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TMI Blog2017 (4) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... taken for an acquisition of a capital asset does not constitute trading liabilities which has been allowed as a deduction in earlier years and any kind of waiver thereof would fall within the deeming fiction of section 41(1). We have already clarified that the amount which can be subjected to tax under section 41(1) can only be those amounts or receipts which have been allowed as deduction in the computation of income in the earlier years and if this primary condition is not satisfied, then there cannot be any addition under this section. In the case of Hon’ble Bombay High Court in Solid Containers (2008 (8) TMI 156 - BOMBAY HIGH COURT) the waiver of loan was taken for trading activity and the assessee has credited such a waiver to the profit & loss account and claimed it to be a capital receipt. Before us one more argument was taken by the Ld. CIT D.R. that provision of section 28(iv) would get attracted because the waiver of loan amounts to value of any benefit or perquisite, whether convertible into money or not, arising from business. First of all it is seen that it is neither the case of the Assessing Officer nor the case of the Ld. CIT(A) that the amount of waiver of loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 crores. The additional grounds raised by the assessee read as under: 4. Without prejudice to Ground 1 above, the Ld. Commissioner of Income Tax (Appeal) [ the CIT (A)] has erred on facts and in law in not reducing waiver of the principal amount of loan and waiver of interest payable to UTI (which such interest was not claimed as an expenditure at all) in aggregate amounting to ₹ 314.48 crores, from the net profit, while computing Book Profit u/s 115JB of the Act. 5. On the facts, in law and in the particular circumstances of the present case, keeping in view the amendment to section 115JB regarding adjustment of deferred tax asset/liability brought about by the Finance Act, 2009, the learned CIT(A) ought to have allowed the appellant the set off of loss for the previous year of ₹ 438.63 crores instead of ₹ 172.36 crores, while computing Book Profit u/s 115JB of the Act, otherwise, the computation mechanism of Book Profit for MAT in the current year leads to double taxation as upheld by the Calcutta High Court in Balrampur Chini Mills Ltd. and Jaipur Tribunal in the case of Maharaja Shree Umaid Mills Ltd. 6. On the facts and in the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 109,41,00,000/-, being the amount of depreciation attributable to the capital assets purchased out of loans taken from financial institutions but subsequently waived, liable to be taxed u/s. 41(1) of the Act. Non reduction of ₹ 314,48,07,026/-, being waiver of loans, while determining Net Profit for the purpose of computing book profits u/s. 115JB. 5. The background of the waiver of the loan is that, assessee had availed rupee term loans and foreign currency loans from various Indian and foreign financial institutions and banks for setting up of integrated steel plants. The foreign lenders had sanctioned foreign currency loans of about ₹ 1000 crores as buyer's credit for purchase of various equipment, plant and machinery etc. The assessee had utilized the above loans to pay the purchase price of the imported plant and machinery for setting up of the Steel plants. The loans were repayable over various maturity dates up to 2010. After setting up the steel plants, the assessee had incurred huge loss due to economic recession in general and steel industry in particular and was under severe financial crisis. Hence, the assessee was unable to meet its finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the above item is not in the nature of profits and gains of business and accordingly, is not includible within the Book Profits under Section 115JB. In any event, the principal amount waived and written back cannot be considered as income and the same should not be included in the Book Profit. While the Company has, out of abundant caution, included the above item in the computation of Book Profits to the extent of ₹ 3,907,603,999, the Company reserves its right to exclude such sum from Book Profits during the course of assessment/appellant proceedings. For this purpose, the assessee relies on the following decisions of the Income-tax Appellate Tribunal. Sutlej Cotton Mills Ltd. V ACIT (1993) 45 ITD 22 (Cal) (SB) Sipani Automobiles Ltd. V DCIT (1993) 46 ITD 280 (Bang) NCL Industries Ltd. V JCIT (2004) 88 ITD 150 (Hyd) Even while filing the Auditor s report in form no. 29B in accordance with section 115JB(4) along with return of income, the assessee company again mentioned that exceptional item representing waiver of loan was capital receipt and hence could not be considered to be part of book profits for the purpose of section 115JB. