2013 (1) TMI 89 - HC - Income Tax

Waiver or remission of the liability of the loan - Capital or Revenue receipt - Held that - The amount which was advanced as a loan to the respondent-assessee was for the purposes of relocating its office premises. The loan taken was utilised for the purposes of acquiring a office at Godrej Soap Complex, Vikroli, Mumbai. Therefore, the loan in the present fact was taken for acquisition of capital asset and not for the purposes of trading activity as in the case of Solid Containers Ltd (2008 (8) TMI 156 - BOMBAY HIGH COURT). The present case is therefore covered in favour of the respondent-assessee by the decision of this court in the matter of Mahindra & Mahindra Ltd (2003 (1) TMI 71 - BOMBAY HIGH COURT) - in favour of assessee.

Summary

Issues:
1. Whether the waiver of payment is a capital receipt or a revenue receipt for the respondent-assessee for the Assessment Year 2001-02?

Analysis:
The respondent-assessee, a Software Development Center, received an advance from Speedwing British Airways for relocation. Later, Amadeus Global Travel replaced Speedwing British Airways and released the respondent-assessee from repaying the advance. The respondent-assessee claimed the waiver of the liability as a capital receipt in its income tax return. However, the Assessing Officer considered it a revenue receipt and added the amount to the respondent-assessee's taxable income.

In the first appeal, the Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision, stating that the waiver of the loan/advance is a revenue receipt. The respondent-assessee then appealed to the Tribunal, which ruled in favor of the respondent-assessee, stating that the amount cannot be taxed as it was a capital receipt.

During the appeal, the Revenue argued that based on the decision in Solid Container Ltd. v. Dy. Commissioner of Income Tax, a waiver of a loan for business purposes is a revenue receipt. On the other hand, the respondent-assessee's counsel referred to the decision in Mahindra & Mahindra Ltd v. Commissioner Income Tax, where a waiver of a loan for purchasing a capital asset was considered a capital receipt.

The High Court analyzed the facts and determined that the loan was taken for acquiring a capital asset, i.e., relocating the office premises. Therefore, the waiver of the loan was on capital account, similar to the decision in Mahindra & Mahindra Ltd. The court distinguished the case from Solid Container Ltd., where the loan was for trading activity, making the waiver a revenue receipt. As a result, the court dismissed the appeal, stating that no substantial question of law arose for consideration.

In conclusion, the High Court upheld the Tribunal's decision, considering the waiver of the loan as a capital receipt and not a revenue receipt, based on the purpose for which the loan was taken.