2017 (4) TMI 1287 - HC - Income Tax

Remission of principal amount of loan obtained from financial institutions and banks - whether constitutes a benefits or perquisite arising from business and would fall within the ambit of Section 28(iv) - Held that - This issue is now squarely covered by the decision of Delhi High Court in Commissioner of Income Tax vs. Jindal Equipments Leasing and Consultancy Services Ltd. reported in (2009 (12) TMI 364 - DELHI HIGH COURT) as held the waiver/written off part of principal amount of loan by JSPL does not constitute income at the hands of the assessee. On the facts of this case and particularly having regard to the nature of business only, it will constitute capital receipt. Even otherwise the loan which was taken was capital investment and always treated in the capital account as liability and if it is so, it will naturally go as wiping out the capital liability. In that view of the matter, the contention taken by the appellant is required to be accepted. The view taken by the CIT(A) is required to be restored and that of the tribunal is required to be reversed. The issue is answered in favour of the assessee

Summary

Issues:
Identification of whether remission of principal loan amount constitutes a benefit arising from business under Section 28(iv) of the Act.

Analysis:
The appeals involved the question of whether the remission of the principal amount of a loan from financial institutions and banks constitutes a benefit or perquisite arising from business under Section 28(iv) of the Act. The court framed the common substantial question of law based on this issue. The appellant contended that the issue was covered by a decision of the Delhi High Court, emphasizing the legal position and the revenue's argument for sustaining the addition under Section 28(iv) of the Act. The court examined the aspect on its merit, analyzing the prerequisites for attracting the said provisions, including the nature of the benefit or perquisite and its relation to business. Reference was made to judgments by various High Courts on similar matters, highlighting the interpretation of Section 28(iv) and its application to non-cash benefits.

The department supported the Tribunal's judgment, citing observations made by the Supreme Court in a related case regarding statutory levy and refund of amounts paid. The department also relied on another Supreme Court decision emphasizing the treatment of amounts received in the course of trading transactions. The court considered the nature of the loan taken as capital investment and its treatment in the capital account as a liability, leading to the conclusion that the remission of the loan amount would wipe out the capital liability. Consequently, the court accepted the appellant's contention, restoring the view taken by the CIT(A) and reversing that of the Tribunal. The issue was answered in favor of the assessee against the department, resulting in the appeals being allowed.