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t once has adopted the said amount as the part of the book profit then the same has to be accepted as such. He rejected the assessee s contention that notes given in the statement of accounts that it is not includable within book profit cannot be considered. He distinguished the judgments relied upon by the assessee and finally he upheld the action of the Assessing Officer for including the waived amount for the purpose of arriving the book profit. 8. Before us, the Ld. Counsel for the assessee, Mr. Kanchan Kaushal submitted that the amount of waiver of loans needs to be reduced from the net profit for the purpose of computing the book profit u/s 115JB to the extent of ₹ 314.14 crores on the ground that firstly, the exclusion of capital receipt though credited to the profit loss account is in accordance with Part II III of VIth Schedule of the Companies Act, 1956 as only the working results of the company is required to be considered for the purpose of computing the book profit under the provisions of section 115JB; and secondly, the waiver of loan is a capital receipt because it was taken for the purchase of capital assets and hence it does not fall within the def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue that assessee itself has included the waiver of amount in its profit loss account, Mr. Kaushal submitted that the said working has to be read with the caveat given in notes to the account which has to be read along with the balance sheet of the profit loss account. The assessee has very categorically stated that the waiver amount is not includable in the working of the book profit and it has been shown out of abundant precaution to avoid any amount of interest or penalty. In support of his contention, he relied upon the decision of Hon ble Delhi High Court in the case of Sain Processing Weaving Mills (P) Ltd (2010) 325 ITR 565 (Del). In the case before the Hon'ble Delhi High Court, the assessee did not charge depreciation to the Profit Loss account, but disclosed the same in the Notes forming part of accounts. However, while computing book profit u/s 115J of the Act, it claimed the amount of depreciation as deduction from the net profit disclosed in the profit and loss account. The relevant observation of the Hon ble High Court in respect of the said controversy was as under: The answer to this poser is found in sub-section (6) of section 211 of the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 115JB observed and held as under: The object of insertion of section 115J of the Income Tax Act, 1961, was to ensure levy of minimum tax on what are known as 'prosperous zero-tax companies'. Under the scheme of the section, where the total income of companies as computed under the provisions of the Act, in respect of the previous year relevant to the assessment year, is less than 30 per cent of their book profits, the total income of such companies chargeable to income-tax for the relevant previous year is treated as income equal to 30 per cent of such book profits and is taxed accordingly. It also provides for certain adjustments by way of adding amounts and granting deductions for computing the chargeable income under section 115J (1). Sub-section (2) provides that determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years will have to be made unaffected by the provisions in sub-section (1) of section 115J. The very object of the provisions of section 115J is to tax such companies which are making huge profits and also declaring substantial dividends but are managing their affairs in such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 238. ii. ACIT vs. Shree Cement Ltd. (ITA Nos.614, 615 635/JP/2010). iii. ACIT vs. L.H. Sugar Factory Ltd. and vice versa in ITA Nos.417, 418 339/LKW/2013 dated 9 February 2016. iv. DCIT vs. Binani Industries Ltd. in ITA No.144/Kol/2013 dated 15 February 2016. v. DCIT vs. M/s. Garware Polyester Ltd. (ITA No.5996/Mum/2013). 10. On the other hand, the Ld. CIT D.R. submitted that once the assessee itself has credited the waiver amount to the profit loss account, then neither the Assessing Officer nor the assessee can tinker with such profit loss account. In support of it, he strongly relied upon the decision of Hon ble Supreme Court in the case of Apollo Tires Ltd. vs. ACIT, reported in 255 ITR 273. The assessee is required to prepare its Profit Loss account as per part II III of VIth Schedule of the Companies Act and here in this case assessee did prepared its Profit Loss account as per the requirement of the Companies Act and therefore, said Profit Loss account cannot be disturbed while computing the book profit under section 115JB which are the non obstante provisions and code by itself. Once the assessee itself has offered the amount as income under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial institutions for setting up of integrated steel plants. It is an undisputed fact that loan taken and utilized was for the purchase of plant and machinery for