DCIT, New Delhi V. M/s. ICC India (P) Ltd., New Delhi

ITA 1174/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52901 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 14-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 04-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: KUM VANDANA BHANDARI
• Keywords: Capital asset; Wholly owned subsidiary

Judgement Text

ITA NO. 1174/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1174/DEL/2011 A.Y. : 2006-07 DCIT, CIRCLE - 11(1), NEW DELHI ROOM NO. 312, C.R. BUILDING, NEW DELHI VS. M/S ICC INDIA P LTD., 4 TH FLOOR, NSIC-STP COMPLEX, OKHLA INDUSTRIAL COMPLEX, NEW DELHI (PAN/GIR NO. : AAAC1834G) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : KUM. VANDANA BHANDARI, CA DEPARTMENT BY : SH. SALIL MISHRA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 20.12. 2010 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE GROUNDS RAISED READ AS UNDER:- (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED I N DELETING THE ADDITION OF ` 1,32,88,530/- ON ACCOUNT OF WRITE BACK OF SHARE APPLICATION MONEY. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED I N ITA NO. 1174/DEL/2011 2 DELETING THE ADDITION OF ` 45,41,542/- ON ACCOUNT O F WRITE BACK OF LOAN. (III) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR A MEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING . 3. IN THIS CASE, DURING THE COURSE OF ASSESSMENT AS SESSING OFFICER OBSERVED THAT ASSESSEE HAS CREDITED A SUM OF 1,78,3 0,072/- AS CAPITAL RESERVES. THE DETAILS OF WHICH WERE SUBMITTED AS UNDER:- THE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF INTERACT IVE COMPOSITION CORPORATION, USA (HOLDING COMPANY). THE COMPANY HAD RECEIVED SHARE APPLICATION MONEY FROM ITS HOLDING COMPANY IN EARLIER YEARS. THE SHARE APPLIC ATION MONEY WAS RECEIVED PARTLY IN CASH AND PARTLY IN KIND ( IN THE FORM OF CAPITAL GOODS). BALANCE IN SHARE APPLICATIO N MONEY ACCOUNT AS ON JANUARY 31, 2006 WAS ` 1,32,88,530.08 . BESIDES THE ABOVE, THE COMPANY HAD IMPORTED CAPITAL GOODS AND CONSUMABLES IN EARLIER YEARS FROM HOLDING COMPANY. OUTSTANDING LIABILITY IN THE BOOKS OF ACC OUNT OF THE COMPANY AS ON JANUARY 31, 2006 AGAINST SUCH IMPO RT OF CAPITAL GOODS WAS ` 45,28,192.74 AND AGAINST SUCH I MPORT OF CONSUMABLES WAS ` 13,350/-. THE BOARD OF DIRECTORS OF THE COMPANY IN A MEETING HELD ON JANUARY 31, 2006 HAS RECOGNIZED THAT THE HOLDING COMPANY HAS WAIVED THE OBLIGATION OF THE COMPANY TO ISSUE SHARES TOWARDS SHARE APPLICATION MONEY AND ALS O WAIVED THE OBLIGATION OF THE COMPANY TO REPAY THE OUTSTANDING LIABILITY AGAINST THE IMPORT OF CAPITAL GOODS AND CONSUMABLES. AS THE HOLDING COMPANY HAS WAIVED ITS ITA NO. 1174/DEL/2011 3 CLAIM, THE COMPANY HAS TRANSFERRED THE ENTIRE BALANCE IN SHARE APPLICATION MONEY ACCOUNT AND THE ENTIRE AMOUNT PAYABLE TO THE HOLDING COMPANY ON ACCOUNT OF IMPORT O F CAPITAL GOODS AND CONSUMABLES TO THE CAPITAL RESERV E ACCOUNT IN ACCORDANCE WITH RESOLUTION PASSED BY THE BOARD OF THE COMPANY IN A MEETING HELD ON JANUARY 31, 200 6. 3.1 ASSESSING OFFICER WAS OF THE OPINION THAT A SU M OF ` 1,32,88,530/- WAS TAXABLE UNDER SECTION 28(IV) OF T HE IT ACT. SECONDLY, HE OPINED THAT A SUM OF ` 45,28,192/- WAS TAXABLE U/S 41(1) OF THE IT ACT. ACCORDINGLY, HE MADE THE ABOVE SAID ADDITIONS. