2016 (6) TMI 804 - HC - Income Tax

Addition u/s 68 - ITAT held that old loans being converted into share application money and since there was no fresh infusion of credit, section 68 of the Income Tax Act, 1961 is not applicable - Held that - It is not the case of the revenue that any sum was found credited in the books of the assessee maintained for the previous aware. We are, in this case, concerned with the financial year ending on March 31, 2003 which commenced on April 1, 2002. It is not the case of the revenue that during the period between April 1, 2002 and March 31, 2003, any sum was credited in the books of accounts of the assessee. The case of the revenue is that on April 1, 2002, the assessee owed a sum of ₹ 76,98,000/- to four several creditors. The debt owed by the assessee to those creditors was converted into share applications money. It is as such not a case where money was introduced to the till of the assessee during the relevant previous year. The money had already found its way into the till of the assessee since prior to April 1, 2002. Only the nature of deposit had changed during the previous year. The money which was owed by the assessee by way of loan now became the capital of the assessee. We find that the views taken by the learned Tribunal are in conformity with section 68. Ms. Quereshi has also not been able to disclose any reason why any other view should be taken by us. - Decided against revenue

Summary

Issues:
Appeal against judgment of Income Tax Appellate Tribunal regarding assessment year 2003-04 - Interpretation of Section 68 of the Income Tax Act, 1961 - Conversion of unsecured loan into share application money - Consent of loan creditor for conversion - Justification of Tribunal's decision - Dispute regarding consent between assessee and creditor.

Analysis:
The appeal before the Calcutta High Court involved questions related to the interpretation of Section 68 of the Income Tax Act, 1961, concerning the treatment of converted unsecured loans into share application money for the assessment year 2003-04. The Tribunal had to determine whether the conversion of old loans into share application money without fresh credit fell under the purview of Section 68.

Regarding the first and second questions raised, the Tribunal upheld the Commissioner of Income Tax (Appeals) decision that the converted amount of old loans into share application money did not attract Section 68. The Tribunal noted that since the credit was from the previous year and there was no fresh infusion of credit, Section 68 was not applicable. The Court concurred with this view, emphasizing that Section 68 pertains to sums found credited in the books of the assessee for the relevant year, which was not the case here.

In response to the third question, the Court considered the argument regarding the consent of the loan creditor for the conversion. The counsel for the assessee contended that the issue of consent was a matter between the assessee and the creditor, not relevant to the application of Section 68. The Court agreed, stating that the dispute over consent was not within the purview of the revenue's concern and refrained from addressing it to avoid any adverse impact on the creditor.

Ultimately, the Court dismissed the appeal, affirming the Tribunal's decision and ruling against the revenue. The judgment highlighted the importance of adhering to the provisions of Section 68 and clarified that the conversion of old loans into share application money, without fresh credit, did not trigger the application of Section 68. The Court's decision underscored the necessity of considering the specific provisions of the Income Tax Act in determining the tax implications of financial transactions.