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TMI Blog2021 (10) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... es or additions? - HELD THAT:- AO has categorically held the said waiving off of Non Plan Government Loan by Government of India, which loans were earlier granted by GOI in favour of assessee to meet regular business expenses, as an income in the hands of the assessee as the said loans were granted for trading purposes and not for acquiring capital assets, and the AO held that the assessee has rightly credited the same to Profit and Loss Account which is to be brought to tax as the assessee did not offer the same for taxation in the return of income filed with Revenue. AO has followed the ratio of judgment in the case of T.V. Sundaram Iyenger and Sons Limited [ 1996 (9) TMI 1 - SUPREME COURT] and case of Solid Containers Limited [ 2008 (8) TMI 156 - BOMBAY HIGH COURT] while bringing to tax the said waiver of Non Plan Government Loan as income from business of the assessee being a revenue receipts. Thus, we do not find fault with the assessment order passed by the AO that merely because relevant provision of the 1961 statute is not mentioned in assessment order, will take otherwise taxable receipt out of taxation purview merely on the ground that relevant Section is not mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Assessing Officer (hereinafter called the AO ) under Section 147 read with Section 143 (3) of the Income-tax Act, 1961 (hereinafter called the Act ) for ay: 2007-08. We have heard both the parties through Video Conferencing mode through Virtual Court. 2. The grounds of appeal raised by assessee in ITA No. 142/Alld./2017 for ay: 2007-08, in memo of appeal filed with Income-Tax Appellate Tribunal, Allahabad Bench, Allahabad (hereinafter called the tribunal ), reads as under:- 1. Because the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts to confirm the impugned addition made by the Assessing Officer on account of write-back of Government Loan to the tune of ₹ 7292.72 lakhs being waiver of loan duly approved by the Ministry of heavy Industries and Public Enterprises as revival package for financial restructuring of sick Public Sector Enterprises, without making any reference to the relevant section of the Income Tax Act, 1961 under which he has made such addition which is a mandatory practice for making any such disallowances or additions. 2. Because the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts to confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Period expenses and disallowance of excess depreciation. Thereafter, proceedings under Section 147 were initiated by Revenue for impugned ay: 2007-08, and notice under Section 148, dated 16th January, 2014 was issued by the AO to the assessee, and the said notice was claimed by Revenue to be duly served on the assessee. The assessee duly participated in the proceedings conducted by Revenue u/s. 147/148 of the 1961 Act. During the course of aforesaid reassessment proceedings, the assessee requested AO to furnish reasons recorded by the AO for reopening of the assessment u/s. 147/148 of the 1961 Act. The reasons recorded by Revenue for reopening of the assessment by invoking provisions of Section 147/148 of the 1961 Act were duly furnished by AO to the assessee. Thereafter, the assessee filed return of income 'under protest' on 14th February, 2014, in pursuance to notice dated 16.01.2014 issued by AO u/s. 148, wherein income declared by assessee in the aforesaid return of income filed was 'Rs. Nil', whereas Book Profit for MAT u/s. 115JB was declared at (-) ₹ 34,90,58,000/-. Thereafter, the AO issued statutory notices under Section 143(2) and 142(1) of the 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure are those expenditure, which are incurred otherwise. The AO observed that the assessee has rightly credited write off/waiver by Government of 'Plan Government Loans' to the Capital Reserves and there is no dispute between rival parties so far as waiver/write off by Government of 'Plan Government Loans', as these loans were granted to meet capital expenditure, and hence its waiver as per AO will not be taxable. But as per AO, the write off/waiver by Government of 'Non-Plan Government Loans' shall be taxable in the hands of the assessee as the said loans were granted by Government to assessee to meet revenue expenditure. The AO vide notice issued u/s. 142(1) of the 1961 Act, dated 13.02.2015 asked assessee to explain as to why the said amount of write off/waiver of 'Non-Plan Government Loans' by Government amounting to ₹ 72.9272 crores may not be added to the income of the assessee as income from 'Profits and Gains from Business or Profession', under the normal provisions of the 1961 Act. The assessee submitted before the AO during the course of reassessment proceedings that ' as a part of the relief measures and basically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra), has held that waiver of loan obtained by an taxpayer may result in income if the loan is taken for trading purposes and is treated as such from the very beginning in the books of accounts. The AO observed that the said 'Non Plan Government Loan' was not taken by assessee for acquiring Capital Assets, but the said loan was for trading purposes and the assessee has rightly treated the said waiver of loan by Government of 'Non Plan Government