DIGIWAVE INFRASTRUCTURE & SERVICES P. LTD, MUMBAI V. ITO WD 8(1)-3, MUMBAI

ITA 1014/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49289 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 28-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 13-02-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR SENTHIL KUMAR
• Keywords: Business income; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI R.S.SYAL, AM AN D SHRI R.S.PADVEKAR, JM ITA NO.690/MUM/2009 : ASST.YEAR 2005-2006 THE INCOME TAX OFFICER WARD 8(1)(3) MUMBAI. VS. M/S.DIGIWAVE INFRASTRUCTURE & SERVICES LTD STAR HOUSE, 3 RD FLOOR DR.D.E.MOSSES ROAD, MAHALAXMI MUMBAI 400 011. PAN :AABCD3096M. (APPELLANT) (RESPONDENT) ITA NO.1014/MUM/2009 : ASST.YEAR 2005-2006 M/S.DIGIWAVE INFRASTRUCTURE & SERVICES LTD, STAR HOUSE, 3 RD FLOOR DR.D.E.MOSSES ROAD, MAHALAXMI MUMBAI 400 011. VS. THE INCOME TAX OFFICER WARD 8(1)(3) MUMBAI. (APPELLANT) (RESPONDENT) REVENUE BY : DR.SENTHILKUMAR (CIT-DR) ASSESSEE BY : S/SHRI PORUS KAKA & DIVESH CHAWLA O R D E R PER R.S.SYAL, AM : THESE TWO CROSS APPEALS ONE BY TH E ASSESSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 22.12.2008 IN RELATION TO THE ASSESSMENT YEAR 2005-2006. 2. THE REVENUE IS AGGRIEVED AGAINST THE DELETION OF ADDITION ON ACCOUNT OF WAIVER OF LOAN AND INTEREST. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE WAS HAVING LICENSE TO OPERATE FM RADIO STATION. IT WAS APPOINTED BY MUSIC BROADCAST PRIVATE LIMITED (MBPL) AS AN EXCLUSIVE SUPPLIER FOR SOURCING AND SUPPLYING PROGRAMME CONTENT FOR BROADCASTI NG ON FM RADIO STATIONS. THE ASSESSEE ALSO RENDERED SUPPORT SERVICES TO MBPL FOR A FIXED FEE. THE ASSESSEE BORROWED FUNDS FROM INDYA.COM FROM TIME TO TIME AT COMMERCIAL RATE OF INTEREST. IN TURN, IT ENTERED INTO A LOAN AGREEMENT WITH MBPL FOR PROVIDING FINANCIAL ASSISTANCE. ALL THE THREE, VIZ., THE ASSESEE COMPANY, MBPL AND INDYA.COM ARE RELATED CONCERNS. CLAUSE 8 OF THE ASSESSEES AGREEMENT WITH MBPL PROVIDED THAT IN THE CASE OF ITA NOS.690 & 1014/MUM/2009 M/S.DIGIWAVE INFRASTRUCTURE & SERVICES LIMITED. 2 DEFAULT ON THE PART OF MB PL THE ASSESSEE WILL HAVE THE RIGHT TO CONVERT THE OUTSTANDING DUES INTO EQUITY SHARE CAPITAL OF MBPL. TH E MINISTRY OF INFORMATION AND BROADCASTING (MIB) ISSUED A NOTICE TO MBPL STATING THAT SUCH CLAUSE OF CONVERSION OF LOAN INTO SHARES WAS IN CONTRA VENTION OF THE TERMS OF LICENSE ISSUED TO MBPL. MBPL APPROACHED THE HONBLE BOMBAY HIGH COURT AND ALSO SOUGHT INJUNCTION AGAINST THE ADVERSE ACTION BY MI B. THE HONBLE HIGH