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TMI Blog2021 (5) TMI 1050X X X X Extracts X X X X X X X X Extracts X X X X ..... d taking loan is not the business of the assessee then income arising out of the loan is treated as interest of the income or income from other sources . None of these reasonings meet our approval. Interest is the amount payable in any manner in respect of moneys borrowed or debts incurred but in the present case nothing more than principal debt has been paid by the borrower, and unless borrower pays an amount in respect of moneys borrowed or debts incurred, the definition of interest does not come into play. Yes, there was a benefit or a gain to the assessee; that is not even in dispute. The benefit or the gain was not on account of interest payment; that benefit or gain was on account of foreign exchange fluctuation but since the foreign exchange fluctuation with respect to a transaction in capital field, on the facts of this case foreign exchange fluctuation receipt itself turned out to be a capital receipt. CIT(A) was, therefore, in error in holding the foreign exchange fluctuation income to be in the nature of interest . As for his holding that the income was taxable as income from other sources, that is exactly what the Assessing Officer had also done, and, for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rve Bank of India. As on that date, the prevailing exchange rate for purchase of one US $ was Rs 45.14, and, therefore, the assessee had to pay Rs 90,30,758 for this remittance of US $ 2,00,000. The borrower, namely SSS-S, paid back this amount of US $ 2,00,000 to the assessee on 24th May 2012. On that day, while converting the US $ into Indian Rupees, the exchange rate for purchase of one US $ was Rs 56.18. Accordingly, the amount credited to the assessee s account was Rs 1,12,35,326. The entry in question was thus explained by the assessee. The matter, however, did not end there. The Assessing Officer was apparently of the view that while entry was explained, the difference, in terms of Indian Rupees, on account of this transaction was of income nature. It was explained by the assessee that the loan account was purely personal, it was not in the nature of a business transaction, and that there was no motive of economic gains in this transaction. It was explained that the loan transaction was in terms of the Liberalized Remittance Scheme of the Reserve Bank of India inasmuch as it was a permitted transaction, and specifically on capital account. It was further explained that the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s nevertheless. He simply brushed aside these submissions, and confirmed the action of the Assessing Officer by observing as follows: 6.1.1 I have considered the submission of the appellant. The loan was extended by the appellant to his cousin under the Forex Facilities including the Liberalized Remittance Scheme (LRS) for residents updated as on 17.07.2015. In support of its claim, appellant has submitted FAQ's released by the Reserve Bank of India. It is important to reproduce the question no. 4 of the FAQ as under: Q4. Can a resident individual make a rupee loan to an NRI/PIO who is a close relative of resident individual, by of crossed cheque/electronic transfer? Ans. A Resident individual is permitted to make a rupee loan to a NRI/PIO who is a close relative of the resident individual (relative as defined in section 6 of the Companies Act 1955) by way of crossed cheque/electronic transfer subject to the following conditions: (i) The loan is free of interest and the minimum maturity of the loan is One year. (ii) The loan amount should be within the overall limit under the Liberalized Remittance Scheme of USD 2,50,000 per financial year, available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of these facts, I have no reason to interfere with the findings given by the Ld. AO, therefore I confirm the addition of Rs 22,04,568/- rate by the AO under the head income from other sources. 4. The assessee is not satisfied and is in further appeal before me. 5. None appeared for the assessee. On a perusal of appeal papers, however, I am satisfied that it is a fit case which can be disposed of ex-parte qua the assessee and on the basis of pleadings on record- particularly as duly noted by the lower authorities at length. The issue in appeal is a neatly identified legal issue in a very narrow compass of material facts. I have, therefore, heard the learned Departmental Representative, carefully perused the material on record and duly considered facts of the case in the light of the applicable legal position. 6. When this appeal came up for hearing before me, I asked the learned Departmental Representative whether he disputes the fact that it is a receipt on capital account as it is not in the course of business, and, if he does not dispute so, on what basis does he justify its taxation as an income. Learned Departmental Representative primarily relied upon the stand o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retion of money, in rupee terms, being in the nature of interest income are concerned, are ex-facie incorrect inasmuch as the money advanced and the money received were denominated in terms of US Dollars, and whatever amount was advanced as loan was exactly the same as amount received back by the assessee. The accretion of money, in rupee terms, was on account of increase in the value of the US Dollars advanced per se, and these US Dollars advanced were in the field of a capital transaction. The question then arises as to whether an accretion of value in respect of an asset held in capital account, i.e. foreign exchange denominated loan advanced, can be subjected to tax in the hands of the assessee. As I take a look at this aspect of the matter, I am reminded of a decision that I had authored, over twenty years ago, in the case of Shaw Wallace Co Ltd Vs DCIT [(2001) 71 TTJ 478 (Cal)]. In this decision, speaking for a division bench of this Tribunal, I had discussed at length as to what are the tax implications of a receipt being in the capital field, as to what constitutes capital receipt in the first place, and the legal hypothesis I set out in the beginning