setting up of steel plant, i.e., for acquisition of capital assets. The assessee due to heavy losses and its inability to meet its financial commitment, entered into a corporate debt restructuring package in respect of the loan taken from various Indian and foreign financial institutions. After negotiations the principal and interest amount which was waived by the institutions were calculated at ₹ 390,76,03,999/- which consists of following amounts:- Particulars Amount (Rs.) Waiver of principal loans 228,46,76,328 Waiver of interest payable to UTI 86,01,30,698 Waiver of interest, guarantee commitment fees 76,27,96,973 Total 390,76,03,999 Out of the said amount it is an admitted fact that sum of ₹ 76,27,96,973/- has been added back by the assessee in its computation of income and has been offered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the receipt is disclosed by the assessee and there is no dispute about the truth of that disclosure, the income-tax authorities are not entitled to raise an inference that the receipt is assessable to income-tax on the ground that the assessee has failed to lead all the evidence in support of his contention that it is not within the taxing provision. Generally the waiver of remission of a liability cannot be regarded as income in the hands of the assessee unless it is a trading liability and if the waiver of a loan is on capital account then certainly it cannot be reckoned as income or revenue, which is clearly evident from the relevant provisions of section 41(1) which reads as under: (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 ..... Mahindra vs. CIT, reported in 261 ITR 501. Similarly, in a later judgment Hon ble Court in the case of CIT vs. Softworks Computers Pvt. Ltd., reported in 354 ITR 16, after considering the said judgment and also the judgment of Solid containers Ltd., reported in 308 ITR 417, observed and held as under:- 7. We find that the decision of this court in the matter of Solid Containers Ltd. (supra) has also considered the earlier decision in the matter of Mahindra and Mahindra Ltd. (supra) and distinguished the same by holding that in that case the loan was given for purchase of capital assets unlike in the case of Solid Containers Ltd. (supra) where waiver was of a loan taken for trading activity and thus considered to be of a revenue nature. In the present case, 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 utilized 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. (supra). The present case is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. Explanation.-For the purposes of this section, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- (a) ------ to (f) -------- if any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by- (i) ------- to (viii) --------. From the reading of the above provision it can be seen that; Firstly, it is a non-obstante provision which provides that if the income tax payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year is less than 7 % of its book profit , then such book profit shall be deemed to be the total income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 115JB is the net profit as per the profit loss account prepared in accordance with the provisions of the Companies Act. The primary purpose of preparing profit loss account under the Companies Act is to find out the result of the working of the company during the period covered by the profit loss account which has been enshrined in Part II of the Companies Act. The relevant portion of Part II reads as under:- 1. The provisions of this Part shall apply to the income and expenditure account referred to in sub-section (2) of section 210 of the Act, in like manner as they apply to a profit and loss account, but subject to the modification of references as specified in that sub-section. 2. The profit and loss account- (a) shall be so made out as clearly to disclose the result of the working of the company during the period covered by the account, and (b) shall disclose every material feature, including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature. 3. The profit and loss account shall set out the various items relating to the income and expenditure of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se provisions do not require that those items must necessarily be accounted as a part of the profit loss account. Separate disclosure is intended to ensure that the reader of the profit loss account gets a fair and clear picture of the result of the working of the company during the period covered by the profit loss account. The aforesaid provision cannot be so read so as to require that every non-recurring transaction or transaction of an exceptional nature to be debited/credited to the Profit Loss account. Accounting Standard-5 prescribes the classification and disclosure requirements of certain items in the statement of profit loss account, whereas the Accounting Standard-9 gives the illustration of revenue