loan' as revenue receipts by crediting the same to its P L Account. Thus, the AO by following the ratio of decision of Hon'ble Supreme Court in the case of T.V. Sundaram Iyenger and Sons Limited(supra), which was followed by Hon'ble High Court(s) in the case of Solid Containers Limited(supra) and Logitronics Private Limited (supra) held that the said 'Government Non-Plan Loan' written back amounting to ₹ 72.9272 crores is an income of the assessee from the business and accordingly the AO made additions to the income of the assessee of the aforesaid amount, vide reassessment order dated 31.03.2015 passed by the AO u/s. 147 read with Section 143(3) of the 1961 Act. 4. Aggrieved by an reassessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to various decisions of the Hon'ble Supreme Court and High Courts, which are clearly applicable to the facts of the case. In CIT vs. T.V. Sundaram Iyengar Sons Ltd. (1996) 222 ITR 344 (SC), it was found that the assessee had received certain deposits which were originally treated as capital receipts, but later on, some of the said deposits were neither claimed by nor returned to the depositors and the assessee itself treated the said unclaimed/retained amount as its trade receipts by bringing it to its P L a/c. On these facts, the Hon'ble Supreme Court held that- if a commonsense view of the matter is taken, the assessee, because of the trading operation, had become richer by the amount which it transferred to its P and L a/c. The moneys had arisen out of ordinary trading transactions. Although the amounts received originally were not of income nature, the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of time, the amount attained a totally different quality. It became a definite trade surplus. The commonsense demanded that the amount should be entered in the P and L a/c for the year and be treated as taxable inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee which is a PSU. It was submitted by ld. Counsel for the assessee that details along with sanction letters issued by Government for grant of Non-Plan loans in favour of assessee, which are now waived/written off by Government, are placed in paper book at page number 2A to 135(paper book dated 11.08.2021 containing 162 pages, filed by assessee with tribunal on 12.08.2021(placed in file). It was submitted by ld. Counsel for the assessee that AO added the loan amount treating the same as Revenue, by relying on judgment of Hon'ble Supreme Court in the case of T V Sundrama Iyenger and Sons Limited(supra) and decision of Hon'ble Bombay High Court in the case of Solid Containers Limited(supra). It was submitted by ld. Counsel for the assessee that the AO made the additions without mentioning relevant and applicable provisions under the 1961 statute and hence on this short ground itself this addition is liable to be deleted. The ld. Counsel for the assessee drew our attention to the orders of authorities below and written submissions filed by it, and reference was drawn to para 6.2 and 6.3 (page 25/paper book) and it was submitted that the decision of Hon'ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities below and prayers were made to uphold the appellate order passed by ld. CIT(A). 6. We have considered rival contentions and perused the material on record, including orders of authorities below and cited case laws. The facts in this case are undisputed and are cited by us in preceding para's of this order, which are not repeated again for sake of brevity. In brief, the assessee is a Public Sector Undertaking(PSU) under Central Government, Ministry of Heavy Industry, Ministry of Industry, Government of India., engaged in manufacturing of Pumps, Compressors and Gas Cylinders. As per details furnished by the assessee in paper book/page 136, the assessee has incurred heavy losses over last decade from 1998-99 onwards, so much so its networth was negative to the tune of (-) ₹ 117.15 crores, as at 31.03.2006. The assessee is a Sick Company registered with The Board for Industrial and Financial Restructuring(BIFR). The Government of India has been providing assessee with both Plan Government Loans as well Non-Plan Government Loans, from time to time to meet its financial requirements both capex and to meet its working capital requirements as well to recoup cash losses. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing was placed before the Board for Reconstruction of Public Sector Enterprises. The matter was later placed before the Committee of Secretaries and also Group of Ministers. It is further stated in letter dated 18.12.2006 that based on recommendation of Board for Reconstruction of Public Sector Enterprises, Committee of Secretaries and Group of Ministers, a proposal was placed before the Cabinet in its meeting held on 07.12.2006 for its approval. It is further intimated that competent authorities has, inter-alia, approved the proposal to waive Plan Government Loans and Non-Plan Government Loans to the tune of ₹ 102.75 crores as at 31.03.2006 and to waive off interest dues payable by the assessee to Government to the tune of ₹ 50.40 crores as at 31.03.2006, so that stand could be taken before the BIFR for taking the assessee company out of its purview. The assessee has accordingly, written back Plan Government Loans to Capital Reserves, and there is no dispute between rival parties so far as write back of Plan Government Loans are concerned. There is also no dispute so far as write back of interest due and payable by assessee to Government on both these Plan and Non-Plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant Section is not mentioned by the AO. Thus, this contention raised by assessee lacks merit and deserves to be rejected. Thus, Ground No. 1 is adjudicated against the assessee. We order accordingly. 