COURT, AFTER GOING THROUGH THE FACTS, WAS OF THE VIEW THAT MBPL HAD SPECIAL EQUITIES IN ITS FAVOUR AND ACCORDINGLY GRANTED AN INJUNCTION ORDER. THEREAFTER DISCUSSIONS TOOK PLACE BETWEEN MBPL, THE ASSESSEE AND MI B AND EVENTUALLY THE EXISTING RELATIONSHIP WAS TERMINATED. THE ASSESSEE TERMINATED LOAN AGREEMENT BEFORE THE CLOSE OF FINANCIAL YEAR AND WAIVED OFF THE LOAN GRANTED TO MB PL TOGETHER WITH INTEREST ACCRUED. IN VIEW OF THE TERMINATION OF WAIVER OF LO AN, MIB AND MBPL D ECIDED MUTUALLY TO WITHDRAW THE PETITIONS FILED BEFORE THE H ONBLE BOMBAY HIGH COURT, WHICH WAS ALLOWED. AS THE ASSESSEE WAS NOT IN A POSITION TO REPAY THE LOAN MONEY RECEIVED BY IT FROM INDYA.COM, AFTER DUE DELIBERAT IONS INDYA.COM WAIVED THE ENTIRE LOAN OUTSTANDING WITH INTEREST. THE ASSESSING OF FICER NOTED THAT THE LOAN OF RS.116.52 CRORES RECEIVED BY THE ASSE SSEE FROM INDYA.COM STOOD WAIVE D IN THIS YEAR WHICH WAS LIABLE TO BE TAKEN AS ITS INCOME U/S.28 (IV). ON BEING SHOW CAUSED IT WAS STATED ON BEHALF OF THE ASSESSEE THAT IT WAS ENGA GED IN THE BUSINESS OF PRODUCING AND PROCURING MEDIA PROGRAMME WHICH WAS INTENDED FOR BROA DCASTING ACROSS MEDIA. AS MBPL WAS IN NEED OF FUNDS AND ACCORDINGLY IT APPROACH ED INDYA.COM WHICH HAD EXCESS FUNDS WITH IT. IT WAS ALSO STATED THAT THE NET IN TEREST INCOME WAS OFFERED TO TAX BY THE ASSESSEE AS INCOME FROM OT HER SOURCES IN EARLIER YEARS AND THE REVENUE AUTHORITIES HAD ACCEPTE D THIS STAND CONSISTENTLY. IT WAS ALSO ARGUED THAT THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF PROVIDING LOANS. THE ASSESSEE RELIED ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. CIT [261 ITR 501 (BOM .)]. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTI ON AS IN HIS OPINION THE LOAN AMOUNT OF RS.116.52 CRORES ALONG WITH INTEREST FOR THE PERI OD 1.4.2004 TO 16.01.2005 AMOUNTING TO ITA NOS.690 & 1014/MUM/2009 M/S.DIGIWAVE INFRASTRUCTURE & SERVICES LIMITED. 3 RS.5.47 CRORES WAS WAIVED BY INDYA.CO M AND HENCE IT CONSTITUTED BENEFIT U/S.28(IV). HE, THEREFORE, MA DE ADDITION OF RS.122.00 CR ORES IN THE HANDS OF THE ASSESSEE U/S.28(IV) OF THE ACT. THE L EARNED CIT(A) GOT CONVINCED WITH THE ASSESSEES SUBMISSION AND ORDERE D FOR THE DELETION OF ADDITION. