2015 (4) TMI 1109 - HC - Income Tax

Additions u/s 41(1) - Amounts received as a loan - loan was written off by the lender - Nature of receipt - revenue or capital receipt - Held that - The loan was taken by the respondent from M/s. Eisenberg Inc. Japan when the Act did not apply to the State of Goa. It is also not disputed that the loan was for purchase of machinery and that there was a cessation of liability to repay the amount. Section 41 (1) of the Act would have no application in the present facts. This is for the reason that it is not the case of revenue that the principal amount of loan received has been allowed as a revenue expenditure in the earlier years so as to make Section 41 (1) of the Act applicable. The amount which has been allowed in the earlier assessment years was only the variation on account of difference in rate of exchange. This the respondent is in any case offering for tax under Section 41 (1) of the Act. The principal amount of loan having been taken for purchase of capital amount was on capital account and therefore no occasion to apply Section 41 (1) of the Act in respect of that could arise. The issue in fact stands concluded in favour of the respondent by the decision of this Court in Mahindra and Mahindra Ltd (2003 (1) TMI 71 - BOMBAY High Court ) and M/s. Xylon Holding (2012 (9) TMI 449 - BOMBAY HIGH COURT) in the context of the submission made by the revenue before us. It needs to be recorded that the Revenue has made no submission to establish that the amounts received as a loan by the respondent was not capital in nature. - Decided in favour of assessee

Summary

Issues:
Challenge to ITAT order on nature of amount received by assessee as capital or revenue.

Analysis:
1. The appeal filed by the Revenue challenges the ITAT order regarding the nature of the amount of Rs. 50,96,000 received by the assessee for Assessment Year 1987-1988.

2. The respondent had shown Rs. 50.96 lakhs as income in the profit and loss account, which was a loan taken for M/s. Eisenberg Inc. Japan. The Assessing Officer added this amount to the taxable income of the respondent.

3. The CIT (Appeals) upheld the addition made by the Assessing Officer, leading the respondent to appeal to the Tribunal, restricting the appeal to the principal amount of the loan originally taken.

4. The Tribunal considered the original loan taken by the respondent for purchase of machinery by its subsidiary, deeming it on capital account and not revenue. The Tribunal allowed the appeal and directed the deletion of Rs. 50.96 lakhs from the respondent's income.

5. The Revenue argued that the non-obligation to return the loan would result in income to the respondent under Section 41(1) of the Act, contending that the amount is revenue in nature and should be part of the total income.

6. The respondent contended that the loan, taken for the purchase of machinery, was on capital account and not chargeable to income tax. Citing precedents, the respondent argued that the waiver of the loan would not convert it into revenue in nature.

7. The Court found that Section 41(1) of the Act did not apply as the loan was for capital purposes and not allowed as revenue expenditure in earlier years. The Court noted that the Revenue made no submission to establish that the loan amount was not capital in nature.

8. The Court held in favor of the respondent, stating that the loan originally received was only Rs. 33.42 lakhs, restricting the benefit to that amount. The appeal was dismissed accordingly.