recognition. AS-5 defines Profit or Loss for the period in the following manner: All items of income and expense which are recognised in a period shall be included in the determination of the net profit or loss for the period unless an Accounting Standard requires or permits otherwise. Thus, what is contemplated is that, all items of income and expenses which are recognised in a period alone are reckoned as net profit or loss. The recognition criteria of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y/ reserve account, which in the present case has been taken to the Profit and Loss account. The disclosure compulsions merely require the assessee to disclose the material items in the Profit Loss account. A mere disclosure of an extraordinary item in the profit loss account statement does not mean that the said item represents the working result of the company, when the accounting standard, especially AS-9 clearly provides that remission of a liability is not to be recognized as revenue, then it has to be reckoned that it cannot be treated as revenue for the purpose of either net profit or consequently book profit. The primary purpose of preparing the Profit Loss account in Part II of the Companies Act is to find out the result of the company, during the period covered by the profit loss account and the exceptional nature items are required to be disclosed separately so as to assess the correct impact on the profit loss account of the company. What is required under clause (3) of Part II of Schedule VI of the Companies Act, is that, a profit loss account should set out various items relating to the income and expenditure of the company arranged under the most conveni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounting Standards it can be ostensibly deduced that an item of capital surplus can never be a part of profit loss account albeit it is a part of a capital reserve as the waiver of a loan taken for acquisition of a capital asset is a capital receipt falling within the category of capital surplus which is non-recurring and exceptional item which to be disclosed as per the requirement of the Companies Act. Further it is quite pertinent to note that, clause (ii) of Explanation -1 of section 115JB is also an indicator of the intention of the legislature and also the scheme of the section that the incomes which are treated as exempt under the Income Tax Act are to be excluded from the profit loss account. The said clause excludes; (ii) the amount of income to which any of the provision 0f section 10 or section 11 or section 12 apply, if any such amount is credited to the profit and loss account; When the said clause requires exclusion from the book profit all that amount of income which are exempt and are not in the nature of income, if any such amount is credited to the profit loss account, then on same logic it would be inconceivable that this provision intends that bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -.serve is of a capital nature and does not have an income character, it cannot be added back to the book profits merely because of the enabling provision in the Explanation to section 115J for the purpose of imposing a tax thereon. Apart from the fact that capital gains is deemed to be income under section 45, it has to be kept in mind that even section 115J deems 30 per cent of the book profit to be total income chargeable to tax. The legislative history shows that the tax under section 115J was with reference to the business profit as it was in replacement of section 80VVA which sought to reduce the deductions available in computing the income from business. When section 80VVA was introduced in 1983-84, the intention was to restrict the various tax incentives and concessions available in computing the income from business to 70 per cent thereof. Significantly, the deduction under section 80T in respect of capital gains was not one of the items of concession or tax rebate which was to be restricted under that section. This shows that exemption of capital gains was not intended to be restricted. Subsequently also when that section was replaced by section 115J, the object was to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade. Any revaluation of fixed assets or investments does not indicate the accrual of any profit because profit or loss will arise only on sale or disposal and not on revaluation and such unrealized profit on revaluation cannot be brought to tax. However, it is well recognized that, in case of unrealized appreciation of fixed assets, they are written up on revaluation on the assets side of the balance-sheet to give a true and fair view of the company's affairs on a particular date, i.e. balance sheet date and the net surplus is shown as a capital reserve. This is not a regular annual feature but an exercise undertaken at appropriate junctions in the career of a company. In contrast, in the case of stock-in-trade, if the assessee had been following the method of valuing