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RE LEVANT MATERIAL ON RECORD. IT IS SEEN THAT THE ASSESSEE OBTAINED LOAN OF RS.116.52 CRORES FROM INDYA.COM AND ADVANCED LOAN OF RS.139.58 CRORES TO MBPL. THE BUSINESS OF THE ASSESSEE IS THAT OF PRODUC TION AND PROCUREMENT OF MEDI A PROGRAMMES. THE ASSESSEE WAS CHARGING INTEREST AT THE RATE OF 9% PER ANNUM FROM MBPL A ND AT THE SAME TIME IT WAS ALSO PAYING INTEREST TO INDYA .COM. IN ASSESSMENT YEAR 2002-2003 THE ASSESSEE SET OFF BROUGHT FORWARD BUSINESS LOSS AGAINST NET INTEREST INCOME BY CLAIMING SUCH INTEREST TO BE BUSINESS INCOME. THE REVENUE DID NOT ACCEPT THE ASSESSEES CLAIM AND HELD THAT THE INTEREST INCOME WAS NOT CONNECTED WITH THE BUSINESS OF THE ASSESSEE-COMPANY AND HEN CE NO SET OFF WAS ALLOWED AGAINST THE BUSINESS LOSSES. AGAIN IN ASSESSMENT YEAR 2004-2005, THE REVENUE AUTHORITIES ASSESSED THE INTE REST INCOME AS INCOME FROM OTHE R SOURCES. NOW WHEN THE LOAN OF RS.116.52 CRORES HAS BEEN WAIVED BY INDYA.COM IN FA VOUR OF THE ASSESSEE, THE ASSESSING OFFICER HAS TAKEN THE POSITION OF CONSIDERING IT AS INCOME U/S.28(IV) WHICH PROVIDES THAT THE VALUE OF ANY BENEF IT OR PERQUISITE, WHET HER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR TH E EXERCISE OF A PROFESSION SHALL BE CHARGED TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IN ORDER TO BRING ANY RECEIPT WITHIN THE SCOPE OF SEC. 28(IV), IT IS NECE SSARY THAT THE SAME MUST ARISE FROM THE BUSINE SS. UNLESS A RECEIPT ARISES FROM BUSINESS, IT CANNOT BE COVERED WITHIN THE PURVIEW OF THIS PROVISI ON. COMING BACK TO THE FACTS OF THE CASE, IT IS SEEN THAT THE A.O. HA S INVOKED SEC. 28(IV). IT IMP LIES, THAT HE RELATED THIS AMOUNT WITH THE BUSINESS. WHEN IN THE EARLIER YEARS THE REVENUE ACCEPTED THIS TRANSACTION OF LOAN FROM INDYA.COM AND TO MBPL AS NOT A BUSINESS TRANSACTION, IT CANNOT TURN AROUND IN THE LATER YEAR WHEN THE SITUATION IS NOT SUITING THEM. IT HAS ITA NOS.690 & 1014/MUM/2009 M/S.DIGIWAVE INFRASTRUCTURE & SERVICES LIMITED. 4 NECESSARILY TO RETAIN THE SAM E CHARACTER, WHICH HAS BEEN ASSIGNED TO IT IN THE PAST, WHICH IS NON-BUSINESS. THAT BEING THE POS ITION, THE APPLICATION OF SEC. 28(IV) IS RULED OUT. 4. THERE IS ANOTHER INTERESTI NG ASPECT RELATING TO THIS ISSUE. THE ASSESSEE GOT WAIVER OF LOAN FROM INDYA.COM TO THE TUNE OF RS.116.52 CRORES WHICH AMOUNT WAS RECEIVED BY IT. AT THE SAME TIME THE AM OUNT OF RS.139.58 CRORES ADVANCED BY IT TO MBPL ALSO BECAME NON -RECOVERABLE, WHICH WAS RESULTANTLY WAIVED BY THE ASSESSEE. IN OTHER WORDS THE ASSESSEE RE CEIVED WAIVER OF LOAN OF RS.116.52 CRORES AND ALLOWED WAIVER OF LOAN OF RS.139. 