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TMI Blog2020 (4) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... eived as trading receipts may be regarded as business income - as considered by the CIT(A) that if the loan was for the trading purpose and was treated as such from the very beginning in the books of account, the waiver thereof may result in the income. It was, therefore, held that the waiver of the loan should be taxable under the provisions of Section 2(24) read with Section 28(iv) of the Act. Aforesaid findings given by the CIT(A) are contrary to the facts of the case as the amount credited to capital reserve by the assessee pertains to principal amount borrowed without there being any component of interest embedded therein. In that view of the matter the dictum in case of Mahindra and Mahindra Ltd [ 2003 (1) TMI 71 - BOMBAY HIGH COURT] would be applicable and as such neither Section 28(iv) of the Act nor Section 41(1) of the Act would be applicable so as to tax the amount of waiver of loan comprising of principal amount in the ends of the assessee. We are in agreement with the findings given by the Tribunal. The question of law raised in this appeal cannot be termed as substantial question of law. - R/TAX APPEAL NO. 726 of 2019 - - - Dated:- 13-1-2020 - MR. J.B. PARD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] and the decision of the Bombay High Court in the case of Solid Container Limited [308 ITR 417] confirmed the addition made by the Assessing Officer pertaining to waiver of loan of ₹ 8,07,35,116/. 3.4 The assessee, therefore, preferred an appeal before the Tribunal. The Tribunal, relying upon the decision of the Madaras High Court in case of Iskraemeco Regent Ltd. vs. CIT [ (2011) 331 ITR 0317] and the decision of the Bombay High Court in the case of Mahindra and Mahindra Ltd. vs. CIT [(2003) 182 CTR Bom 34, allowed the appeal filed by the assessee. 4. Mrs. Mauna Bhatt, learned Standing Counsel for the appellant contended that the Tribunal ought to have taken into consideration the interest component embedded in the aforesaid sum which was written off by the concerned bank and accordingly, Section 41(1) of the Act would be applicable. 5. Learned Standing Counsel for the appellant relied upon the findings of the CIT(A), which reads as under: 4.3 I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. During the year, the appellant got a waiver of principal amount of loan amounting to ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in case or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1. For the purposes of this subsection, the expression loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28(iv) defined the following 2(24) Income includes Profits and gains; (vd) the value of any benefit or prerequisite taxable under clause (iv) of section 28; 28 (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. Therefore, the benefit received by the appellant by waiver of loan shall be the income of the appellant if it is covered in the above provisions. For this purpose, it would be relevant to examine the facts of the case once again. It is in undisputed fact that the appellant is a state-level development financial institution which is providing comprehensive array of financial services to entrepreneurs who set up industrial units in small scale sectors of the State of Gujarat. The appellant is providing loan and finance for various industrial sectors and is accordingly charging interest on the loan, which is its principal source of income. The capital of the company as well as the loans taken by it from from various financial institutions such as banks etc are used by it in advancing the loans to its customer. The appellant is paying interest on the loans tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiring the capital asset, waiver thereof would not amount to any income exigible to tax. In the other hand, if this loan was for trading purpose and was treated as such from the very beginning in the books of account the waiver thereof may result in the income. Accordingly applying these principles on the facts of present case which show that the appellant has borrowed money from the financial institutions for giving the same on interest to others during the course of its business, the benefit obtained by the appellant by way of waiver of loan should be taxable in the hands of the appellant under the provisions of section 2 (24) (vd) read with Section 28(iv) of the Act. It is held accordingly. Reliance is also placed on the judgment of Hon'ble High Court of Delhi in the case of Logitronics Private Limited 197 Taxman 394 and Bombay High Court's decision in the case of Solid Containers Limited 308 ITR 417 . The appellant has also placed reliance on certain judgments which are mentioned in the written submission reproduced above. I have carefully perused the judgment mentioned. It is noted that none of the judgment is applicable in the case as the judgment of the Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 8,07,35,116/is thus hereby deleted. Thus, this ground of appeal is allowed. 8. We are in agreement with the findings of the Tribunal that waiver of principle amount of loan by IDBI amounting to ₹ 8,07,35,116/under One Time Settlement Scheme does not constitute trading receipt, as such amount was never claimed by the assessee as deduction in past. Therefore, even though such amount is written off by the concerned bank, it does not give rise to the profit chargeable to tax under Section 41(1) of the Act. 9. In case of Mahindra and Mahindra Ltd (supra), in such a situation, after analyzing the provisions of Section 41(1) of the Act read with 28(iv) of the Act, it is held as under: Discussion: 10) The term loan generally refers to borrowing something, especially a sum of cash that is to be paid back along with the interest decided mutually by the parties. In other terms, the 9 debtor is under a liability to pay back the principal amount along with the agreed rate of interest within a stipulated time. 11) It is a well-settled principle that creditor or his successor may exercise their Right of Waiver unilaterally to absolve the debtor from his l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment 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 cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to incometax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or x x x 15) On a perusal of the said provision, it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not claimed any deduction under Section 36 (1) (iii) of the IT Act qua the payment of interest in any previous year. 10. In view of the above position of law and the facts emerging from the record, the CIT(A) has agreed to the submissions of the respondent-assessee that addition cannot be made under Section 41(1) of the Act. However, CIT(A) has considered that the respondent was paying interest on the loan taken by it which was claimed by it as expenditure in profit and loss account, and therefore, it was borrowing with interest which was waived. Therefore, the CIT(A) has applied the ratio of T.V.Sundaram Iyengar and Sons Ltd (supra) to hold that the quality and nature of receipt for income-tax purposes is fixed once and for all, when the receipt is received and that subsequent operation can change its nature, is not absolute and that in given cases by reason of subsequent events, the amount which initially was not received as trading receipts may be regarded as business income. It was considered by the CIT(A) that if the loan was for the trading purpose and was treated as such from the very beginning in the books of account, the waiver thereof may result in the income. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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