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TMI Blog2017 (11) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... o offered to tax as income within the meaning of Section 41(1) of the Act. The loan received is a capital receipt and it does not lose its capital nature even when it is renounced or waived by the lender. - There is no merit for treating the waiver of loan as taxable u/s.41(1) of the IT Act. - Decided in favor of assessee. - ITA No.657/Mum/2009, ITA No.595/Mum/2008 And ITA No.1116/Mum/2013 - - - Dated:- 3-10-2017 - SHRI R.C.SHARMA, AM And SHRI AMARJIT SINGH, JM For The Assessee : Shri J.D. Mistry For The Revenue : Shri Ram Tiwari ORDER PER R.C.SHARMA (A.M): These are the appeals filed by the assessee against the order of CIT(A)-XXIX dated 21/11/2008 for the A.Y. 2000-01 and 2001-02 in the matter of order passed u/s.143(3) of the IT Act. 2. The following grounds have been taken by the assessee in the A.Y.2000-01:- I. VALIDITY OF RE-OPENING OF ASSESSMENT UNDER SECTION 148 OF THE ACT: 1.1 On the fact and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) [hereinafter referred to as CIT (A)] erred in upholding reopening of the assessment for the above year by the learned Assessing Officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... void and bad in law. II. ADDITION IN RESPECT OF SETTLEMENT OF LOAN UNDER SECTION 41 (1) READ WITH SECTION 28(iv) OF THE ACT ₹ 1,50,00,000/-: 2.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the addition made by the Assessing Officer for a sum of ₹ 1,50,00,000/- respect of waiver of loan on settlement with the bank by invoking the provisions of Section 41(1) read with Section 28(iv) of the Act. 2.2 The learned CIT(A) and Assessing Officer failed to appreciate the detailed submissions made by the appellant and the rule of law laid down in various decisions relied upon by the appellant in this behalf. The appellant prays that the addition made by the learned Assessing Officer be deleted as the same is unwarranted, unjustified and bad in law. III. ASSESSMENT OF INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES ₹ 1,90,029/-: 3.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the assessment made by the Assessing Officer in respect to interest income for the year under the head Income from Other Sources as against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n with overdraft facilities extended to the assessee company Banque Nationale De Paris India. The amount so paid had been waived by Group SHRM. The assessee company written back an amount of ₹ 8,33,834.70 representing the interest component to the profit and loss account under the head other income. AO observed that the balance amount of ₹ 65,00,000/- paid by Group SHRM and waived off becomes income of the assessee itself as there exists no liability for this amount. This net amount of ₹ 65,00,0000/- becomes income of the assessee company. 7. In view of the above, A.O held that the amount of Ra. 65,00,000/- chargeable to tax had escaped assessment and accordingly the A.O. reopened the case u/s, 147 of the Act and finally added ₹ 65,00,000/- u/s.41(1) of IT Act. 8. By the impugned order, CIT(A) confirmed the action of the AO against which assessee is in further appeal before us. 9. We have considered rival contentions and carefully gone through the orders of the authorities below and also deliberated on the judicial pronouncements referred by lower authorities in their respective orders and also as cited by learned AR and DR during the course of hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of obtaining a loan is not a trading transaction and therefore, the same cannot be considered as income exigible to income tax. The rule of law laid down by the Hon'ble Supreme Court in the case of CUT Vs. Ty Sundaram lyengar Sons Limited (1996) 222 ITR 344 relied upon by assessee also refers to cessation of trading liability. It is useful to refer to the observations of the Supreme Court in this regard; 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 charges its character when the amount becomes the assessee's own money because of limitation owned by any other statutory or contractual right. When such a thing happens, common sense demand that the amount should be treated as income of the assessee. If a common sense view of the matter were taken, the assessee, because of the trading operation, had become richer by the amount which it transferred to its profit and loss account. The money had arisen out of ordinary trading transaction. Although the amounts received originally were not of income nature, the amounts remained with the assesses for a long pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent observed: If the agent's deposit had in truth been a payment in advance to be applied by the Company in discharging the sums from time to time due from the agent in respect of petroleum products transferred to the agent and sold by him, the case might well be different and might well fall within the ratio decidendi of Landes Bros. Vs. Shnpson (1934) 19 Tax Cos. 62 and Imperial Tobacco Co., Vs. Kelly (1943) 25 Tax Cas.292.But, that is not the character of the deposit here in question. The intention manifested by the terms of the agreement is that the deposit should be retained by the company, carrying interest or the benefit of the deposit or throughout the terms of the agency. It is to be available during the period of the agency for making good the agent's defaults in the event of any default buy him, but otherwise it remains, us 1 see it, simply as a loan owing by the company to the agent and repayable on the termination of the agency; and I do not see how the fact that the purpose for which it is given is to provide it security against any possible default by the agent can invest it with the character of a trading receipt . 13. In view of the above, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required written back and duly offered the same to tax. 18. It is clear from the records placed before us that the total dues payable by the Bank consisted of principal component and interest component. The principal Component being a loan in respect of which no deduction, benefit or loss was either claimed or allowed, was transferred to Capital Reserve Account and interest component was duly credited to the Profit and Loss Account and also offered to tax as income within the meaning of Section 41(1) of the Act. The loan received is a capital receipt and it does not lose its capital nature even when it is renounced or waived by the lender. 19. As we have already discussed this issue in the A.Y.2000-01, therefore, following the reasoning given hereinabove, we do not find any merit for treating the waiver of loan as taxable u/s.41(1) of the IT Act. 18. In the result, appeal of the assessee for A.Y.2001-02 is also allowed. 19. In ITA No.1116/Mum/2013, assessee is aggrieved for levy of penalty u/s. 271(1)(c) in the A.Y.2001-02 for treating the waiver as revenue receipt. As we have already deleted the addition while deciding the quantum appeal for the A.Y.2000-01, penalty lev ..... 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