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TMI Blog2013 (9) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... the said credit in the account – Held that:- Commissioner (Appeals) has sustained this addition out of the addition of Rs.118.09 crores on the basis that M/s. Gillette Co., USA, had paid the said amount to the credit of the assessee's account - Since the assessee had already credited a sum of Rs. 1.99 crores to its profit and loss account, and offered it to tax, the learned Commissioner of Income-tax (Appeals) restricted the addition to Rs. 9.58 crores, since the amount was credited to the bank account of the assessee. Hence, in the absence of any contrary and satisfactory explanation by the assessee, the learned Commissioner of Income-tax (Appeals) has rightly treated this amount as income of the assessee – Decided against the Assessee. Waiver of loan to be treated as revenue receipt taxable under the Income Tax Act or capital receipt not taxable - Waiver of loan of Rs. 3.34 crores by M/s. Gillette Co., USA – Held that:- Reliance has been placed upon the Hon’ble Delhi High Court in the case of Logitronics P. Ltd. v. CIT [2011 (2) TMI 12 - DELHI HIGH COURT], wherein it has been held that if a loan was taken for acquiring a capital asset, waiver thereof would not amount to any i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the aforesaid sum had been credited to the bank account of the appellant-company could not in law or fact be held to be a valid basis for concluding that such sum represents income of the appellant-company, particularly when it is undisputed that the aforesaid sum had been utilised for repayment of debts by the appellant-company. 1.2 That the learned Commissioner of Income-tax (Appeals) has failed to appreciate that, sums remitted were voluntary payments and, were not received by the assessee for any services rendered to M/s. Gillette, USA, which could not be taxed as income of the appellantcompany. In fact, the learned Assessing Officer has admitted that sum was remitted without any quid pro quo and, therefore could not be held as income under the Act. 2. That the learned Commissioner of Income-tax (Appeals) has further erred both in law and, on facts in confirming the addition of sum of Rs. 3,34,85,700 representing the amount of loan waived by M/s. Gillette, USA. 2.1 That the learned Commissioner of Income-tax (Appeals) has confirmed the aforesaid addition by erroneously and, arbitrarily concluding that, 'it was although originally a capital receipt in the shape of lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions P. Ltd. an affiliate of GIPL. The assessee-company raised a loan of Rs. 66 crores from the Bank of America in the financial year 2000-01, which was primarily utilised to repay the loans/debts of the company as per details given below : (Rs.) Gillette Diversified Operations P. Ltd. 47.25 crores Repayment of ECB to The Gillette Co, USA 4.78 crores Payment of supplier s credit to The Gillette Co. 1.78 crores Repayment of loan to India promoters 9.50 crores In the financial year 2001-02 the assessee-company further borrowed an amount of Rs. 20 crores from Bank of America which was primarily utilised to further repay the loans/debts of the company as per details given below : (Rs.) Gillette Diversified Operations P. Ltd. 7.00 crores Repayment of ECB to The Gillette Co, USA 4.30 crores Repayment of loan to The ANZ Grindlays Bank 8.50 crores The funds were raised from banks against the corporate guarantee of M/s. Gillette Co., USA. Besides, a loan was raised of USD 2.3 million from M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Rs.) (a) CA (LWIL) 70,91,390.19 (b) CA (LWIL) 8,88,40,822.47 (c) CC (LWIL) 1,99,40,701.00 Total 11,58,72,913.66 Out of the aforesaid, sum of Rs. 1,99,40,701.00 was already credited to the profit and loss account and was offered as income. However, the balance amount of Rs. 9,59,32,212.66 was utilised for repayment of debts. Thus out of the total sum remitted of Rs. 120,08,40,830.47 a sum of Rs.1,99,40,701.00 was credited to the profit and loss account and the balance sum of Rs. 118,08,00,129.47 was remitted for repayment of debts. Out of this sum of Rs. 118,08,00,129.47 the said sum of Rs. 108,49,67,916.81 was directly appropriated for the benefit of 3 banks and the balance amount of Rs. 9,58,32,212.66 was credited to the bank account of the assessee and utilised for repayment of loans. The Gillette Co., USA waived its claim to the foreign currency loans advanced by it to the assessee-company for working capital under the external commercial borrowings scheme. On October 30, 2002 the assessee filed a return of income declaring a loss of Rs. 34,58,93,385. On March 2, 2005 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um was not in the nature of the income as it did not arise in the course of carrying on its business and cannot be taxed under section 28(1)(iv) of the Act. This action of the learned Commissioner of Income-tax (Appeals) has been questioned by the assessee in ground Nos. 1, 1.1 and 1.2 of the appeal preferred by it. In support of the grounds of the appeal of the Revenue the learned Departmental representative has basically placed reliance on the