at cost and changes to the method of valuation at market value, such a valuation has to be made thereafter every year at market value on the valuation date. But, in the case of fixed assets, if the investments have been shown at cost for some years and the value is written up or written down on revaluation at market rate on a particular date, there is no change in the method of accounting so as to require the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 390.76 crores which is on account of waiver of dues. However, while computing the book profit and tax payable under section 115JB the assessee included the said amount for calculating the tax under MAT. Along with the said computation, the assessee has given the following note which reads as under: The Company has credited an amount of ₹ 390,76,03,999 as an exceptional item in its Profit and Loss account. This includes write-back of certain principal amounts and certain interest dues, as a part of a restructuring package with its lenders Out of these amounts, the Company has not considered the writeback of principal amounts (amounting to ₹ 228,46,76,328) as a taxable income since the same is in the nature of capital receipt in the hands of the Company. Further, these amounts do not represent the reversal of any amount allowed as a deduction in any earlier year. Hence the provisions, of section 41(1) do not apply in respect of this write-back. As regards the write-back of the balance amount relating to waiver of interest dues, the Company has offered for tax those amounts which had been claimed as a deduction in earlier years on provision basis amounting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not taxable then he can always demonstrate and satisfy to the authorities that a particular income was not taxable in his hand and it was returned under an erroneous impression of law. There cannot be imposition of tax without the authority of law. One has to look what is envisaged under the Act to be taxed and there is no room for intendment or tax authorities can capitalize on acquiescence by assessee sans any authority by law. The court and taxing authorities have bounden duty to decide as to whether a particular category of assessee is to pay a particular tax or not. Even if we agree that Assessing Officer could not have entertained such a fresh claim but in view of the decision of Hon ble Supreme Court in the case of Goetz India Ltd. vs. CIT (supra) as heavily relied upon by the Ld. CIT D.R., however, it does not impinge upon the powers of the appellate authorities including Ld. CIT(A) and Tribunal. This has been clarified by the Hon ble Supreme Court itself in the concluding part of the said judgment. There is no such bar or statutory restrain on the appellate authorities to permit/entertain such additional claims which has been raised by the assessee before them. This p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged by the Hon ble Apex Court will not apply here because, as we have held above that waiver amount is a capital reserve which cannot be included in the net profit as shown in the profit loss account for the relevant previous year and consequently cannot be taxed as book profit. 20. So far as non-inclusion of interest amount payable to UTI in the net profit or working result of the company, our finding given above will not only apply to waiver of principal loan but also to the waiver of interest payable to UTI for the reason that, it is not taxable as per the provision of section 41(1), because, admittedly the assessee has not claimed the said amount as deduction in the earlier years in view of the provisions of section 43B. Once it has not been claimed as deduction then there is no question to be offered for tax under section 41(1). Thus it cannot be regarded as income in the hands of the assessee. The legal proposition as discussed above would apply in the case of waiver of interest payable to UTI, because firstly, it is not a remission of trading liability or has been allowed as expenditure in any of the earlier assessment year so as to be deemed as taxable under section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eptional nature irrespective of its nature i.e. whether capital or revenue. That, it would be inappropriate to directly transfer such amount to capital reserve [see Companies Act by A. Ramaiya, p. 1669 (Fourteenth Edn.]. Such receipts are also covered by Cl. 2(b) of Part II of Sch. VI of the Companies Act which, inter alia, states that P L a/c shall disclose every material feature, including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature. Lastly, even under cl. 3(xii)(b) profits or losses in respect of transactions not usually undertaken by the Company or undertaken in circumstances of exceptional or non-recurring nature shows clearly that capital gains should be included for the purposes of computing book profits. That, capital gains would certainly be one of the various items whose information is required to be given to the shareholders under the said cl. 3(xii)(b). So also, the disclosure is required to be made in respect of investment in the capital of a partnership firm if the company is a partner on the date of the balance sheet (see pg. 1651 of the Companies Act by A. Ramaiya [Fourteenth Edn.]. Sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly, added back the same for the purpose of assessment u/s. 115JB. In this background it was held as under:- Now the question is, in such circumstances, where the assessee has option to account the surplus profit in two different methods, one by including in the prof its and the other without including in the prof its, what should be the implication for the purpose of computing taxable income under a scheme of MAT. 11. In this context, particularly in the matter of income by way of capital gains, the Bombay High Court has held in the case of Veekaylal Investment Co. (P.) Ltd. (supra) that clause 3 (xii)( b) of Part II of Schedule VI to the Companies Act, requires disclosure of profits or losses from transactions of an exceptional nature. In the light of the said disclosure and accounting requirement mandated by Schedule VI to the Companies Act, the Hon'ble Bombay High Court has held that the capital gains arising to a company should form part of the book profit for the purpose of section 115J. As far as this issue is concerned, there is no functional distinction between section 115J and section 115JB. Therefore, we find that the specific issue of capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit' as provided under the Act in Explanation 1 to sub-section (2) to Section 115JB. What the assessee s case is, first determine the correct amount of 'Net Profit' as per Profit and Loss account which is the starting point for computation u/s. 115JB and then tax the book profit. Whence as per our discussion above the receipts in question itself is not part of net profit, then there is no question of bringing it to tax under MAT. c) Hindustan Shipyard Ltd. vs. DCIT (2010) 130 TTJ 213 (Vizag): Relevant facts were that, during the year under consideration, the Government of India had waived loan (a portion by way of conversion of loan into equity) and interest thereon due from the assessee. The assessee did not credit, both, the principal and interest waiver in the Profit and Loss account though the details of waiver disclosed in notes to accounts. Such accounting treatment was qualified by auditor. The assessing officer accepted that waiver of principal amount of loan not taxable. However, according to him, since interest amount was liable to tax u/s. 41(1) and therefore, accounts prepared could be modified to tax such interest u/s. 115JB. In this background it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer has adjusted the net profit as per Profit and Loss account which is the starting point of calculation under section 115JB, i.e., before one enters the computation of 'Book Profit' under the Explanation to sub-section (2) of Section 115JB. In other words, the Hon'ble Tribunal after considering the Hon'ble Supreme Court decision in the case of Apollo Tyres Ltd. has allowed tinkering to the 'Net Profit' which is the starting point for computing 'Book Profit' u/s. 115JB. d) Duke Offshore Ltd. vs. DCIT (2011) 45 SOT 399 (Mum):- In this case, the assessee had a settlement with the bank as a result of which there was a waiver/reduction of loan. The assessee had shown the same amount as extraordinary item in the Profit and Loss account. While computing book profits for the purpose of section 115JB, the assessee did not consider the said waiver. However, the assessing officer included such waiver of loan and interest thereon for the purpose of computing book profits u/s. 115JB. The tribunal in this background held as under:- 15. The Jurisdictional High Court in the case of CIT Veekaylal Investment Co P Ltd (249 ITR 597) has held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustment was sought was that the item under consideration was 'revenue in nature' per se. However, in the case of Duke Offshore Ltd. (supra), the Tribunal was dealing with an item of receipt which is capital in nature and not 'income' per se. Further, from the perusal of the decisions of the Hon'ble Bombay High Court and Hyderabad Special Bench stated at point no. (b) (c) above, it is seen that both the decisions deal with the issue of taxability of capital gains in computing Book Profit u/s. 115JB of the Act. These capital gains were otherwise income u/s. 2(24) of the Act and exclusion was claimed by the assessee while computing Book Profit u/s. 115JB on the ground that the said capital gains were exempt either u/s. 47(iv) or not constitute commercial profits. However, in the case of Duke shore before the Tribunal, the waiver was not capital gains but pure capital receipts which does not even have any 'income', 'profits', 'gains' embedded therein. Accordingly, all the above decisions