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TMI Blog2019 (6) TMI 1481X X X X Extracts X X X X X X X X Extracts X X X X ..... ". 3. The issue in appeal lies within a very narrow compass of material facts. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had credited Rs. 4,42,95,650 to the profit and loss account "being the interest free unsecured loan it had obtained from Matrix Logistics Pvt Ltd in previous year, the liability of which ceased to exist on account of winding off of Matrix Logistics Pvt Ltd by the order of Hon'ble High Court of Gujarat". He also noted contention of the assessee that as it was a capital receipt, it could not be brought to tax. He was, however, of the view that "this is a cessation of liability squarely covered by the provisions of Section 41(1) of the Act". The arguments put forth by the assessee regarding in this regard and in response to show cause notice, requiring the assessee as to why the said receipt not be brought to tax, were rejected by the Assessing Officer. He was of the view that the credit being routed through the profit and loss account shows its revenue character, and that, in any other case, it could have been directly credited to capital reserve. The AO also noticed that the monies borrowed from Matrix Logistics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early a taxable item in the hands of the appellant. As per the AO this loan received from the aforesaid party was used for the purpose of its regular business of share trading and therefore it was a trading liability arid not a capital liability"' However, thereafter the AO hold that even if he hold that Section 41(1) of the Act is not applicable. Section 28(iv) is clearly applicable. And if Section 28(iv] of the I.T. Act is not applicable then Section 41(1) of the Act is clearly applicable. The detailed discussion in this regard is made in para-3.2 to 3.9 of the assessment order. 2.5. On the other side, the appellant claimed that the said amount was the capital receipts. It has objected to the AO's observation that the appellant did not carry out any business activities as per the main objects of the Memorandum of Association and in support the details of its nature of income offered in the preceding years submitted and the same are reproduced as under:- Summary of Business Transactions as per Profit and Loss A/c. Rupees F.Y. Consumption/Purchase of goods Sale of goods Income from consulting Fees 2000-01 190,581,976 241,981,841 - 2001- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of Section 41(1) has not been fulfilled so as to invoke the same in the case of the appellant. It has been contended by the appellant that this loan was interest free and unsecured and obtained and applied for the purpose of acquiring the capital assets by way of investment in shares. Thereafter this amount has been consistently shown as unsecured loan in the balance sheet as and such outstanding amount in the year under consideration was written off in the books of accounts and corresponding accounting entries were passed. Since the amount of loan written off credited to the profit and loss account was capital in nature and therefore the same has not been included in the return of income for the year under consideration. The argument made by the appellant in this regard was relevant and have the weight for the reason that no such expenditure in respect- of the unsecured loan has been claimed as deduction by the appellant in the profit and loss account of the year under consideration or of the preceding years. In this regard reliance has been placed on the judgement of Hon'ble Gujarat nigh Court in the case of CIT Vs. Chetan Chemicals Pvt. Ltd. 267 ITR 770 whereby it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , either in whole or in part the amount of loan waive cannot be taxed as income since it does not have any semblance of revenue nature. Since in the instant case the unsecured loan taken by the appellant was for Ihe purpose investment in shares and such investment has been shown in the balance sheet and the appellant did not have any business of trading of shares, therefore, the investment was the capital in nature and hence the waiver of unsecured loans utilized for such capital investment is not the revenue receipts in view of the judgement discussed above. The argument of the appellant in this regard has the substance and same is accepted. 2.10. The appellant's further plea that all the credits made to the profit and loss account do not construed income chargeable to tax at all the times. The credits made to the profit and loss account which are not of revenue nature but capital in nature are to be excluded from the computation of total income. The computation of income has to be made in accordance to the provisions of Income-tax Act. As per the provisions of Section-4 the income tax is chargeable in respect of income of the relevant previous year. But the amount that has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, no business income can be taxed in the year under consideration due to absence of any business activities having carried out in the year under consideration by the appellant. Thus, the judgement of Hon'ble Supreme Court is squarely applicable over the facts of the case. The reliance in this regard is also placed on the Supreme Court judgment In the case of New Savan Sugar & Gur Refining Co. Ltd. Vs. CIT (1969) 74 ITR 7 and Serial Ram Doongarmal Vs. CIT (1961) 42 ITR 392. As a matter of fact, the appellant had only earned the income from dividend and interest on FD which were taxable under the head of income from other source and no business income has been offered by the appellant. 