58 CRORES. BOTH THE SU MS, VIZ. RS.116.52 CRORES AND RS.139.58 CRORES WERE DEBITED A ND CREDITED TO THE PROFIT AND LOSS ACCOUNT OF THE YEAR RESPECTIVELY. HOWEVER WHILE COMPUTING THE TOTAL INCOME, THE ASSESSEE ADDED BACK THE SUM OF RS.139.58 CRORES TO ITS INCOME, WHEREA S SUM OF RS.116.52 CRORES WAS REDUCED BEING THE WRITE OFF OF LOAN FROM INDYA.COM. A NOTE WAS GIVEN BELOW THE COMPUTATION OF TOTAL INCOME BY MENTIONING THAT THE ASSESSEE AGREED TO WRITE OFF LOAN OF RS.139.58 CRORES TO MBPL AS IT WAS IN THE NATURE OF CAPITAL EXPENDITURE AND HENCE THE SA ME WAS NOT DEDUCTIBLE. AT TH E SAME TIME ANOTHER NOTE WAS ALSO GIVEN TO THE FACT THAT THE ASSESSEE HAD TAKEN LO AN OF RS.116.52 CRORES FROM INDYA.COM WHICH THEY AGREED TO WAIVE OFF. SINCE IT WAS NOT AN INCOME OF REVENUE NATURE, THE SAME WAS REDUCED WHILE COMPUTI NG TOTAL INCOME OF TH E ASSESSEE. THUS IT CAN BE NOTICED THAT THE ASSESSEE RECEIVED WAIVER OF LOAN OF RS.116.52 CRORES AND ALLOWED WAIVER OF LOAN TO THE TUNE OF RS.139.58 CRORES. THE ASSESSING OFFICER HAS CHARGED TO TAX THE RECEIPT OF WAIVER OF LOAN OF RS.116.52 CRORES AS BUSINESS INCOME TOGETHER WITH INTEREST OF RS.5.47 CRORE BUT DID NOT ALLOW DEDUCTION FOR THE WAIVER OF LOAN ALLOWED TO THE ASSESS EE TO THE TUNE OF RS.139.58 CRORES. IF A PART OF THE TRANSACTION IS TO BE CONSIDERED AS BUSINESS TRANSACTION, THEN THE SECOND PART OF THE SAME TRANSACTION COULD NOT HAVE BEEN GIVEN A DIFF ERENT CHARACTER. BOTH THE TRANSACTIONS WERE REQUIRED TO BE GIVEN ONE COLOUR. SINCE IT IS NOT THE BUSINESS OF THE ASSESSEE TO ADVANCE LOAN OR RECEIVE LOANS, NATURALLY THE AMOUNT OF LOAN ADVANCED TO ITA NOS.690 & 1014/MUM/2009 M/S.DIGIWAVE INFRASTRUCTURE & SERVICES LIMITED. 5 MBPL AND THE AMOUNT OF LOAN RECEIVED FROM INDYA.COM WA IVED OFF IN THIS YEAR COULD NOT HAVE FOUND ITS WAY TO THE CO MPUTATION OF TOTAL INCOME BY WAY OF DEDUCTION OR INCOME. WE, THEREFORE, HOLD TH AT THE LEARNED CIT(A) WAS JUSTIFIED IN HOLDING THAT THE SUM OF RS.122.00 CRORES CANNOT BE TAKEN AS INCOME U/S.28(IV), MORE SPECIFICALLY IN VIEW OF THE FACT TH AT THE ASSESSEE DID NOT CLAIM DEDUCTION IN RESPECT OF WAIVER OF LOAN ALLOWED BY IT TO MBPL OF RS.139.58. WE, THEREFORE, APPROVE THE VIEW TAKE N BY THE LEARNED CIT(A) ON THIS ISSUE. 5. THE ASSESSEE IS IN APPEAL AGAINST THE CONFIRMATION OF ADDITION OF RS.8.1 CRORES AS TAXABLE INTEREST. THE FACTS OF THIS GROUND ARE THAT ON THE ABOVE SAID LOAN OF RS.139.58 CRORES ADVANCED TO MBPL AT THE RATE OF 9%, THE AS SESSEE DID NOT SHOW ANY INCOME AS INTEREST. THE A.O. HELD THAT INTEREST OF RS.8.1 CRORES ACCRUED TO THE ASSESSEE FROM MBPL ON SUCH LOAN. THE ASSE SSEE WAIVED OFF LOAN AND ALSO INTEREST OF RS.16.97 CRORES RECEIVABLE FROM MBPL. ON GOING THROUGH SC HEDULE 14 OF THE BALANCE SHEET, IT