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TMI Blog2017 (8) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... t, that the amounts received had depleted by adjustments made by the assessee from time to time and the resultant balance had been transferred by the assessee to the profit and loss account. This is not the case in the present matter. The amounts in this case, though no doubt received as advances for supply of garnet, had remained static without depletion of any sort and more importantly, not been claimed in the previous years. This pre-condition to the application of section 41(1) has not been satisfied in the instant case. The case of T.V.Sundaram Iyengar turned on two facts distinguishable from the present case that the deposits received from the customers had remained unclaimed and become barred by limitation and that TVS itself, treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is in turn wholly held by Western Garnet International Limited, Canada (in short WGI). The appellant company had been set up completely with investment from the parent, WGI. Advances had also been received from WGI towards business needs and the advances were to be adjusted against future supplies of garnet to WGI. 3. The prevailing foreign direct investment policy imposed a cap of 74% in the mining sector. For the balance, individuals were approached. The business of the appellant had not taken off as expected on account of various logistic and administrative reasons and the appellant had been incurring huge losses. The private sources that had been approached for their participation in the equity insisted upon equal investment to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident investor imposed as a condition that the extent of loss that had been incurred be neutralized by further investment by the foreign party. Accordingly WGI had instructed the assessee to convert the advances made by them to capital and credit the same to reserves. The appellant thus claimed that the amount was a capital receipt not liable to tax. 6. The CIT(A), vide order dated 24.11.2004, examined the claim in the light of the provisions of section 41(1) of the Act. The records of the appellant were also examined and a finding recorded to the effect that the conversion of the advances did result in the wiping out of the losses incurred, paving the way for the entry of the Indian participant. 7. The CIT(A) noted that the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant and Mr.Swaminathan, learned counsel on behalf of the Revenue. 10. The provisions of section 41(1) of the Act, the interpretation of which is in issue before us, is extracted below for ease of reference. Profits chargeable to tax: 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 ..... Sundaram Iyengar, (supra), we advert to the same straightaway. 13. In T.V.Sundaram Iyengar, the Bench notes as a fact, that the amounts received had depleted by adjustments made by the assessee from time to time and the resultant balance had been transferred by the assessee to the profit and loss account. This is not the case in the present matter. The amounts in this case, though no doubt received as advances for supply of garnet, had remained static without depletion of any sort and more importantly, not been claimed in the previous years. This pre-condition to the application of section 41(1) of the Act has not been satisfied in the instant case. The case of T.V.Sundaram Iyengar turned on two facts distinguishable from the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following points are to be kept in view: (1) In the course of assessment for an earlier year, allowance or deduction has been made in respect of trading liability incurred by the assessee; (2) Subsequently, a benefit is obtained in respect of such trading liability by way of remission or cessation thereof during the year in which such event occurred; (3) in that situation the value of benefit accruing to the assessee is deemed to be the profit and gains of business which otherwise would not be his income; and (4) such value of benefit is made chargeable to income tax as the income of us. 16. The judgment of the Supreme Court in the case of TVS Iyengar and Sons was distinguished stating that the factual matrix and the provisions consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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