6.3. Now, coming to Ground No. 2 and 3 which concerns itself with the merits of the issue. We have observed that it is an admitted position that Government of India granted Non-Plan Loans to assessee from time to time from 1993 to 2006 to meet normal and regular business expenses such as Salaries, Gratuity, PF, VRS expenses, guarantee fee for availing cash credit facilities from bank etc. and also to recover cash losses incurred by assessee in normal course of business, and thus these loans were on revenue field to meet day to day normal business expenses, and were not granted for meeting capital expenditure or acquiring capital assets by the assessee. The said Non-Plan Loans aggregating to ₹ 72.9272 crores which were outstanding as on 31.03.2006 were waived/written off by Government of India in order to revive and rehabilitate the assessee. It is also an admitted position that these loans bear contractual obligation on part of the assessee to pay interest to Government of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uirements of the assessee and to recoup the cash losses. The assessee has claimed deduction by way of interest payable on such loans from year to year, while computing income chargeable to tax in the return of income filed with Revenue. The proceeds of such Non Plan Government Loans were utilized by assessee towards payment of day to day normal business expenses towards Salaries, PF, Gratuity, VRS expenses etc. and to recoup cash losses from normal business operations, and these expenses are claimed as deduction from business income, while computing income chargeable to tax from year to year. The assessee is regularly incurring expenses which are higher than its income leading to losses, and the assessee has admittedly claimed carry forward of unabsorbed losses to be set off against income of subsequent years in terms of Section 72 of the 1961 Act. The proceeds of these Non Plan Government Loans were utilized to meet recurring business expenses and to recoup cash losses incurred in regular/normal course of business. Reference is drawn to decision of Hon'ble Supreme Court in the case of T V Sundram Iyengar and Sons Limited(supra), wherein in this case deposits were taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved by Bank, and hence it is hit by Section 28(iv) and such waiver will be chargeable to tax in the hands of the tax-payer. The decision of Hon'ble Madras High Court in the case of Ramaniyam Homes Private Limited(supra) is reproduced hereunder: 16. We have carefully considered the above submissions. 17. For the purpose of convenience, we shall divide the discussion into two parts, the first dealing with the statutory provisions and the second dealing with the decisions of various High Courts and the Supreme Court. STATUTORY PROVISIONS 18. The expression income is defined in Section 2(24) of the Act to include several things, some of which that may be of relevance for the case on hand, are as follows: (a) any sum chargeable to income tax under Clauses (ii) and (iii) of Section 28 or Section 41 or Section 59; (b) any sum chargeable to income tax under Clause (iiia) of Section 28; (c) any sum chargeable to income tax under Clause (iiib) of Section 28; (d) any sum chargeable to income tax under Clause (iiic) of Section 28; and (e) any sum chargeable to income tax under Clause (iv) of Section 28. 19. The expression total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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. 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- Explanation 1. - For the purposes of this sub-section, 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 sub-section by way of writing off such liability in his accounts. Explanation 2. - For the purposes of this sub-section, successor in business means- (i) where there has been an amalgamation of a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich were of capital nature, at the point of receipt by the assessee, have their character changed by efflux of time. Before answering the said question, the Supreme Court took note of the test laid down by Lord Greene in Morley [H.M. Inspector of Taxes] v. Tattersall [1939] 7 ITR 316 (CA) to the effect that the taxability of a receipt was fixed with reference to its character at the moment it was received and that merely because the recipient treated it subsequently in his income account as his own, it would not alter that character. The Supreme Court noted that this test laid down by Lord Greene formed the basis of several judgments delivered by our courts. 26. After taking note of the principle of law laid down by Lord Greene, the Supreme Court considered a few decisions of different High Courts as well as the Supreme Court, where the Courts distinguished the decision in Morley. Thereafter, the Supreme Court pointed out that the amounts in question were not in the nature of security deposits held by the assessee for the performance of contract by its constituents. The Supreme Court also held that the unclaimed surplus retained by the assessee will be its trade receipt and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not attracted. But, the Bombay High Court followed the decision in T.V. Sundaram Iyengar Sons Ltd. (supra) and rejected the claim of the assessee. 