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TMI Blog2023 (2) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... space and having objective to invest in large projects both in commercial and residential space. The loans have been granted in furtherance of business objectives and therefore, interest income has to be considered as the Business Income of the assessee and not as Income from other sources . Therefore, AO is directed to compute the interest income earned by the assessee as Business Income and as a consequence, allow business expenditure, as allowable against the same. Applying the same reasoning, the interest earned by the assessee on inter-corporate deposits advanced to M/s Indus City Scapes Construction Pvt. Ltd. would be assessed as Business Income . We order so. The appeal stands partly allowed. Allowability of factoring charges - AO held that factoring charges was nothing but interest and therefore, the deduction of which would not be allowed to the assessee in terms of Sec.40(a)(ia), inter-alia, for want of deduction of tax at source - HELD THAT:- From the facts, it emerges that the assessee has availed factoring facility from EAFSL against receivables and paid factoring charges. We find that factoring charges could not be termed as interest u/s 2(28A) as per the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Appeals [ CIT(A) ] under section 250(6) of the Income-tax Act, 1961 ( the Act ) confirming the order of the Assessing Officer ( AO ) passed is not in accordance with law, contrary to the facts and circumstances of the present case and is in violation of principles of equity and natural justice. Treatment of compensation as interest income 2.1 The learned CIT(A) and AO failed to appreciate that the real intent of the agreement entered by the appellant with Sahara India Commercial Corporation Limited ( SICCL ) was to derive value by execution of larger project, which on completion would have reflected on the appellant's ability to complete mega projects. 2.2 The learned CIT(A) and AO failed to appreciate the fact that the 400 crores advanced to SICCL has been disclosed as 'Advance for purchase of land' in the audited financial statements and not as loan. 2.3 The learned CIT(A) and AO failed to appreciate the relevant clauses, clause 13.4.2 and clause 3.2 of the Facility agreement demonstrate the fact that the intent of the appellant was to enter into a development agreement. 2.4 The claim of the learned CIT(A) and AO that the appellant had intenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disposed-off as under. 2. Assessment Proceedings 2.1 The original return of income filed by the assessee at Rs.218.71 Lacs was processed u/s 143(1). However, the case was reopened pursuant to survey action u/s 133A on 22.07.2010 and accordingly, an assessment was framed u/s 143(3) r.w.s. 147 on 22.12.2011 determining the income of Rs.3228.71 Lacs. 2.2 The survey findings revealed that the assessee entered into a transaction with M/s Sahara India Commercial Corporation Ltd. (SICCL) and received compensation of Rs.35 Crores in AY 2008-09 which has been treated by the assessee as capital receipt and not offered to tax. The same is the subject matter of this appeal before us. 2.3 It was noted by Ld. AO that the assessee entered into a facility agreement with SICCL on 26.12.2006 to acquire rights in land held by SICCL and its associated concerns. A financial participation to the extent of Rs.400 Crores was made by the assessee to acquire rights in 196.97 acres of land held by the group. Since SICCL could not get necessary approval for conversion of the above land from agricultural use to commercial use, the assessee settled sum of Rs.35 Crores as a compensation for breac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity and the appropriate return accrued will result in unrestricted right to the lender to transfer or sell the securities offered that too without the intervention of court, (Clause 6.1,2). h. The details of all securities to be offered in favour of loan facility is inclusive of the Deposit of the Title Deeds of the Immovable Properties (Clause 7). i. Further, the Borrower covenants with the Lender that, it shall utilize the amounts borrowed under the Facility only for the business purpose of the Borrower (Clause 10). j. The conditions under Clause 13.4 on further assurances undertakings do not vitiate the loan facility and in fact it is in the nature of an additional protective clause to protect the loan facility. 2.5 The Ld. AO, accordingly, held an opinion that it was a loan facility agreement for extending the loan to borrower by the assessee. The sum was advanced as inter-corporate deposit at the urgent need of the borrower. The assessee was to receive annual return of Rs.135 Crores for Rs.400 Crores of loan based on number of days from drawdown dates. The non-payment would result into unrestricted right to the lender to transfer or sell the securities offered. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a conclusion that it was merely a loan facility agreement for extending the loan to borrower by the assessee. The sum was advanced as inter-corporate deposit at the urgent need of the borrower. The assessee was to receive annual return of Rs.135 Crores for Rs.400 Crores of loan based on number of days from drawdown dates. The non-payment would result into unrestricted right to the lender to transfer or sell the securities offered. The funds so borrowed were to be used for the business purposes of the borrowers. As against this, the assessee did not recognize any revenue during this year since the inception of agreement on 29.12.2006. It was clear that the assessee did not lose any source of income or any profit / income deriving source but it was clearly a loan facility. The findings rendered with respect to re-stated agreement dated 15.02.2007 remain uncontroverted before us. All these facts would lead us to inevitable conclusion that the stated arrangement was nothing but loan facility extended by the assessee to the borrower. In return of loan facility, the assessee was to receive nothing but interest only. Therefore, the amount so received by the assessee has rightly been consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsecured loan from its holding company M/s Siva Ventures Ltd. (SVL) and advanced the same to its subsidiary company M/s Vantage Reality Pvt. Ltd. (VRPL). The assessee also obtained loan of Rs.100 Crores from M/s Easy Access financial Services Ltd. (EAFSL) and paid factoring charges of Rs.782.68 Lacs by pledging receivables from M/s VRPL. The Ld. AO held that factoring charges was nothing but interest and therefore, the deduction of which would not be allowed to the assessee in terms of Sec.40(a)(ia), inter-alia, for want of deduction of tax at source. The Ld. CIT(A) confirmed the stand of Ld. AO against which the assessee is in further appeal before us. 9. From the facts, it emerges that the assessee has availed factoring facility from EAFSL against receivables and paid factoring charges. We find that factoring charges could not be termed as interest u/s 2(28A) as per the decision of Hon ble High Court of Delhi in PCIT vs. M. Sons Gems N Jewellery (P) Ltd. (69 Taxmann.com 373). This decision has referred to the decisions of Hon ble Kolkata High Court in CIT v. MKJ Enterprises Ltd. 2015 50 Taxmann.com 441 as well as another decision of Hon ble Delhi High Court in CIT v. Carg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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