assessment order. He submitted that there was no disruption in the business of the assessee. The copy of memorandum of understanding (MOU), was not produced before the Assessing Officer. The same was produced only before the learned Commissioner of Income-tax (Appeals). He referred to pages 463 to 465 of paper book volume III, i.e., copy of memorandum of understanding (MOU) dated January 5, 2002 in support. The learned Departmental representative submitted that the said memorandum of understanding culminated into master agreement dated March 4, 2002 which was amended on March 26, 2002. The learned Departmental representative submitted that the nature of payment was revenue as rightly held by the Assessing Officer. He submitted that nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 392 (SC) ; (xviii) CIT v. G. R. Karthikeyan [1993] 201 ITR 866 (SC) ; (xix) CIT v. Smt. Shanti Meattle [1973] 90 ITR 385 (All) ; (xx) CIT v. Avinash Pasricha [2001] 251 ITR 360 (Delhi) ; (xxi) Logitronics P. Ltd. v. CIT [2011] 333 ITR 386 (Delhi) ; and (xxii) National Cement Mines Industries Ltd. v. CIT [1961] 42 ITR 69 (SC). The learned authorised representative tried to justify the first appellate order on the issue raised in the ground of appeal preferred by the Revenue. He submitted that the learned Commissioner of Income-tax (Appeals) should have deleted the entire addition of Rs. 118,09,00,129 made by the Assessing Officer. He reiterated the submissions made before the authorities below in this regard. He submitted that the Gillette Co., USA had no interest in the assessee-company. As the assessee-company was incurring losses, Gillette Co., USA found it prudent to get itself discharged from the security produced by it in respect of the loans raised by the assessee-company. In order to do so in March, 2002 Gillette Co., USA, the holding company voluntarily remitted a sum of money to Bank of America, New Delhi branch to LWIL account, especially for the benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 392 to 426 (agreements) of the paper book volume 3. He also referred to pages 62 to 92 (loan agreements) of paper book I, page 45 (letter of offer from Gillette Co., USA dated December 4, 1996) paper book I, pages 46 to 53 (application for approval to RBI dated March 4 and 11, 1997) of paper book I, pages 54 to 60 (approval dated June 13, 1997 from RBI) paper book I, page 61 (letter dated July 23, 1998 from Ministry of Finance) paper book I, and pages 72 to 74 (letter dated April 24, 2001 from Ministry of Commerce and Industry) paper book I, etc. He placed reliance on the following decisions : (i) CIT v. General Electrodes and Equipments Ltd. [1985] 155 ITR 78 (Bom) ; (ii) Ms. Payal Kapur v. Asst. CIT [2006] 98 ITD 19 (Delhi) ; (iii) Smartalk P. Ltd. v. ITO [2009] 313 ITR (AT) 96 (Mumbai) ; and (iv) Shyam Telelink Ltd. v. ITO [2006] 99 ITD 576 (Delhi) In support of the grounds Nos., 1.1 and 1.2 of the appeal preferred by the assessee, the learned authorised representative submitted that the learned Commissioner of Income-tax (Appeals) has sustained the addition of Rs. 9.59 crores only on the basis that the amount of Rs. 9.59 crores stood credited in the assessee's bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abilities could not be a ground in law to regard the same as its income as it is a well settled position of law that every receipt is not income, submitted the learned authorised representative while placing reliance on the following decisions : 1. Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 (SC) ; 2. CIT v. N. Swamy [2000] 241 ITR 363 (Mad) ; 3. Dilip Kumar Roy v. CIT [1974] 94 ITR 1 (Bom) ; and 4. Kishinchand Chellaram v. CIT [1980] 125 ITR 713 (SC). The learned authorised representative submitted further that a debt waived or forgone cannot partake the character of income either under section 41(1) or section 28 of the Act. He placed reliance on the following decisions : 1. CIT v. Phool Chand Jiwan Ram [1981] 131 ITR 37 (Delhi) ; 2. Deputy CIT v. Tosha International Ltd. [2008] 116 TTJ (Delhi) 941 ; 3. CIT v. Tosha International Ltd. [2011] 331 ITR 440 (Delhi) ; 4. CIT v. Goyal MG Gases Ltd. (Delhi) in I. T. A. No. 364, 365, 368, 369, 370 and 923 of 2007 ; 5. Mahindra and Mahindra Ltd. v. CIT [2003] 261 ITR 501 (Bom) ; 6. CIT v. A.V.M. Ltd. [1984] 146 ITR 355 (Mad) ; 7. CIT v. P. Ganesa Chettiar [1982] 133 ITR 103 (Mad) ; 8. Fidelity Textiles P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income and placed reliance on the decision of the hon'ble Allahabad High Court in the case of CIT v. Smt. Shanti Meattle [1973] 90 ITR 385 (All). He submitted that the payment is in the nature of subsidy and not subsidy. He also pointed out that waiver of payment was made to the assessee through bank and not to the bank as held by the learned Commissioner of Income-tax (Appeals). The payment was made only out of the agreement, submitted the learned Departmental representative. We have considered the above submissions in view of the orders of the authorities below, material available on record and the decisions relied upon. An undisputed fact remained that a total sum aggregating to Rs.120,08,40,830.47 was remitted by M/s. Gillette Co., USA. The said amount was comprising of Rs. 97,06,00,000 as per FIRC made available at page 93 of the paper book volume 1 and Rs. 23,02,40,830.47 as per FIRC, made available at page 94 of the same paper book volume 1. Out of the aforesaid sum of Rs. 120,08,40,830.47, sums aggregating to Rs.108,49,67,916.81 was directly appropriated for the benefit of three banks, i.e., Bank of America (Rs. 96,35,08,609.81, page 93), Standard Chartered Bank (Rs. 