11.64 crores which is obviously and definitely income of the assessee which has to be taxed under the provisions of section 41(1) of the Act. The ld. DR submitted that considering the various decisions of the jurisdictional High Court and coordinate benches, the order of CIT may be confirmed. 10. In the rebuttal, the Ld. AR submitted that the loan was utilized for purchase of shares an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 0.36 crores in terms of present value of the future liability and the surplus resulting from assignment of loan liability was credited to the Profit Loss Account under the head income from other sources but while computing the total income, the said income was reduced from the income on the ground that the surplus of ₹ 11.64 crores represented the capital receipt and therefore not taxable. It is also true that both companies M/S MPPL and M/S CPPL were amalgamated with the assessee later on with all consequences. So the issue before us is whether the surplus ₹ 11.64 Cr resulting from the assignment of loan to M/S CPPL under tripartite agreement between the assessee , M/S MPPL and M/S CPPL is a revenue receipt liable to tax or a capital receipt as has been claimed by the assessee. Considering the facts of the case of the assessee , admittedly the loan of ₹ 12.00 Cr amount was utilized for purchase of shares and was not used for in relation to trading activity at all. The purchase of shares by the assessee is a non trading transaction and is of capital nature. The surplus resulting from the assignment of loan as referred to above is not resulting from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the loan was to be repaid by the third party in consideration of payment of net present value (NPV) of future liability. Thus surplus resulting from assignment of loan at present value of future liability is not cessation or extinguishment of liability as the loan is to be repaid by the third party and therefore can not be brought to tax in the hands of the assessee. Similar issue has been decided by the special bench, Mumbai in the case Sulzer India Ltd Vs JCIT (Supra) which has upheld by Bombay High Court in the case of CIT Vs Sulzer India Ltd 369 ITR 717 (Bom).The view taken by the Bombay High Court has been affirmed by the Apex Court in the case of CIT Vs Balkrishan Industries Ltd (2017) 88 taxmann.com273(SC) wherein it has been surplus resulting from the payment of net present value of future liability is cessation/extinguishment of liability and therefore can not be taxed as trading receipt. The said decision was rendered in the context of surplus made by the assessee when it chose to pay the net present value of the liability which was to be discharged after seven years is paid at present value of future liability under a scheme floated by the State Govt. Under the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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