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TMI Blog2023 (9) TMI 1016X X X X Extracts X X X X X X X X Extracts X X X X ..... ash receipts it is held that the amount is not taxable u/s 28(iv) and 41(1) - AO has also invoked section 28(i) to tax the amount - However, assessee is not in the business of lending and borrowing. Assessee is in the business of construction, therefore, waiver of loan amount is not business income of the assessee. AO has mentioned in the assessment order that since the Loan was utilized to purchase the land, waiver of loan is business income. We do not agree with this proposition of the AO. We ask simple question to ourselves, is the repayment of loan allowed as business deduction? the answer is obvious no, similarly the waiver of Loan is also not business income taxable u/s 28(i) of the Act. Hence, it is not taxable under section 28(i) of the Act. Grounds of appeal raised by the Revenue are dismissed. - Shri S.S.Viswanethra Ravi, Judicial Member And Dr. Dipak P. Ripote, Accountant Member For the Assessee : Shri Sanket Joshi Shri Girish Ladda AR s For the Revenue : Shri P R Mane DR ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Revenue is directed against the order of ld. Commissioner of Income Tax(Appeal)-4, Pune dated 31.07. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xternal Commercial Borrowing (ECB) for development of township projects. The total ECB loan sanctioned was USD 100 million out of which the company received disbursement of Rs. 332 crores for the purpose of business activity/development of township projects in and around Pune. Out of the ECB loan received, the company acquired land for 03 projects at different locations in the vicinity of Pune i.e. Shewalwadi, Lohegaon and Manjri at Pune. The company has obtained ECB loan in the form of securities instruments i.e. Floating Rate Notes(FRNS). Accordingly, the company has entered into a subscription agreement dated 30.08.2006 with Deutsche Bank (DB) AG, Singapore Branch. As per tire terms of agreement dated 30.08.2006, the company has issued Floating Rate Notes to the bank referred to as the USD 100 million Secured Floating Rate Notes Due 2012. On perusal of the details furnished by the company, it is seen that as on the date of settlement the outstanding in the ECB A/c was at Rs. 278,71,02,003/-. This outstanding was settled on the basis of a letter of agreement between the company and the D B Trustees (HongKong) Ltd in their capacity as trustees acting for the benefit of the holders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng officer has invoked provisions of section 28(i) and 28(iv) and alternatively section 41(1) of IT Act to tax the impugned amount as income. However, in various judgements referred above, High Courts and Tribunals, have unequivocally held that section 28(iv) is not applicable for monetary transaction and such surplus cannot be considered as business income being not arising out of business. Further, in my opinion, considering fact that Hon Karnataka HC in case of ICDS (supra) held that impugned amount cannot be considered as income u/s 2(24) of Income Tax Act, which basically defines income, there would be no question of applicability of section 28(i) or 28(iv) or section 41(1).For any item to be taxed under any of the sections of Income Tax Act, first it must be capable to be considered as income u/s 2(24) of the Income Tax Act, except incases of expressly provided to be deemed income. In any case, section 41(1) also has no application in the present case, as funds raised through FRNs being of Capital structure cannot be termed as trading liability and moreover, no part of impugned Amount was claimed as deduction/expenditure by the appellant in any of the preceding financial ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in catena of legal decisions that the amount saved by the appellant while discharging a capital liability is, no doubt, capital receipt. Hence, respectfully following the decisions of Karnataka HC in ICDS (supra), Jurisdictional Bombay HC in case of Scindia Steam Navigation (Supra) and also decisions of Mumbai ITAT in Reliance Industries (Supra), Nagpur ITAT in Ballarpur Industries, I hold that amount of Rs. 143,71,02,003/- is Capital Receipt and cannot be considered as income contemplated u/s. 2(24) of Income Tax Act. Therefore, I direct the assessing Officer to delete the addition. Thus Ground Nos. 1 2 is hereby allowed. 4. Aggrieved by the order of ld.CIT(A), the Revenue has filed appeal before this Tribunal. Departmental Representative(ld.DR) submissions : 5. The ld.DR strongly relied on the order of the AO. The ld.DR read out some of the paragraphs of the assessment order. Authorised Representative(ld.AR) submission : 6. The ld.AR filed two paper books, one factual paper and another case law paper book. The ld.AR submitted written submissions also. The same is reproduced here as under : 3] In order to raise the Huge Capital required for settin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice of Default dated 10.10.2008 was given to the assessee by DB Trustees (Hong Kong) Ltd. for premature redemption of the principal value of FRNs along with the interest due thereon. However, the assessee company was in not position to redeem the FRNs in view of the extraordinary circumstances explained above. After negotiations failed, it was agreed that the assessee would seek permission from RBI to sell off the two land parcels which were legally registered in name of the assessee and the proceeds would be utilized to redeem the FRNs. Finally, vide Letter Agreement dated 25.09.2013 entered between Assessee company and DB Trustees (Hong Kong) Ltd. in capacity of Trustees of the Note Holders, wherein the Note Holders agreed for full and final settlement of the FRNs at a total redemption value of Rs. 135 Crs. asagainst the outstanding balance of Rs. 278.71 Crs. The balance of Rs. 143.71 Crs. which came to be waived off, being discount on redemption of FRNs at a value lower than Face Value, came to be credited by the assessee to Capital Reserve in the balance sheet for A.Y.2014 - 15. The assessee claimed that the said discount on redemption of FRNs constituted capital receipt not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussion : 7. We have heard both the parties and perused the records. There is no dispute in the facts that assessee company had issued Floating Rate Notes (FRN) on 30.01.2007 in the International Market, named as USD 100 million Floating Rate Guaranteed Secured Notes Due 2013 . These FRNs are debt instruments. The assessee company actually received Rs. 332 crores in Financial Year 2006-07. These floating rate notes were carrying interest as mentioned in the subscription agreement. The redemption Clause 7.1 of the agreement is reproduced as under: 7.1 Redemption: Unless previously redeemed or purchased and cancelled, the Notes will be redeemed in the amounts (each a Redemption Amount ) and on the dates set out below (each a Redemption Date ): 7.1.1 US$10,000,000 in principal amount of the Notes will be redeemed on the Interest Payment Date falling on or nearest to the third anniversary of the Issue Date (the First Redemption Date ) at their principal amount plus any accrued Interest on a pro rata basis ; 7.1.2 US$20,00,000 in principal amount of the Notes will be redeemed on the Interest Payment Date falling on or nearest to the fourth anniversary of the Issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided the similar kind of issue as under : 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. 14. Another important issue which arises is the applicability of the Section 41 (1) of the IT Act. The said provision is re-produced as under: 41. Profits chargeable to tax.- (1) Where an allowance or deduction has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected from the Kaiser Jeep Corporation is in respect of plant, machinery and tooling equipments which are capital assets of the Respondent. It is important to note that the said purchase amount had not been debited to the trading account or to the profit or loss account in any of the assessment years. Here, we deem it proper to mention that there is difference between 'trading liability' and 'other liability'. Section 41 (1) of the IT Act particularly deals with the remission of trading liability. Whereas in the instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, we find no force in the argument of the Revenue that the case of the Respondent would fall under Section 41 (1) of the IT Act. 17. To sum up, we are not inclined to interfere with the judgment and order passed by the High court in view of the following reasons: (a) Section 28(iv) of the IT Act does not apply on the present case since the receipts of Rs 57,74,064/- are in the nature of cash or money. (b) Section 41(1) of the IT Act does not apply since waiver of loan does not amount to cessation of trading liability. It is a matter of record that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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