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jain family (Jain family) and JHPL Holdings P. Ltd. (JHPL) to incorporate the assessee-company for carrying on the business of manufacture and distribution of writing instruments and stationery products in India. The share capital of the assesseecompany was thus allotted to Jain family, JHPL, GIPL and its affiliates. In the year 2001 Gillette Co., USA, sold its business of writing instruments to Newell, USA. The shareholding of the GIPL in LWIL was also sought to be transferred to Newell. For this purpose various agreements were executed between GIPL, and Jain family on January 17, 2001, whereby Newell was also made a party (assignment agreement) and wherein the Jain family had given consent to transfer of shares by GIPL and its affiliates to Newell and Newell had also been granted an approval by the Ministry of Commerce and Industry, Department of Industrial Policy and Promotion vide letter dated April 24, 2001 for acquisition of shares of the assessee-company from Gillette group. In the year 2002 Newell expressed its unwillingness to acquire the shareholding of the Gillette group in the assessee-company. In other words Newell, desired not to join or become a part to the joint ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LWIL and thereby secure the release and discharge of the corporate guarantee(s) given by M/s. Gillette to the said bank to guarantee credit facilities extended by the said bank to LWIL ; (ii) United States dollar equivalent to Indian rupees 21,459,307.00 (rupees twenty one million four hundred fifty nine thousand three hundred and seven only) to be paid to Standard Chartered Grindlays Bank in full and final settlement of the amounts owing at closing to the said bank by LWIL ; (iii) United States dollar equivalent to Indian rupees 100,000,000, (rupees one hundred million only) to be paid to Canara Bank in full and final settlement of the amounts owing at closing to the said bank by LWIL ; (iv) United States dollar equivalent to Indian rupees 19,940,701 (rupees nineteen million nine hundred forty thousand seven hundred and one only) towards settlement of claims made by LWIL against supplies made by M/s. Gillette ; and (v) The balance amount, if any, shall be credited to LWIL's account maintained with Bank of America, New Delhi." (c) M/s. Gillette shall pay previous year to Ms. Pooja Jain, at closing, a sum of USD 1,000,000, by way of compensation." In pursuant to the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eel and Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC) and rightly so, that the decision relied upon by the Assessing Officer is not applicable since in the present case no subsidy was received by the assessee. In the present case except the amount to the extent of Rs. 11.58 crores, the remitted amount have not been received by the assessee and was directly appropriated for the three banks. The undisputed fact also remained that M/s. Gillette Co., USA had provided primary security in the shape of corporate guarantee for the grant of loan to the assessee-company and the amount had been paid to the bankers for discharge of such corporate guarantee directly. The only dispute that remained was as to whether the remittance was in respect of any interest held by the assessee. The fact that the amount had been paid to the bank for discharge of the stated corporate guarantee itself suggests that the sum remitted was not in the nature of profit but a capital receipt. There is no material to support the finding of the Assessing Officer that the amount was paid to improve the financial position of the assessee-company by discharging its liabilities and enabling the assessee to earn income. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-company arranged through foreign bank for bank guarantee for Rs. 10 lakhs to enable the assessee to obtain loan of like amount from an Indian Bank. Subsequently the foreign company paid Rs. 5 lakhs to the foreign bank in part extinction of liability. The Income-tax Officer held that payment was in course of carrying on of the assessee's business and assessable as income. The Tribunal held that the payment was made by foreign company to foreign bank and not to the assessee, the payment amounted to discharge of the foreign company's liability, foreign company was to be released of all financial obligations in relation to affairs of the assessee, benefit obtained by the assessee was not in the course of carrying on of business and thus value of benefit was not assessable as income. The hon'ble High Court dismissed the appeal preferred by the Revenue against the order of the Tribunal. Almost similar facts of the case before us in the present case are these as the assessee-company was incurring losses and was unable to pay of the loans it had obtained from the bankers, the Gillette Co., U.S.A. considered it prudent to satisfy its own liability as a guarantor for the loans. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ider. In the case of CIT v. Chuharmal Manghandas [1997] 228 ITR 528 (MP) the issue was regarding change in the constitution of firm on the death of the partner and the inclusion of his wife. In the case of Raghunarayan Rice Mills v. CIT [1970] 75 ITR 682 (Orissa) the issue raised was allowability of business expenditure in the case of payments amounted to settlement of the contract otherwise than of actual delivery within the meaning of Explanation 2 to section 24 of the Indian Income-tax Act, 1922. In the case of Delhi Stock Exchange Association Ltd. v. CIT [1961] 41 ITR 495 (SC), the question was whether the admission fees received by the company from the members and the authorised assistants were taxable in the hands of the company. In the case of Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 435 (SC), the issue was regarding annual value of warehouse based on standard rent. In the case of Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC) the issue was as to whether Salami received from sub-lessee was income or capital. In the case of Bombay Oil Industries Ltd. v. Deputy CIT [2002] 82 ITD 626 (Mum), the issue was as to whether on facts it was cleared that entire transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is beyond the scope of section 5 of the Income-tax Act. There is no dispute that an amount of Rs. 11.58 crores out of Rs. 118.09 crores was credited to the bank account of the assessee. Since the assessee had already credited a sum of Rs. 1.99 crores to its profit and loss account, and offered it to tax, the learned Commissioner of Income-tax (Appeals) restricted the addition to Rs. 9.58 crores, since the amount was credited to the bank account of the assessee. Hence, in the absence of any contrary and satisfactory explanation by the assessee, we are of the view that the learned Commissioner of Income-tax (Appeals) has rightly treated this amount as income of the assessee. The same is upheld. Ground Nos. 1, 1.1 and 1.2 of the appeal of the assessee are thus rejected. Issue No. 3 (Ground Nos. 2, 2.1 and 2.2 (assessee)) We have already discussed the relevant facts relating to the issue herein above in previous paragraphs. In brief the Assessing Officer did not agree with the explanation of the assessee that the waiver of loan of Rs. 3.34 crores by M/s. Gillette Co., USA, constitutes capital receipt and he made addition of this amount of Rs. 3.34 crores in the income of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. The learned Departmental representative on the other hand tried to justify the orders of the authorities below on the issue. He placed reliance on the decision of the hon'ble Delhi High Court in the case of Logitronics P. Ltd. v. CIT [2011] 333 ITR 386 (Delhi). Having gone through the decisions relied upon by the parties especially the decision of the hon'ble jurisdictional High Court of Delhi, in the case of Jagatjit Industries Ltd. [2011] 337 ITR 21 (Delhi) we find that the facts in the case of Jagatjit Industries Ltd. are more or less similar to the facts of the present assessee before us. In that case the issue was as to whether 21 percent of the said gain should be treated as revenue receipt because of the reason that 21 percent of the capital was to be utilised for general corporate uses. The hon'ble High Court observed that undisputedly the entire money collected in foreign exchange represented share capital. Even use of the share capital raised, i.e., how this money is to be utilised, would be of no consequence. Even if money is raised by issuance of equity share domestically, the money thus collected as share capital is treated as share capital receipt. Obviously ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as such from the very beginning in the books of account the waiver thereof may result in income more so when it was transferred to the profit and loss accounts, held the hon'ble High Court. While holding so the hon'ble Delhi High Court has been pleased to refer several decisions including the decision of hon'ble Supreme Court in the case of CIT v. Karam Chand Thapar [1996] 222 ITR 112 (SC) relied upon by the learned Commissioner of Income-tax (Appeals) in the present case. We thus reach to the conclusion that unless it is examined in the present case as to what was the purpose of taking the loan amount which was waived, the taxability of the waived amount as income cannot be adjudicated upon. Since this material aspect of the facts has remained to be examined by the authorities below before holding the waived amount as income exigible to tax, we meet the end of justice, while setting aside the orders of the authorities below remand the matter to the file of the Assessing Officer with direction to adjudicate upon the issue afresh in view of the decision of the hon'ble Delhi High Court in the case of Logitronics P. Ltd. v. CIT [2011] 333 ITR 386 (Delhi) as discussed above aft ..... X X X X Extracts X X X X X X X X Extracts X X X X
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