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TMI Blog2016 (4) TMI 954X X X X Extracts X X X X X X X X Extracts X X X X ..... value. If the holder of the voucher is entitled to transfer it to someone else for a monetary consideration, it becomes a perquisite convertible into money. But, irrespective of whether it is convertible into money or not, it should have a monetary value so as to attract Section 28(iv). A monetary transaction, in the true sense of the term, can also have a value. Any number of instances where a monetary transaction confers a benefit or perquisite that would have a value, can be conceived of. There may be cases where an incentive is granted by the supplier, waiving a portion of the sale price or granting a rebate or discount of a portion of the price to be paid, when the payments scheduled over a period of time, are made promptly. It is needless to point out that in such cases, the prompt payment of money itself brings forth a benefit in the form of an incentive or a rebate or a discount in the price of the product. We do not know why it should not happen in the case of waiver of a part of the loan. Therefore, the finding recorded in paragraph 27.1 of the decision in Iskraemeco Regent Limited [2010 (11) TMI 43 - Madras High Court ] that Section 28(iv) has no application to any tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduced, not by repayment, but by the lender writing it off (either under a one time settlement scheme or otherwise), only one entry gets into the books, as a natural entry. A double entry system of accounting will not permit of one entry. Therefore, when a portion of the loan is waived, the total amount of loan shown on the liabilities side of the balance sheet is reduced and the amount shown as Capital Reserves, is increased to the extent of waiver. Alternatively, the amount representing the waived portion of the loan is shown as a capital receipt in the profit and loss account itself. - Decided in favour of revenue - Tax Case (Appeal) No. 278 of 2014 - - - Dated:- 22-4-2016 - V. Ramasubramanian And T. Mathivanan, JJ. For the Appellant : Mr. T. Ravikumar, Senior Standing Counsel - IT For the Respondent : Mrs. Dr. Anita Sumanth JUDGMENT V. Ramasubramanian, J. This Tax Case Appeal is filed by the Revenue, under Section 260-A of Income Tax Act 1961. On 22.8.2014, the appeal was admitted on the following substantial questions of law:- 1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment Year 2007-08), the appellant complied with the terms of One Time Settlement and obtained a No Due Certificate from the bank. Under such circumstances, the First Appellate Authority held that the merer acceptance of the conditional offer of the Indian Bank under the One Time Settlement Scheme, without complying with the substantive part of the terms and conditions, would not give a vested right of waiver. Therefore, the first Appellate Authority held that the interest waived to the extent of ₹ 1.68 Crores was eligible to tax under Section 41(1) and consequently, he deleted the addition of ₹ 1,67,74,868/-. 7. On the issue of interest not paid under Section 43-B, the first Appellate Authority held that the assessee placed before him the relevant ledger accounts and the confirmation from the bank as on 31.3.2006. Thereafter, the first Appellate Authority held that it was wrong on the part of the Assessing Officer to conclude that the payment of ₹ 93,89,844/- was just a book entry. The first Appellate Authority concluded that it was evident from the records that the appellant actually paid ₹ 1,20,26,254/- during the financial year 2005-06. 8. On th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with respect to Section 28(iv) of the Income Tax Act and that the same cannot be termed as an income within the purview of Section 2(24). In paragraph 29 of the judgment, this Court held that Section 28(iv) has no application to loan transactions and that therefore, it cannot be termed as income taxable as a receipt. 13. However, drawing our attention to the definition of the expressions income and total income under Sub-sections (24) and (45) of Section 2 and the provisions of the charging Section 4 as well as the relevant provisions of Sections 28(iv), 41(1) and 59, it is contended by Mr.T.Ravikumar, learned Standing Counsel for the Department that the principal amount of loan waived by the Bank under the one time settlement was a taxable receipt coming within the definition of the expression income . 14. In support of his above contention, the learned Standing Counsel for the Department also relied upon the following decisions: (i) CIT v. T.V.Sundaram Iyengar Sons Ltd. [222 ITR 344], (ii) Solid Containers Ltd. v. Deputy Commissioner of Income Tax [308 ITR 417 (Bom.)], (iii) Logitronics P Ltd. v. CIT [333 ITR 386] and (iv) Rollatainers Ltd. v. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided in various clauses. In other words, the definition of the expression income is inclusive. 21. Keeping the above in mind, if we go to Section 28, Clause (iv) of Section 28 makes the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession as income chargeable to income tax under the head profits and gains of business or profession . 