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TMI Blog2023 (9) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... In this case, the assessee had purchased the equipment, for which assessee had not paid. Thus, what actually, assessee had received was equipment, for which, the assessee had not paid anything. Thus, receipt of equipment, is a benefit, which is not in the form of cash. The assessee has also received benefit in the form of depreciation. Therefore, the amount of US$ 3,66,000/- which is the Purchase Price of the Machinery, equipment is a benefit received by the assessee, hence, it is taxable u/s. 28(iv) of the Act. Thus, we uphold the order of the AO with reference to US $366000/-, in principle, that US $ 3,66,000/- is taxable u/s 28(iv) of the Act. The assessee had claimed that it was a loan, however, we have held that it was not a loan but assessee had received Machinery and Equipment. Hence, Ground No.3 of the assessee is dismissed. Loan - Kennametal Inc USA had advanced Cash Loan of Rupees equivalent to US $5,00,000/- to Assessee DHL. There was a promissory note.This Loan is independent of the Equipment sold by Kennametal Inc USA to assessee valuing US$ 3,66,000/-. The Loan was in addition to the equipment sold. Vide, the Master Agreement Kennametal Inc has waived th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital receipt not liable to tax. It is prayed that the addition made by the Ld. AO and confirmed by the Ld. CIT(A) be deleted. 3. Ground 3 Without prejudice to the ground no. 2, the appellant submits that on the facts and circumstances of the case, and in law, the Ld. CIT(A) has erred in not appreciating that an amount of Rs. 1,53,72,000 was on account of waiver of loan which was for acquiring plant and machinery and hence, the said amount could not be treated as a revenue receipt taxable u/s. 28(iv) of the Act and the said amount was to be treated as a capital receipt not taxable at all. 4. Ground 4 Without prejudice to the above grounds, the appellant submits that on the facts and circumstances of the case, and in law, the Ld. CIT(A) has erred in confirming the action of the ld. A.O. in adopting the total amount of loan waiver at INR 3,63,72,000 by adopting the exchange rate as on the date of loan waiver, instead of considering an amount of INR 2,75,00,000 which was actual amount of loan recorded in the books of the Appellant. The aforesaid grounds are independent of and without prejudice to each other. The appellant craves leave to add, amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g account balance of the Company as of October 31, 1998 for Goods and Products purchased from Kennametal ,its subsidiaries and affiliates ..(emphasis supplied) 2.4 In the assessment order the AO treated the waiver of loan amount of US$ 500000/- and waiver of Purchase Price of US$ 366600/- as Income of the Assessee u/s 28(iv) of the Act. Aggrieved by the order of the AO, the assessee filed appeal before the Commissioner of Income Tax (appeal). The Ld. CIT(A) upheld the order of the AO. Aggrieved by the order of the Ld. CIT(A), the assessee filed appeal before the ITAT vide appeal number ITA 690/Pune/2004. The ITAT Pune vide order dated 31/1/2008 in ITA 690/Pune /2004 set aside the issue to Ld. CIT(A) as under : Quote, We are however not inclined to go into the question whether the income waiver was of the income nature or not as this aspect of the matter has not been discussed at all by any of the authorities below. In the interest of justice, however, we deem it fit and proper to remit the matter to the file of the CIT(A) to decide by way of a speaking order and after giving due and fair opportunity of hearing to the assessee. Unquote. 2.5 The Ld.CIT(A) again co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/-. Relevant part of the Equipment Supply Agreement are reproduced here as under: 6.1 Equipment Supply Agreement : 2. Sale Kennametal agrees to Sell and DHL, agree to purchase the equipment on the terms and consideration set forth herein: 3. Consideration and mode of Payment: 3.1 In consideration thereof, DHL agrees to purchase the equipment for a total purchase price of US$ 5,00,000/- which amount both parties acknowledge and approve to be the fair market value for the equipment (the purchase price). 3.2 DHL shall pay Kennametal, the purchase price six years from the date of shipment of the equipment by Kennametal to DHL. 3.4 The payment of the Purchase Price shall be non-interest bearing. 6.2 Subsequently, the Kennametal Inc, USA vide Master Agreement dated 16/11/1998 agreed to waive the amount of US$ 3,66,000, which was the Sale Price of the Machinery, equipment. Thus, the Kennametal Inc has waived the Sale Price of US$ 3,66,000/-. Thus, the US$ 3,66,000/- was not loan but it was a business liability on account of Purchase of Plant and Machinery. The relevant clause of the Master Agreement is reproduced as under: Clause 3.3: Kenn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duces the tax liability of the assessee. 6.6 The Hon ble Supreme Court in the case of Commissioner Vs Mahindra Mahindra Ltd 404 ITR 1(SC) has held as under : Quote, 13. On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record that the amount of Rs. 57,74,064/- is having received as cash receipt due to the waiver of loan. Therefore, the very first condition of Section 28 (iv) of the IT Act which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the present case. Hence, in our view, in no circumstances, it can be said that the amount of Rs. 57,74,064/- can be taxed under the provisions of Section 28 (iv) of the IT Act. Unquote. 6.7 Thus, Hon ble Supreme Court has held that to invoke Section 28(iv) the benefit whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.3 Vide, the Master Agreement dated 16/11/1998, Kennametal Inc has waived the cash Loan of US $5,00,000/- which was advanced to the assessee vide Loan Agreement dated 13 th March, 1995. The AO has treated the said cash loan of US $5,00,000/- also as income u/s 28(iv). 7.4 The said Loan of US $ 500000/- was a cash Loan. Therefore, respectfully following Hon ble Supreme Court s decision in the case of CIT Vs Mahindra Mahindra (supra), it is held that the waiver of cash Loan of Rupees equivalent to US $5,00,000/- is not income within the purview of Section 28(iv) of the Act. Hence, the AO is directed to delete the impugned addition qua US $ 5,00,000/-. 7.5 Therefore, the appeal of the assessee is partly allowed as discussed above. Ground No. 4 : 8. It was submitted by the Ld.AR that the assessee has entered in its books of account the value of equipment in Rupees based on the exchange rate applicable on the date of receipt of equipment. The benefit received by the assessee is equipment, hence, while arriving at the value of the said benefit, the exchange rate applicable on the date of receipt of the equipment is to be considered. The AO shall take the Conversi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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