of the present discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any receipt being described as income cannot be at the unfettered discretion of the revenue authorities; such a receipt has to meet well-settled criterion such as, for example, criterion of nature of receipt being revenue receipt in nature. As discussed earlier in the order, law is fairly well settled that it is only a revenue receipt which can be brought to tax, unless, of course, there are specific provision to artificially treat such a non revenue receipt also as income. We may also mention that, in Emil Webber s case (supra), Hon ble Supreme Court s conclusion that payments made by a non employer, towards tax obligations for the assessee, will also be included in income was persuaded by factors including inter alia the fact that (i) said amount is nothing but a tax upon the salary received by the assessee; (ii) such a non employer had undertaken legal obligation to pay tax on salary received by the assessee, and, as such, the payment was made for and on behalf of the assessee; and (iii) it cannot be said that the said payment had no integral connection with the salary received by the assessee. These factors will make it clear that it was not even assessee s case before the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment to prove that it is within the taxing provisions. However, where a receipt is proved to be in the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee. In the case before us, revenue has not sufficiently discharged its onus of proving that the receipt in question is a revenue receipt in nature. The revenue has at best made efforts to demonstrate that the receipt in question is not taxable as a capital gain and, therefore, it can only be in nature of revenue receipt. However, there is a glaring fallacy in this argument, since merely the fact that a receipt is not taxable as a capital gain would not imply, or even suggest, that such a receipt is revenue receipt. There can always be, and have been, cases in which receipts are held to be capital receipts in nature and yet not chargeable to tax as a capital gain. 13. In the case of Ashoka Mktg. Ltd. (supra), this assessee had entered into an agreement with a vendor for purchase of certain property belonging to the vendor. The vendor, having failed to complete the transaction because title of the property was not marketable as there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps of Hon ble Madras High Court, after elaborately surveying the legal precedents on the characteristics of capital receipts and revenue receipts, came to the following conclusion: Thus, a combined reading of the abovesaid judicial pronouncements would go to show that when a receipt is referable to fixed capital, it is not taxable, and it is taxable as a revenue item when it is referable to circulating capital or stock in trade. In our considered view, the connotations of expression referable are very wide in scope and these cannot be confined to clear nexus between the receipt in question on one hand, and extinction or sterlisation of a capital asset, on the other hand. Even if there is no extinction or sterilisation of a capital asset and yet the receipt can be reasonably attributed to, or linked with, a capital asset, the same will be capital receipt in nature and, accordingly, outside the tax net. In our considered view, therefore, once a receipt is referable to a capital asset, the presumption has to be that the nature of receipt being non revenue receipt, the same is outside the ambit of income within meanings of section. However, it is open to the departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nikant Ambalal Mody v. S.A.L. Narayan Row, CIT [(1966) 61 ITR 428 (SC)] . Interestingly, this judicial precedent was repeatedly cited before the authorities below, but there was not even an effort to deal with this judicial precedent. It is also important to note that, as elaborated in Shaw Wallace case (supra), a capital receipt, in principle, is outside the scope of income chargeable to tax and a receipt cannot be taxed as income unless it is in the nature of a revenue receipt or is specifically brought within ambit of income by way of specific provisions of the Income-tax Act , and that Howsoever liberal or narrow be the interpretation of expression income , it cannot alter character of a receipt i.e. convert a capital receipt into a revenue receipt or vice versa. There is no warrant for inference that even the most liberal interpretation of income can nullify or blur the all-important distinction between capital receipt or revenue receipt . Viewed thus, the reasoning adopted by the Assessing Officer was incorrect and it does not meet our approval. Learned CIT(A) s line of reasoning was no better. While he accepts that the transaction in question was in the capital fiel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f reasoning adopted by the CIT(A) with respect to his stand that, under the LERMS issued by the Reserve Bank of India, only rupee loans were permissible to the non-resident close relatives. That cannot be a subject matter of adjudication by an income tax authority, or even for this Tribunal. Whether the transaction of loan to NRI/PIO close relative was permissible or not, the fact remains that, beyond any controversy or dispute, such a transaction did take place, and the Assessing Officer has specifically observed that no infirmity is observed on the advancement of loan to Shri Shyam Sunder Shroff, (but)..the dispute is with respect to gains on foreign exchange fluctuation . The limited question that was required to be adjudicated by the CIT(A), therefore, was whether given this factual matrix, the gains on foreign exchange fluctuations were required to be taxed in the hands of the assessee or not. Nothing, therefore, turns on the fact, even if that be so, that only rupee denominated loans were permitted to be extended by the assessee to his close relative NRI/PIO cousin. In any case, merely because the rupee loans are specifically permitted to the NRI/PIO close relatives, this fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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