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TMI Blog2012 (12) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... onversion took place 6-7 years later. The period of time when the amounts were held by the assessee in its books also factually eliminated the suspicion that the amounts were given as grants or aid. Whether the assessee claimed any depreciation in respect of the second amount i.e. Rs. 45,41,542/-. There is no observation or finding on the part of the assessing officer. If such is actually the position those amounts allowed as depreciation are liable to be added back. For these reasons the matter is remanded, restricted to the second question, for determination as to whether any amount was allowed as depreciation by the assessee towards goods it imported from its holding company - appeal is partly allowed in the above terms in terms. - I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e holding company has waived the obligation of the company to issue shares towards share application money and also waived the obligation of the company to repay the outstanding liability against the import of capital goods and consumables. Thus the company transferred the entire balance of these two amounts to the capital reserve account in accordance with the resolution of Board of Directors dated 31.01.2006. 3. The Assessing Officer in the proceedings for the concerned year took the position that the sum of Rs. 1,32,88,530/- was taxable under Section 28(iv) of the Act as a business receipt and that the sum of Rs. 45,28,192/- was taxable under Section 41(1) of the Act. The Commissioner of Appeals, however, reversed the determination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the loan account. Further, the facts also clearly show that the amounts outstanding in the loan account were on account of capital liability and not on account of trading liability. Based on the facts of the case and the legal principles, the said transfer from loan account to capital reserve cannot be brought to tax under section 41(1). Accordingly, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (Appeals) in holding that the addition of Rs. 45,41,542/- made by the Assessing Officer u/s 41(1) is liable to be deleted. 7. As far as taxation of the transfer of Rs. 1,32,88,530/- from the share application account to the capital reserve account is concerned, the Assessing Officer has taxed it under section 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital goods imported shown in the books of accounts assessee were on capital account. These amounts were outstanding for the period 1994 2000 when they were transferred to capital reserve account and were shown as such. That for 6-7 years till the assessment year in question i.e. 2006-07, they were shown on capital account revealed its intention to treat as capital since inception. 6. This Court has considered the submissions of the parties. As far as the first question is concerned, the Court is of the opinion that the previous Division Bench decision of this Court in case of Handloom Export Corporation of India v. CIT, (1983) 140 ITR 532 is conclusive on the subject. In that case too the holding company had made over amounts to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r view the controversy in hand can be resolved if the test laid down is applied. Therefore, the form and mechanism in which the amount is given as subsidy are irrelevant, but the purpose is. 8. In Logitronics (supra) a Bench of this Court had considered the previous rulings in Sundaram Iyengar Sons Ltd. (supra) as well as decision in CIT v. Karan Chand Thapar, (1966) 222 ITR 112. In both the decisions the Court of Appeal decision in Morley v. Tattersall, (1939) 7 ITR 316 (CA) was analysed. This Court in Logitronics Pvt. Ltd. after examining the previous ruling of the Supreme Court observed as follows: - In the context of waiver of loan amount, what follows from the reading of the aforesaid judgment is that the answer would depend upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of time when the amounts were held by the assessee in its books also factually eliminated the suspicion that the amounts were given as grants or aid. 11. Having said so there is one aspect to the second question as to whether the assessee claimed any depreciation in respect of the second amount i.e. Rs. 45,41,542/-. There is no observation or finding on the part of the assessing officer. If such is actually the position those amounts allowed as depreciation are liable to be added back. For these reasons the matter is remanded, restricted to the second question, for determination as to whether any amount was allowed as depreciation by the assessee towards goods it imported from its holding company. 12. The appeal is partly allowed in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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