TMI Blog2022 (1) TMI 1399X X X X Extracts X X X X X X X X Extracts X X X X ..... see. These loans were received in the course of carrying on business of the assessee even if it was treated as loan at the time of receipt of said loan and waiver of said amount will result in revenue receipt and to be liable for tax. Since it was the money had been borrowed for day-to- day affairs and not for purchase any capital assets, the said loan were not term loan taken for the acquisition or purchase of capital assets. On the other hand, it is used as a circulating capital not as a fixed capital and the money was used in ordinary course of business in carrying the day-to-day affairs of the assessee. Being so, writing off the over draft cash credit, letter of credit, pre-shipment advance and export bills, etc. which was received for carrying out the day-to-day operation of the assessee and waiver of the same to be treated as income of the assessee u/s 28(iv) of the Act. Similarly, interest waiver, if any and if it is allowed as a deduction in any earlier assessment years, then only the waiver of such interest could be treated as revenue receipt liable to tax u/s 41(1) of the Act. With this observation, we remit this issue in dispute to the file of AO for reconsideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income Tax to be erroneous and prejudicial to the interest of the revenue and accordingly the same was set aside vide order under Section 263 of the Act dated 21.02.2009. The AO was directed to make fresh assessment in view of the observations of the CIT in his order under Section 263 of the Act. This order was challenged by the assessee before ITAT. However, the appeal of the assessee in ITA Nos.403 404/Bang/2010 was dismissed by ITAT vide its order dt 07.03.2011. A fresh assessment order was passed by the A.O. and the income of the assessee was computed after taking into consideration the principal amounts of loan/borrowings waived off by the Banks as income of the assessee for the year under consideration. 3. During appellate proceedings the assessee has made detailed written submissions which are in substance same as made before the AO. One of the main contentions of the assessee is that the action of the CIT in passing an order under Section 263 of the Act was without any merit. However this submission of the assessee does not deserve any consideration as the appeal against the order under Section 263 lies before ITAT and the ITAT has already decided the appeal in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... banks and were credited to P L account as income of previous year relevant to AY 2005-06. 12. Let us examine the provisions of section 41(1) of the Act which reads as follows:- S. 41(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first mentioned person) and subsequently during any previous year - (a) the first mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to incometax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for acquiring capital asset and the assessee never claimed it as a deduction from taxable income in earlier year and waiver of that loan by bank was not taxable u/s. 41(1) of the Act. Even otherwise, the same amount cannot be taxed u/s. 28(1)(iv) of the Act. 16 In CIT v. Dholgiri Industries (P) Ltd., 266 CTR 111 (MP), assessee had entered into one-time settlement (OTS) with Dena Bank for the loan outstanding against it. Dena Bank waived the amount of Rs. 88.39 lacs and interest to the extent of Rs. 31.18 lacs out of total outstanding which was Rs. 289.58 lacs as on 31st March, 2006. Such OTS was subject to condition that payment of 25 per cent of the compromise amount will be made by the respondent upto 31st Aug., 2006 and the balance amount of Rs. 148.75 lacs will be paid in 36 months' instalments commencing from September, 2006. The AO treated the component principal amount of Rs. 88.39 lacs, which was waived as income in the hands of the assessee by holding that the assessee has earned this waived amount, and as such brought this amount for tax. To this, the High Court held, AO committed an error in treating amount waived by Bank to be amount earned by assessee. Princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee will be its trade receipt. The assessee itself treated the amount as its trade receipt by bringing it to its P L a/c. If a commonsense view of the matter is taken, the assessee, because of the trading operation, had become richer by the amount which it transferred to its P L a/c. The moneys had arisen out of ordinary trading transactions. Although the amounts received originally were not of income nature, 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. Where a new asset came into being automatically by operation of law, commonsense demanded that the amount should be entered in the P L a/c for the year and be treated as taxable income. In other words, the principle appears to be that if an amount is received in the course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears was due to the deprecation of the machine and not on the interest paid by it. Moreover, the purchase effected from the K was in respect of plant, machinery and tooling equipment which were capital assets of the assessee. The purchase amount had not been debited to the trading account or to the profit and loss account in any of the assessment years. There is a difference between 'trading liability' and 'other liability'. Section 41(1) of the Act whereas in the instant case, waiver of loan amounted to cessation of a liability other than a trading liability. Hence, the case of the assessee would fall under section 41(1) of the Act. The term loan generally refers to borrowing something, especially a sum of cash that is to be paid back along with the interest decided mutually by the parties. In other terms, the debtor is under a liability to pay back the principal amount along with the agreed rate of interest within a stipulated time. The creditor or his successor may exercise the right of waiver unilaterally to absolve the debtor from his liability to repay. After such exercise, the debtor is deemed to be absolved from the liability of repayment of loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerned, these were taken by the assessee for the purpose of capital assets from time to time. With regard to this loan, the amount did not come into the possession of the assessee on account of any trading transaction; the receipts were capital in nature being loan repayable over a period of time along with interest. Therefore, on waiver of this term loan, no benefit or perquisites arose to the assessee in the revenue field. On the other hand, it is a capital receipt. Thus, the waiver of the term loan cannot be treated as income of the assessee. However, waiver of overdraft, letter of credit, pre-shipment advance, export bills, benefit had arisen to the assessee. These loans were received in the course of carrying on business of the assessee even if it was treated as loan at the time of receipt of said loan and waiver of said amount will result in revenue receipt and to be liable for tax. Since it was the money had been borrowed for day-to- day affairs and not for purchase any capital assets, the said loan were not term loan taken for the acquisition or purchase of capital assets. On the other hand, it is used as a circulating capital not as a fixed capital and the money was used ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