WAS SEEN BY THE A.O. THAT THE ASSESSEE HA D GIVEN THE FOLLOWING NOTE:- DURING THE YEAR, THE COMPANY HAS ENTERED INTO AGREEMENTS WITH BMPL AND OTHERS WAVING / NOVATING THE LOAN OF RS.1,396 MILLION AND INTEREST RECOVERABLE OF RS.170 M ILLION AGGREGATING TO RS.1,566 MILLION FROM MBPL. CONSEQUENTLY, THE CO MPANY HAS RECORDED A WRITE OFF RS.1,566 MILLION. THE CURRENT YEARS IN TEREST OF RS.81 MILLION HAS ALSO BEEN WAIVED BY THE COMPANY. IN THE OPINION OF THE A.O. TH E AMOUNT OF INTEREST OF RS.8 .1 CRORES WAS CHARGEABLE TO TAX. THE ASSESSEE REMAINED UN SUCCESSFUL BEFORE THE LEARNE D CIT(A) ON THIS ISSUE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RE LEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE ASSESSEE RECEIVED LOAN OF RS.116.52 CRORES FROM INDYA.COM AND GAVE LOAN OF RS.139.58 CR ORES TO MBPL. THE AS SESSEE PAID INTEREST TO INDYA.COM AND ALSO CHAR GED INTEREST FROM MBPL. AS PER THE AGREEMENT DATED ITA NOS.690 & 1014/MUM/2009 M/S.DIGIWAVE INFRASTRUCTURE & SERVICES LIMITED. 6 31.3.2005 INDYA.COM WAIVED THE LOAN OF THE ASSESSEE-COMPANY. SIMILARLY MBPL INCURRED HUGE LOSSES AND WAS NOT IN A PO SITION TO REPAY THE ADVANCE GIVEN BY THE ASSESSEE. ON 31.03.2005 THE MINUTES OF THE MEETING OF DIRECTORS OF THE ASSESSEE- COMPANY APPROVED THE WAIVER OF PRINCI PAL AMOUNT I.E. RS.139.58 CRORES DUE FROM MBPL. THE ACCRUED INTEREST WAS NOT WAIVE D. RATHER THIS SU M DUE FROM MBPL WAS DIVERTED IN FAVOUR OF ANOTHER COMPANY NA MED RADIOVANI FOR RS.22 CRORES. THUS IT IS EVIDENT THAT THE ASSESSEE-COMPANY DID NOT WAIVE THE ACCRUED INTEREST BUT ASSIGNED THIS AMOUNT DUE FROM MBPL IN FAVOUR OF ANOTHER COMPANY FOR RS.22 CRORES. WHEN THE ASSESSEE ITSELF IS VALUING THE RIGHT TO RECEI VE SUCH INTEREST TOGETHER WITH THE INTEREST ALREADY ACCRUED, IT CANNOT TURN AROUND TO CONTEND THAT THE INTEREST OF RS.8.10 CRORE DID NOT ACCRUE TO IT. IN OUR CONSIDERED OPINION THE LD. CIT(A) WAS JUSTIFIED IN APPROVING THE VIEW TAKEN BY THE AO ON THIS ISSUE. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER ON THIS ISSUE AS WELL. 7. IN THE RESULT, THE BOTH THE APPEALS ARE DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF JUNE, 2011. SD/- SD/- ( R.S.PADVEKAR ) ( R.S.SYAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 30 TH JUNE, 2011. DEVDAS*` COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - VIII, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. ITA NOS.690 & 1014/MUM/2009 M/S.DIGIWAVE INFRASTRUCTURE & SERVICES LIMITED. 7 TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.