relied upon by the Hon'ble Mumbai Tribunal were different on facts as compared to the facts under consideration. Though this decision is against the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of computing book profits u/s 115JB except the permissible adjustment provided under the Explanation to sec.115JB of the Act itself. It is not disputed that this amount does not fall in the ambit of any of the clauses of Explanation to 115JB. Therefore, once this amount has been disclosed in the P L A/c prepared strictly as per provisions of Schedule VI of the Companies Act, the same cannot be excluded for the purpose of computing book profits u/s 115JB. We find that the CIT(A) has rejected the claim of the assessee by following the judgment of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) as well as the Hon'ble Supreme Court in the case of CIT v. HCL Comnet Systems Services Ltd. [2008] 305 ITR 4091174 Taxman 118 (SC). Accordingly, in the facts and circumstances of the case as well as above discussion, we do not find any error or illegality in the impugned order of the CIT (A). This decision is again against the assessee, however at the outset, it is seen that the Tribunal has not at all adjudicated on the contention of the assessee that remission being capital receipt, cannot be considered as income even for the purpose of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no question of including the same in the Book Profit as per the scheme of the provisions of sec. 115JB of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to exclude the above said profit from the computation of Book Profit for the reasons discussed above. b) ACIT vs. Shree Cement Ltd. (ITA Nos.614, 615 635/JP/2010) following Shree Cement Ltd. vs. ACIT (2015) 152 ITD 561 (Jaipur) wherein it was held that: 13.4. From perusal of the decisions of Rain Commodities (supra) and Growth Avenues (supra), we notice that both the decision dealt with the issue of taxability of capital gains in computing Book Profit u/s 115JB of the Act. These capital gains were otherwise income u/s 2(24) of the Act and exclusion was claimed in computing Book Profit u/s 115JB on the ground that the said capital gains was exempt either u/s 47(iv) or u/s 54EC of the Act, which the Tribunal did not agree. In the present case, however, we are dealing not with capital gains but with pure capital receipt, which does not even have anti 'income', 'profits or, gains' embedded therein. The impugned incentive granted to the Assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal rendered in the case of Rain Commodities Ltd. Vs. DCIT, 41 DTR 449, if profit and loss account is not in accordance with Part II Part III of Schedule VI to the Companies Act, 1956 because it is prerequisite for Section 115JB of the Act. The Tribunal in this case also considered two another Tribunal's orders rendered in the case of DCIT Vs. Bombay Diamond Company Ltd-33 DTR 59 and Syndicate Bank Vs. ACIT, 7 SOT 51 Bangalore where it was held by the Tribunal after considering the decision of Hon'ble Apex Court rendered in the case of Apollo Tyres Ltd. (Supra), and after 28 explaining the same that adjustment to profit and loss account is possible to make it compliant with Schedule VI Part II and Part III of the Companies Act, 1956 which is prerequisite of Section 115JB of the Act. On this basis, the Tribunal in the case of Shree Cement Ltd. (Supra) decided this issue in favour of the assessee and it was held that capital receipt in the form of sales tax subsidy needs to be excluded from profit as per P L account for the purpose of computing book profit u/s 115JB of the Act. By respectfully following these Tribunal's orders, we hold that in the present case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilar nature of issues there are divergent views of various benches of the Tribunal, however, one common point/ratio permeating through all the decisions, which can be deduced by us is that, if an assessee company is in receipt of a capital receipt which is not chargeable to tax at all, that is, it does not fall within any of the charging section or can be classified under any heads of income under the Income Tax Act, then same cannot be treated as part of net profit as per Profit Loss account or reckoned as working result of the company of the relevant previous year and consequently, cannot be held to be taxable as book profit under MAT in terms of section 115JB. Accordingly, our conclusion remains the same that, the capital surplus on account of waiver of dues neither is nether taxable nor can be included in computation of book profit u/s 115JB. 24. Other grounds raised by the assessee on chargeability of interest have not been argued before us and moreover they are consequential in nature, therefore, they are treated as dismissed. 25. Accordingly, assessee s appeal is treated as partly allowed. 