2013 (9) TMI 634 - AT - Income Tax

Nature of receipt of Rs. 108 crores from Gillette USA for repayment of its debts pursuant to sales of its entire shareholding in the assessee-company to Newell - Capital receipt or revenue receipt - Gillette was neither its shareholder nor it increased the shareholding of Gillette USA or its subsidiaries in the assessee company. - Held that - it is not correct that the assessee company obtained any subsidy or grants in aid or compensation as a result of remittance of a sum to the banks. The Delhi Bench of the Tribunal in the case of Deputy CIT v. Lurgi India Co. Ltd. 2007 (8) TMI 379 - ITAT DELHI-A relied upon by the learned authorised representative has held that the receipt of Rs. 13 crores by an assessee as a non-refundable grant from its parent company was a capital receipt, despite the fact that the payment was made to compensate the assessee for trading loss since it did not stem from any business consideration. - Decided against the revenue. Taxability of amount credited in the account of Assessee in the absence of reasonable explanation to the said credit in the account Held that - Commissioner (Appeals) has sustained this addition out of the addition of Rs.118.09 crores on the basis that M/s. Gillette Co., USA, had paid the said amount to the credit of the assessee s account - Since the assessee had already credited a sum of Rs. 1.99 crores to its profit and loss account, and offered it to tax, the learned Commissioner of Income-tax (Appeals) restricted the addition to Rs. 9.58 crores, since the amount was credited to the bank account of the assessee. Hence, in the absence of any contrary and satisfactory explanation by the assessee, the learned Commissioner of Income-tax (Appeals) has rightly treated this amount as income of the assessee Decided against the Assessee. Waiver of loan to be treated as revenue receipt taxable under the Income Tax Act or capital receipt not taxable - Waiver of loan of Rs. 3.34 crores by M/s. Gillette Co., USA Held that - Reliance has been placed upon the Hon ble Delhi High Court in the case of Logitronics P. Ltd. v. CIT 2011 (2) TMI 12 - DELHI HIGH COURT , wherein it has been held that if a loan was taken for acquiring a capital asset, waiver thereof would not amount to any income exigible to tax. On the other hand, if the loan was for trading purpose and was treated as such from the very beginning in the books of account the waiver thereof may result in income more so when it was transferred to the profit and loss accounts - Unless it is examined in the present case as to what was the purpose of taking the loan amount which was waived, the taxability of the waived amount as income cannot be adjudicated upon - Since this material aspect of the facts has remained to be examined by the authorities below before holding the waived amount as income exigible to tax - Remanded the matter to the file of the Assessing Officer with direction to adjudicate upon the issue afresh in view of the decision of the Hon ble Delhi High Court in the case of Logitronics P. Ltd. v. CIT 2011 (2) TMI 12 - DELHI HIGH COURT .

Summary

Issues Involved:
1. Whether the remittance of Rs. 108.49 crores by Gillette USA for repayment of its debts is a capital receipt or revenue receipt.
2. Whether the remittance of Rs. 9.59 crores by Gillette USA to the assessee-company is a capital receipt or revenue receipt.
3. Whether the waiver of loan of Rs. 3.34 crores by Gillette USA is a capital receipt or revenue receipt.

Detailed Analysis:

Issue 1: Remittance of Rs. 108.49 Crores
The core issue is whether the remittance of Rs. 108.49 crores by Gillette USA to discharge its corporate guarantee for the assessee-company's loans can be regarded as income of the assessee-company. The Assessing Officer (AO) treated the entire remittance of Rs. 118.09 crores as revenue receipt, arguing it was a subsidy or grant. However, the Commissioner of Income-tax (Appeals) [CIT(A)] held that Rs. 108.49 crores remitted directly to the banks was a capital receipt not chargeable to tax. The Tribunal upheld the CIT(A)'s decision, noting that the remittance was made to discharge Gillette USA's own liability as a guarantor and not to improve the financial position of the assessee-company. The Tribunal relied on precedents where similar payments were treated as capital receipts, such as in the cases of Smartalk P. Ltd. and General Electrodes and Equipments Ltd.

Issue 2: Remittance of Rs. 9.59 Crores
The second issue concerns the Rs. 9.59 crores credited to the assessee's bank account. The CIT(A) treated this amount as business income, arguing it was credited to the assessee's account and hence taxable. The Tribunal upheld this decision, rejecting the assessee's contention that the amount was not income as it did not arise from business operations. The Tribunal noted that the amount was credited to the assessee's account and utilized for debt repayment, thus it was rightly treated as income.

Issue 3: Waiver of Loan of Rs. 3.34 Crores
The final issue is whether the waiver of a loan of Rs. 3.34 crores by Gillette USA constitutes a capital receipt. The AO treated the waiver as a revenue receipt, arguing that the loan was used for working capital purposes. The CIT(A) upheld this view, stating that the waiver changed the character of the receipt to revenue. However, the Tribunal found merit in the assessee's argument that the waiver should be treated as a capital receipt, citing the Delhi High Court's decision in Jagatjit Industries Ltd. and the Bombay High Court's decision in Mahindra and Mahindra Ltd. The Tribunal remanded the matter back to the AO to examine the purpose of the loan and its treatment in the books of account, in line with the Delhi High Court's ruling in Logitronics P. Ltd.

Conclusion
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal. The remittance of Rs. 108.49 crores was upheld as a capital receipt, the Rs. 9.59 crores credited to the assessee's account was treated as income, and the issue of loan waiver was remanded to the AO for fresh adjudication.