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2017 (4) TMI 47 - AT - Income TaxMAT computation - Interest amount liable to tax u/s. 41(1) - principal portion of the waived loan - Held that - On similar nature of issues there are divergent views of various benches of the Tribunal, however, one common point/ratio permeating through all the decisions, which can be deduced by us is that, if an assessee company is in receipt of a capital receipt which is not chargeable to tax at all, that is, it does not fall within any of the charging section or can be classified under any heads of income under the Income Tax Act, then same cannot be treated as part of net profit as per Profit & Loss account or reckoned as working result of the company of the relevant previous year and consequently, cannot be held to be taxable as book profit under MAT in terms of section 115JB. Accordingly, our conclusion remains the same that, the capital surplus on account of waiver of dues neither is nether taxable nor can be included in computation of book profit u/s 115JB. The loan taken for an acquisition of a capital asset does not constitute trading liabilities which has been allowed as a deduction in earlier years and any kind of waiver thereof would fall within the deeming fiction of section 41(1). We have already clarified that the amount which can be subjected to tax under section 41(1) can only be those amounts or receipts which have been allowed as deduction in the computation of income in the earlier years and if this primary condition is not satisfied, then there cannot be any addition under this section. In the case of Hon ble Bombay High Court in Solid Containers (2008 (8) TMI 156 - BOMBAY HIGH COURT) the waiver of loan was taken for trading activity and the assessee has credited such a waiver to the profit & loss account and claimed it to be a capital receipt. Before us one more argument was taken by the Ld. CIT D.R. that provision of section 28(iv) would get attracted because the waiver of loan amounts to value of any benefit or perquisite, whether convertible into money or not, arising from business. First of all it is seen that it is neither the case of the Assessing Officer nor the case of the Ld. CIT(A) that the amount of waiver of loan is to be taxed under section 28(iv). The Hon ble Bombay High Court in the case of Mahindra & Mahindra vs. CIT 2003 (1) TMI 71 - BOMBAY High Court held that a loan which is originally taken for capital expenditure, if waived, will not give rise to taxable income either under section 41(1) or under section 28(iv).
Issues Involved:
1. Non-reduction of net profit by waiver of dues while computing book profits under Section 115JB. 2. Rejection of waiver of the principal portion of the loan while computing book profits under Section 115JB. 3. Levy of interest under Section 234B and 234C. 4. Non-granting of full interest under Section 244A. 5. Addition under Section 41(1) for disallowance of depreciation attributable to capital assets purchased from waived loans. Issue-wise Detailed Analysis: 1. Non-reduction of Net Profit by Waiver of Dues While Computing Book Profits Under Section 115JB: The assessee argued that the waiver of dues amounting to ?390.76 crores should be excluded from the net profit while computing book profits under Section 115JB, asserting that the waiver of the principal amount of the loan and interest payable to UTI were capital receipts and not taxable under the Income Tax Act. The Tribunal held that the waiver of the loan, being a capital receipt, cannot be included in the book profits under Section 115JB. The Tribunal emphasized that the waiver amount should be treated as a capital reserve and not as part of the net profit, thus not forming part of the book profit for MAT purposes. 2. Rejection of Waiver of the Principal Portion of the Loan While Computing Book Profits Under Section 115JB: The assessee contended that the principal portion of the waived loan amounting to ?228.46 crores should not be included in the book profits. The Tribunal agreed, stating that the waiver of the principal amount of the loan, used for the purchase of capital assets, is a capital receipt and should not be included in the book profits under Section 115JB. The Tribunal relied on the principle that capital receipts are not taxable under the Income Tax Act and should not be included in the book profits for MAT purposes. 3. Levy of Interest Under Section 234B and 234C: The assessee challenged the levy of interest under Sections 234B and 234C, which was directed by the CIT(A). The Tribunal did not specifically address this issue in detail, implying that it was consequential to the main issues discussed. 4. Non-granting of Full Interest Under Section 244A: The assessee argued that the AO did not grant full and complete interest as contemplated under Section 244A. The Tribunal did not provide a detailed discussion on this issue, indicating that it was not a primary focus of the judgment. 5. Addition Under Section 41(1) for Disallowance of Depreciation Attributable to Capital Assets Purchased from Waived Loans: The Revenue contended that the waiver of loans should be taxed under Section 41(1) as it resulted in a reduction of the actual cost of the assets, thus affecting the depreciation claimed. The Tribunal rejected this contention, stating that the waiver of loans taken for the purchase of capital assets does not constitute a trading liability and cannot be taxed under Section 41(1). The Tribunal emphasized that depreciation is not a trading liability and the waiver of a loan used for acquiring capital assets does not fall under the purview of Section 41(1). Conclusion: The Tribunal concluded that the waiver of loans, being a capital receipt, should not be included in the book profits under Section 115JB. The Tribunal also rejected the Revenue's contention that the waiver of loans should be taxed under Section 41(1), as the loans were used for acquiring capital assets. Consequently, the assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The Tribunal's decision was based on the interpretation of various provisions of the Income Tax Act and the Companies Act, as well as relevant accounting standards and judicial precedents.
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