26. Now we will take up Revenue s appeal wherein following grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the loan went to reduce the cost of the asset purchased out of such losses and therefore, excess depreciation already allowed in the previous year amounting to ₹ 109.41 crores was held to be taxable under section 41(1). While doing so, the Assessing Officer relied upon the decision of Hon ble Bombay High Court in the case of M/s. Nectar Beverages Pvt. Ltd. vs. DCIT reported in 267 ITR 385. In sum and substance the Assessing Officer s conclusion was as under: (i) Depreciation is in the nature of expenditure and deductible from tax liability and therefore, any subsequent recovery of any amount which can be linked to the depreciation claim is taxable. (ii) Waiver of loan taken for purchase of Plant Machinery was tantamount to deriving benefit from the articles that had enjoyed depreciation and hence was held to be falling within the purview of section 41(1). 28. The Ld. CIT(A), after noting down the various decisions, observed that the decision of Hon ble Bombay High Court has been reversed by the Hon ble Supreme Court, since reported as Nectar Beverages Pvt. Ltd. vs. DCIT (2009) 314 ITR 314 and held as under: On a careful consideration of the facts br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions made by the parties and also considered the relevant finding given in the impugned orders. First of all it is seen that Assessing Officer s case is that provisions of section 41(1) are applicable because the assessee has claimed depreciation in the earlier years on the loan taken for acquisition or capital asset and for coming to this conclusion he has heavily relied upon the decision of Hon ble Bombay High Court in the case of Nectar Beverages vs. DCIT (supra). This observation and finding of the Assessing Officer now stands negated by the judgment of Hon ble Supreme Court in the case of Nectar Beverages vs. DCIT (supra) wherein the Apex Court has reversed the said decision of the Hon ble Bombay High Court and observed that depreciation is neither a trading liability as referred to in section 41(1) nor the principal component of the borrowings for acquisition of a capital asset has not been allowed as an allowance or deduction in the earlier years and hence, any waiver thereof, does not constitute income under section 41(1). In any event an allowance of depreciation can in no way be related to waiver of a loan taken to purchase of the asset in question, since the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, under no circumstances it can be held to be a trading liability. Depreciation allowance has no connection with waiver of the capital loans in question and hence would not attract section 41(1). By way of additional grounds the Ld. D.R. has sought to contend that in view of the decision of Hon ble Bombay High Court in the case of Solid Containers Ltd. 308 ITR 407 the waiver of a loan is to be reckoned as in the nature of trading liabilities and therefore, it is taxable under section 41(1). As discussed in detail in the earlier part of the order, here it is not the case of the Assessing Officer that the principal amount of loan taken by the assessee was for any trading account, albeit it was for the purchase of a capital asset which has never been allowed as a deduction. The loan taken for an acquisition of a capital asset does not constitute trading liabilities which has been allowed as a deduction in earlier years and any kind of waiver thereof would fall within the deeming fiction of section 41(1). We have already clarified that the amount which can be subjected to tax under section 41(1) can only be those amounts or receipts which have been allowed as deduction in the comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be upheld and same is rejected. 30. Before us one more argument was taken by the Ld. CIT D.R. that provision of section 28(iv) would get attracted because the waiver of loan amounts to value of any benefit or perquisite, whether convertible into money or not, arising from business. First of all it is seen that it is neither the case of the Assessing Officer nor the case of the Ld. CIT(A) that the amount of waiver of loan is to be taxed under section 28(iv). The Hon ble Bombay High Court in the case of Mahindra Mahindra vs. CIT 260 ITR 180 501 held that a loan which is originally taken for capital expenditure, if waived, will not give rise to taxable income either under section 41(1) or under section 28(iv). The relevant observation and finding of the Hon ble Bombay High Court reads as under: The income which can be taxed under Section 28(iv) must not only be referable to a benefit or perquisite, but it must be arising from business. Secondly, Section 28(iv) does not apply to benefits in cash or money. Secondly, in this case we are concerned with the purchase consideration relating to capital asset. The toolings were in the nature of dies. The assessee was a manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X
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