2023 (9) TMI 1322 - HC - Income Tax

Income taxable u/s 28(iv) - additions as 'benefit' by waiver of loans - determination of the nature of loan - Tribunal has treated the amount flowing back to the assessee consequent to waiver of loan relating to day-to-day operation as income of the assessee under Section 28(iv) of the I.T. Act. whether the wavier of loan leading to a 'benefit' would fall within the ambit of income in terms of Section 28(iv) of the I.T. Act and hence, chargeable to Income Tax? - HELD THAT - The clinching factor as per the in Mahindra and Mahindra 2018 (5) TMI 358 - SUPREME COURT to bring the benefit/perquisite within the term 'income' under Section 28(iv) of the I.T. Act was that the 'benefit/perquisite' should be other than in the shape of money , while holding that the benefit upon loan waiver was in the form of a cash receipt and did not satisfy the test to make it taxable within the terms of section 28(iv). Clearly, the purpose of loan was neither dealt with nor would be a relevant determinative factor. The only test is that the 'benefit' or 'perquisite' should be other than in the shape of money . Thus, in the present case, the nature of loan would be of no relevance and accordingly, the exercise of ascertaining the purpose of loan as contended by the Revenue does not arise. The judgment of Apex Court in Mahindra and Mahindra (supra) holds the field. The benefit of waiver of loan in the present case is also not other than in the shape of money . Accordingly, the 'benefit' would fall outside the ambit of Section 28(iv) of I.T. Act. The recent amendment to Section 28 of I.T. Act vide Finance Bill 2023 Finance Bill 2023 - 11. In section 28 of the Income-tax Act, for clause (iv), the following clause shall be substituted with effect from the 1st day of April, 2024, namely (iv) the value of any benefit or perquisite arising from business or the exercise of a profession, whether (a) convertible into money or not; or (b) in cash or in kind or partly in cash and partly in kind; wherein the legislature has included 'benefit' even in form of 'cash' arising from business or profession as being chargeable to income tax. Such amendment substantiates the interpretation of the Apex Court in Mahindra and Mahindra (supra), wherein it was concluded that the 'benefit' not being other than in the shape of money i.e., 'benefit' in form of 'cash' would fall outside the ambit of Section 28(iv) of the I.T. Act by proposing the present amendment. Accordingly, the order passed by the Income Tax Appellate Tribunal is set aside. - Additions deleted - Decided in favor of assessee.

Summary

Issues Involved:
1. Maintainability of the Writ Petition under Section 254(2) of the I.T. Act.
2. Applicability of the law laid down in Mahindra and Mahindra regarding waiver of loan as a monetary benefit under Section 28(iv) of the I.T. Act.
3. Final Order.

Summary:

(A) Maintainability of the Writ Petition:

The court examined whether the Writ Petition could be entertained against the order passed in a Miscellaneous Petition under Section 254(2) of the I.T. Act, given the alternative remedy of appeal under Section 260A. The court noted that while Section 260A provides for an appeal to the High Court from every order passed by the Appellate Tribunal involving a substantial question of law, the existence of an alternative remedy does not automatically bar the maintainability of a Writ Petition. The court emphasized that the exercise of jurisdiction under Article 226 of the Constitution is discretionary and subject to self-imposed limitations. The court referred to various judgments, including L. Sohanraj and others v. Deputy Commissioner of Income Tax and Magadh Sugar and Energy Ltd v. State of Bihar, to conclude that the entertaining of a Writ Petition in the presence of a statutory alternative remedy is a matter of appropriateness and discretion. The court rejected the contention regarding the maintainability of the Writ Petition, clarifying that the judgments relied upon by the Revenue do not create a bar on maintainability.

(B) Applicability of Mahindra and Mahindra:

The court examined whether the law laid down in Mahindra and Mahindra, which held that waiver of loan constitutes a monetary benefit outside the purview of Section 28(iv) of the I.T. Act, would apply in this case. The court noted that the Revenue did not rely on Section 41(1) of the I.T. Act and focused on whether the waiver of loan leading to a 'benefit' would fall within the ambit of income under Section 28(iv). The court referred to Section 28(iv), which states that the value of any benefit or perquisite arising from business or the exercise of a profession, whether convertible into money or not, is chargeable to income tax. The court noted that the Apex Court in Mahindra and Mahindra had held that for a benefit to be taxable under Section 28(iv), it should be other than in the shape of money. Since the benefit in this case was in the form of a cash receipt due to the waiver of loan, it did not satisfy the condition of Section 28(iv) and was not taxable. The court concluded that the nature of the loan was irrelevant and that the benefit of waiver of loan in this case fell outside the ambit of Section 28(iv).

(C) Final Order:

The court set aside the order dated 05.09.2022 passed by the Income Tax Appellate Tribunal "C" Bench, Bangalore in M.P. No.47/Bang/2022 in ITA No.1317/BANG/2018 for the Assessment Year 2006-2007. The Tribunal was directed to reconsider M.P.No.47/Bang/2022 in light of the discussion made without reopening any fresh questions for consideration. The petition was disposed of accordingly.