2.13. It has also been noticed that the provisions of Section 28(iv) of the I.T. Act are also applicable only when the tax payer has carried on business during the year under consideration. Since the appellant has not carried out any business activities nor entered into any transactions of income earning activity, therefore the section does not have its applicability upon the appellant. Further for computing the income under the head income from business the condition precedent is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment only in the balance sheets of the preceding years and not as stock-intrade. Accordingly, on sale of these shares the income derived was offered as capital gain u/s.45 of I.T. Act and the same has been taxed and accepted as such by the AO which itself proves the contention of the appellant of having no trading activities of shares. It is apparent from the copy of return of income for A. Y. 2006-07 that the appellant has shown the long term capital gain on sale of shares at Rs. 4,39,46,908/- under the head of income from long term capital gain and the AO has accepted the same as long term capital gain in the assessment completed u/s. 143(3) of the I. T. Act on 01/12/2008. Thus, the AOs observation that the appellant was engaged in trading of shares does not get established from the history of the appellant itself. 2.16. It is an emerging fact that even if any benefit or perquisite as arisen to the appellant as a result of writing off of the loan the same cannot be equated as a benefit arising from the business. The written off of the loan has nothing to do with the business of the appellant because loan was not obtained for the purpose of business or not obtained in the norm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m investment in the balance sheet of the appellant in the preceding years and on sale of such shares the long term capital gain has been offered u/s.45 of I.T. Act which has not been disputed by the AO. Thus the nature of unsecured loans were not of trading liability but on account of capital. Therefore, the written off of the unsecured loan was capital receipts in the hands of the appellant which was not liable for taxation. Thus the addition made by the AO in this regard is found not accepted and hence the same is deleted." 4. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 5. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 6. We find that whether the credit is routed through the profit and loss account or not is wholly irrelevant for determining the nature of receipt. As held by Hon'ble Supreme Court's landmark judgment in the case of Kedarnath Jute Mfg Co Ltd Vs CIT [(1971) 82 ITR 363 (SC)], the accounting entries cannot be determinative of the nature of receipt. In any case, what can be added to income under section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income shall be chargeable to income-tax under the head "Profits and gains of business profession",- ** ** ** (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; ** ** **' 13. On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record that the amount of Rs. 57,74,064/- is having received as cash receipt due to the waiver of loan. Therefore, the very first condition of Section 28 (iv) of the IT Act which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the present case. Hence, in our view, in no circumstances, it can be said that the amount of Rs. 57,74,064/- can be taxed under the provisions of Section 28 (iv) of the IT Act. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o wear and tear. Therefore, the deduction claimed by the Respondent in previous assessment years was due to the deprecation of the machine and not on the interest paid by it. 16. Moreover, the purchase effected from the Kaiser Jeep Corporation is in respect of plant, machinery and tooling equipments which are capital assets of the Respondent. It is important to note that the said purchase amount had not been debited to the trading account or to the profit or loss account in any of the assessment years. Here, we deem it proper to mention that there is difference between 'trading liability' and 'other liability'. Section 41 (1) of the IT Act particularly deals with the remission of trading liability. Whereas in the instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, we find no force in the argument of the Revenue that the case of the Respondent would fall under Section 41 (1) of the IT Act. 17. To sum up, we are not inclined to interfere with the judgment and order passed by the High court in view of the following reasons: (a) Section 28(iv) of the IT Act does not apply on the present case since the receipts of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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