2024 (2) TMI 114 - HC - Income Tax

Taxability of Waiver of loan - loan advanced for acquisition of capital equipments - Revenue's first contention that the loan waived was availed towards working capital - whether waiver of loan attributable for the working capital was taxable under Section 28 (iv)? - HELD THAT - Revenue's contention in contra-distinction with the ratio in Mahindra Mahindra Ltd. 2018 (5) TMI 358 - SUPREME COURT the Hon'ble Single Judge has held that the nature of loan would be of no relevance. He has further held that the benefit of waiver of loan in the case on hand is not other than in the shape of money. Therefore, the benefit would fall outside the ambit of Section 24 (iv) of Income Tax Act. It is not in dispute that the assessee had availed loan from several banks and the Consortium of Banks had waived the loan. Thus, whether the loan was availed for the purpose of working capital or acquisition of capital assets should not really matter and we are at one with the Hon'ble Single Judge with regard to findings recorded. Second contention of the Revenue is that right recourse for the assessee was to file an ITA and not a writ petition - Appellant is right in his submission. Ordinarily, a writ Court should not entertain a matter where there exists an alternative efficacious remedy except in rare cases such as violation of Principles of Natural Justice, imposition of disproportionate penalty, etc. In the instant case, the Hon'ble Single Judge has entertained the writ petition by recording that the issue involved is covered by Mahindra Mahindra Ltd. (supra). Having heard the learned Advocates on both sides, we are at one with the view taken by the Hon'ble Single Judge. Though the contention with regard to appellate remedy urged on behalf of the Revenue would merit some consideration, in the facts and circumstances of this case, we do not think it appropriate to interfere with the order passed by the Hon'ble Single Judge. In any event, the matter has been remitted to ITAT and Miscellaneous Petition is pending consideration. In the circumstance, we find no merit in this appeal and accordingly the appeal stands dismissed.

Summary

Issues involved:
The judgment involves the question of whether the waiver of loans by the Consortium of Banks to the assessee is taxable under the Income Tax Act, 1961 for the assessment year 2006-07. Additionally, it addresses the appropriateness of the assessee's challenge through a writ petition instead of an Income Tax Appeal (ITA).

Waiver of Loans Taxability:
The case revolved around the waiver of loans by the Consortium of Banks to the assessee, with the issue of whether the waiver of loan used for working capital or acquisition of capital assets was taxable under Section 28 (iv) of the Income Tax Act, 1961. The Income Tax Appellate Tribunal held that the waiver of loan used for capital equipment was not taxable, while the waiver of loan for working capital was taxable under the Act. The Hon'ble Single Judge set aside the Tribunal's order and directed reconsideration without reopening any fresh questions. The High Court upheld the Single Judge's decision, emphasizing that the nature of the loan, whether for working capital or capital assets, was irrelevant, as the benefit of the waiver was in monetary form falling outside the ambit of the Income Tax Act.

Choice of Remedy - Writ Petition vs. ITA:
The Revenue contended that the appropriate course for the assessee was to challenge the Tribunal's order through an Income Tax Appeal in the High Court rather than a writ petition. While acknowledging the general principle that a writ court should not entertain matters with alternative efficacious remedies, the Hon'ble Single Judge allowed the writ petition, citing the issue's coverage in a specific case law. The High Court concurred with the Single Judge's decision, noting that the issue's relevance to the case warranted the writ petition's consideration, despite the availability of an alternative remedy through an ITA.

Judicial Disposition:
After considering the arguments presented by both parties, the High Court dismissed the Revenue's appeal against the Single Judge's order. Despite acknowledging the merit in the Revenue's contention regarding the appropriate appellate remedy, the Court found it unnecessary to interfere with the Single Judge's decision. The Court highlighted that the matter had been remitted to the ITAT, and a Miscellaneous Petition was pending consideration, leading to the dismissal of the appeal. Consequently, any pending interlocutory applications were also disposed of, with no costs imposed on either party.