2014 (1) TMI 1939 - AT - Income Tax

Remission of liability in respect of unsecured loans from Bodies Corporate - Whether same represents the income of the Appellant Company within the meaning of section 28(iv) read with Section 2(24) ? - HELD THAT - No interest was recovered and initially for one or two years, the interest expense or interest income was provided and thereafter no provision of the interest expense and interest income was made. Though there was nothing placed on record in this regard. In any case, with the present facts and circumstances of the case, the assessee company is doing business of raising loan on interest and advancing the same on interest i.e. the money lending business. Though the assessee has not provided the interest expenses and interest income during the impugned year for the reasons best known to assessee. The said loans according to us has been raised during the course of business and the same were advanced during the course of business as a matter of main object of the assessee. The assessee has used the said loans for day to day business operation in the normal course during the year when loans were raised and advanced. No capital assets has been purchased on raising of such unsecured loans. In the case of Solid Containers Ltd. vs. Dy. CIT 2008 (8) TMI 156 - BOMBAY HIGH COURT the Hon ble Bombay High Court applied the decision in T.V. Sundaram Iyengar Sons Ltd. 1996 (9) TMI 1 - SUPREME COURT distinguished its decision in Mahindra Mahindra Ltd 2003 (1) TMI 71 - BOMBAY HIGH COURT and held that the waiver of loan taken for business purposes, the amount is retained in the business and as such, the amount that initially did not have the character of income becomes income liable to tax. Moreover, there is nothing on record that the company was dissolved and no certificate to this extent has been placed on record before any of the authorities below or even before us. Moreover, in view of the decisions relied upon hereinabove, we find no infirmity in the order of the ld. CIT(A), who has rightly confirmed the action of the A.O. Accordingly, the appeal of the assessee is dismissed. As regards the argument with regard to section 28(iv), the same cannot help the assessee since the definition has expanded the ambit of income and not reduced the definition and therefore, the decisions relied upon by the ld. counsel for assessee in this regard cannot be made applicable to the facts and circumstances of the present case.

Summary

Issues Involved:

1. Addition of Rs. 1,00,75,000/- on account of alleged remission of liability in respect of unsecured loans.
2. Legitimacy of assessment on a defunct company.

Detailed Analysis:

1. Addition of Rs. 1,00,75,000/- on account of alleged remission of liability in respect of unsecured loans:

The assessees challenged the addition of Rs. 1,00,75,000/- made by the Assessing Officer (AO) on the grounds that it represented a remission of liability for unsecured loans from corporate bodies, which was treated as income under Section 28(iv) read with Section 2(24) of the Income Tax Act, 1961. The AO observed that the unsecured loans were waived off by other companies, and the amount was credited to the capital reserve in the balance sheet of the assessee. The AO argued that the waiver of loans should be treated as business income.

The assessees contended that the amount was never claimed as an admissible deduction and hence could not be taxed under Section 41(1). They argued that the loans were capital receipts and not trading receipts, and therefore, the remission of liability should not be considered as income. They relied on various judicial decisions to support their claim that capital receipts do not acquire the character of revenue receipts even if they remain with an assessee for a long period.

The Tribunal, however, upheld the AO's decision, stating that the loans were taken and used in the course of business operations, and therefore, the remission of liability should be considered as income. The Tribunal referred to the inclusive definition of "income" under Section 2(24) and the wide amplitude of the term as interpreted by the Supreme Court in Emil Webber vs. CIT. The Tribunal also noted that the loans were utilized for business purposes and not for acquiring capital assets, distinguishing the case from Mahindra & Mahindra Ltd. vs. CIT and other similar cases.

2. Legitimacy of assessment on a defunct company:

The assessees argued that no assessment could be made as the companies had become defunct and their names were struck off from the record under Section 560 of the Companies Act, 1956. They relied on the decision of the Delhi Bench of ITAT in Impsat (P) Ltd. vs. ITO and the Delhi High Court in CIT vs. Vived Marketing Servicing Pvt. Ltd.

The Tribunal rejected this argument, stating that there is a difference between a dissolved company and a defunct company. In the case of a defunct company, the identity of the company still exists, and therefore, legally, an assessment can be made. The Tribunal concurred with the CIT(A)'s view that the argument of the appellant does not have merit and thus rejected it.

Conclusion:

The Tribunal dismissed both appeals, upholding the addition of Rs. 1,00,75,000/- as income under Section 28(iv) read with Section 2(24) and confirming the legitimacy of assessment on the defunct companies. The Tribunal found no infirmity in the orders of the CIT(A) and the AO.