22. Section 41 which deals with profits chargeable to tax, speaks about the receipt of a benefit in respect of a trading liability, by way of remission or cessation of the liability. Section 41(1) requires to be extracted and hence, it is extracted as follows: Section 41: (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... took the view that these amounts represented surplus that had arisen as a result of trade transactions and that therefore, the amounts had the character of income. Therefore, the Assessing Officer added these amounts as the income of the assessee for the purpose of assessment. The Commissioner (Appeals) deleted these additions and the same was upheld by the Tribunal. On an application under Section 256(2) to the High Court, the High Court held that the issue was already covered by the decision of the High Court in C.I.T. Vs A.V.M.Limited [146 ITR 355]. When the matter was taken to the Supreme Court, the Supreme Court found that there was a conflict of decisions among various High Courts. Some High Courts had taken the view that if deposits taken by the company in the course of its trading operations were not refunded, partly or in full, the amounts retained by the assessee would constitute its income. Some other High Courts had taken the view that if the deposits were originally of a capital nature, their character will not change merely by lapse of time and even when the amount was taken to the profit and loss account of the assessee. The reasoning behind the second view was that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s follows : In other words, the principle appears to be that if an amount is received in the course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, commonsense demands that the amount should be treated as income of the assessee. 28. In Solid Containers Limited Vs. D.C.I.T. [308 ITR 417], a Bench of the Bombay High Court was concerned with a case, in which, a loan obtained by the assessee during the previous year for business purposes was written back as a result of the consent terms between the parties. The assessee claimed that the loan was the capital receipt and was not claimed as deduction from the taxable income as expenses and hence, it did not come under Section 41(1). The Assessing Officer held that the credit balances written back was the income of the assessee that arose out of the business activity and hence, liable to tax under Section 28. The Tribunal relied upon the decision in T.V.Sundaram Iyengar Sons and upheld the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sundaram Iyengar Sons Limited [(1996) 222 ITR 344], wherein unclaimed deposits received in the course of trading transaction were held to be taxable is applicable to waiver of loan? 31. Before proceeding with the discussion on the substantial questions of law, the Delhi High Court took note of the broad scheme of the Act and posed a question to itself as to what would be the character of waiver of part of the loan at the hands of the assessee, though such waiver definitely brings some benefit to the assessee. If the waiver of the part of the loan brings a capital receipt, then only the capital gains tax would be chargeable under Section 45 and if not, the question was whether remission of loan was no income at all. 32. The Delhi High Court started with the decision of the Supreme Court in T.V.Sundaram Iyengar Sons and after analysing the same in great detail, the Delhi High Court took note of the decision of this Court in Iskraemeco Regent Limited, on which, heavy reliance is placed in this case by the assessee. 33. On the basis its analysis of the decision of this Court in Iskraemeco Regent Limited, the Delhi High Court came to the conclusion in paragraph 23 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38. With great respect, the above reasoning does not appear to be correct in the light of the express language of Section 28(iv). What is treated as income chargeable to income tax under the head 'profits and gains of business or profession' under Section 28(iv), is the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. 39. Therefore, it is not the actual receipt of money, but the receipt of a benefit or perquisite, which has a monetary value, whether such benefit or perquisite is convertible into money or not, which is what is covered by Section 28(iv). Say for instance, a gift voucher is issued, enabling the holder of the voucher to have dinner in a restaurant, it is a benefit of perquisite, which has a monetary value. If the holder of the voucher is entitled to transfer it to someone else for a monetary consideration, it becomes a perquisite convertible into money. But, irrespective of whether it is convertible into money or not, it should have a monetary value so as to attract Section 28(iv). A monetary transaction, in the true sense of the term, can also have a value. Any number of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of business or profession is allowed as deduction under Section 36(1)(iii), in computing the income referred to in Section 28. But, the proviso thereunder states that any amount of interest paid in respect of capital borrowed for acquisition of an asset for extension of existing business or profession, whether capitalised in the books of account or not for any period beginning from the date on which the capital was borrowed for the acquisition of the asset, till the date on which such asset was put to use, shall not be allowed as deduction. 43. Therefore, it is clear that the moment the asset is put to use, then the interest paid in respect of the capital borrowed for acquiring the asset, could be allowed as deduction. When the loan amount borrowed for acquiring an asset gets wiped off by repayment, two entries are made in the books of account, one in the profit and loss account where payments are entered and another in the balance sheet where the amount of unrepaid loan is reflected on the side of the liability. But, when a portion of the loan is reduced, not by repayment, but by the lender writing it off (either under a one time settlement scheme or otherwise) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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