29. In Logitronics, the Delhi High Court was concerned with the very same questions that we are called upon to deal with in this case. In the case before the Delhi High Court, the assessee availed a loan from the State Bank of India, but failed to discharge its liability. The loan was categorized as a non performing asset and proceedings for recovery have been initiated. During the pendency of those proceedings, a One Time Settlement was arrived at and a portion of the loan as well as interest were waived. In the return filed by the assessee, they showed the interest waived as income, but not the amount of loan waived. The principal amount written off was directly taken to the balance sheet under the head 'capital reserve' and it was not offered for taxation. The Assessing Officer looked at the expanded meaning of the expression 'income' under Section 2(24) and held that the principal amount of loan written off was nothing but gain/income in the hands of the assessee by relying upon Section 28(iv) and 41(1). The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; If the loan had been taken for acquiring the capital asset, waiver thereof would not amount to any income exigible to tax. But, if the loan was for trading purpose and was treated as such from the beginning in the books of account, the waiver thereof may result in the income more so when it was transferred to the profit and loss account. 34. In Rollatainers, the Delhi High Court was again concerned with a case where in terms of a corporate debt restructuring package worked out between the assessee and the bank, a portion of the principal and interest were waived. The Income Tax Appellate Tribunal held that the waiver of the working capital loan utilised towards the day-to-day business operations resulted in manifest in the revenue field and hence, was taxable in the year of waiver. 35. Finding on facts that the term loans in question were taken for the purchase of capital assets from time to time and these amounts did not come into the possession of the assessee on account of any trading transactions, the Delhi High Court reiterated the opinion rendered in Logitronics. 36. Therefore, the law as expounded by the Delhi High Court appears to be that if a loan had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Ltd. (supra) that Section 28(iv) has no application to any transaction, which involves money, is a sweeping statement and may not stand in the light of the express language of Section 28(iv). In our considered view, the waiver of a portion of the loan would certainly tantamount to the value of a benefit. This benefit may not arise from the business of the assessee. But, it certainly arises from business . The absence of the prefix the to the word business makes a world of difference. 40. We shall now turn our attention to the distinction sought to be made between the waiver of a portion of the loan taken for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. These aspects have not been taken note of in Iskraemeco Regent Ltd.(supra) 44. In view of the above, the questions of law are liable to be answered in favour of the Revenue/appellant. Accordingly, they are answered in favour of the appellant/Revenue and the appeal filed by the Revenue is allowed. No costs. Reference is also drawn to decision of Hon'ble Bombay High Court in the case of Solid Containers Limited(supra) and decision of Hon'ble Delhi High Court in the case of Logitronics Private Limited(supra). The assessee has relied on the decision of Hon'ble Supreme Court in the case of Mahindra and Mahindra Limited(supra). In this case, the tax-payer decided to expand its jeep product line by including FC-150 and FC-170 models. The tax-payer entered into agreement with Kaiser Jeep Corporation(KJC) for purchase of dies, welding equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra and Mahindra Limited(supra) and granted relief to the tax-payer. We have already discussed the decision of Hon'ble Supreme Court in the case of Mahindra and Mahindra(supra) and distinguished the facts of the present case before us. The assessee has also placed reliance on the decision of Hon'ble Bombay High Court in the case of SICOM Limited(supra), where in Hon'ble Bombay High Court followed the decision of Hon'ble Supreme Court in the case of Mahindra and Mahindra Limited(supra) and granted relief to the tax-payer. We have already discussed the decision of Hon'ble Supreme Court in the case of Mahindra and Mahindra(supra) and distinguished the facts of the present case before us. The assessee has also relied upon decision of Hon'ble Jurisdictional High Court in the case of Scooters India Limited(supra), in this case the issue before Hon'ble High Court was regarding taxability of grant/subsidy, and the said grant/subsidy was held not to form part of total income by Hon'ble Jurisdictional High Court. The relevant ay's before Hon'ble High Court were ay's: 2002-03 and 2003-04, while Hon'ble High Court noted at para 23 that sub-clause ..... X X X X Extracts X X X X X X X X Extracts X X X X
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