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) DEALT WITH THE ISSUE. LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT A SUM OF ` 1,32,88,530/- WAS NO T TAXABLE U/S 28(IV) OF THE IT ACT AND SECONDLY HE HELD THAT A SUM OF ` 45,28,192/- WAS ALSO NOT TAXABLE U/S. 41(1) OF THE IT ACT. ACCORDINGLY, LD. COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED FOR THE DELETION OF T HE ADDITIONS. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT LIABILITY INCURRED BY THE ASSESSEE ON ACCOUNT OF SHARE APPLICATION MONEY AND THE PURCHASE OF FIXED ASSETS IS UNDOUBTEDLY ON CAPITAL ACCOUNT. IT WAS NOT A LIABILITY INCURRED ON ACCOUNT OF TRADING OPERATIONS. 6.1 AS FAR AS TAXATION U/S 41(1) IS CONCERNED, IT I S CLEAR THAT THE SAID SECTION IS APPLICABLE ONLY IF AN ALLOWANCE OR DEDUC TION HAS BEEN MADE, IN THE COMPUTATION OF PROFITS AND GAINS OF A BUSINES S OR PROFESSION, IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXP ENDITURE OR TRADING ITA NO. 1174/DEL/2011 4 LIABILITY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY , DURING ANY PREVIOUS YEAR THE ASSESSEE HAD OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUC H LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADI NG LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF. THEREFORE, IN OR DER TO APPLY THE PROVISIONS OF SECTION 41(1) OF THE IT ACT CONDITION S MENTIONED ABOVE SHOULD CUMULATIVELY EXIST AND THAT TOO IN RESPECT OF THE TRADING LIABILITY. THIS VIEW IS SUPPORTED BY THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF POLYFLEX (INDIA) (P) LTD. (257 ITR 343). FROM THE FACTS OF THE CASE IT IS CLEAR THAT THE ASSESSEE HAS NEVER CLAIME D ANY ALLOWANCE OR DEDUCTION IN RESPECT OF THE AMOUNTS TRANSFERRED TO T HE CAPITAL RESERVES FROM THE LOAN ACCOUNT. FURTHER, THE FACTS ALSO CLE ARLY SHOW THAT THE AMOUNTS OUTSTANDING IN THE LOAN ACCOUNT WERE ON ACCO UNT OF CAPITAL LIABILITY AND NOT ON ACCOUNT OF TRADING LIABILITY. BASED ON THE FACTS OF THE CASE AND THE LEGAL PRINCIPLES, THE SAID TRANSFE R FROM LOAN ACCOUNT TO CAPITAL RESERVE CANNOT BE BROUGHT TO TAX UNDER SECT ION 41(1). ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORD ER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THAT THE ADDITION OF 45,41,542/- MADE BY THE ASSESSING OFFICER U/S 41(1 ) IS LIABLE TO BE DELETED. 7. AS FAR AS TAXATION OF THE TRANSFER OF ` 1,32,88, 530/- FROM THE SHARE APPLICATION ACCOUNT TO THE CAPITAL RESERVE ACCOUNT IS CONCERNED, THE ASSESSING OFFICER HAS TAXED IT UNDER SECTION 28(IV ) OF THE IT ACT. SECTION 28(IV) READS AS UNDER:- PROFITS AND GAINS OF BUSINESS OR PROFESSION. 28. THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INCOME- TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, ITA NO. 1174/DEL/2011 5 [(IV) THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETH ER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION] 7.1 ACCORDING TO THE LEGAL PRINCIPLES AS EXPLAINED BY VARIOUS JUDICIAL PRONOUNCEMENTS ON THE SUBJECT, AMOUNT MUST FULFIL THE FOLLOWING CRITERIA, TO COME UNDER THE KEN OF SECTION 28(IV). (A) AMOUNT HAS TO BE INCOME WITHIN THE MEANING OF SECTION 2(24) OF THE INCOME TAX ACT; (B) THE INCOME SHOULD RESULT FROM BENEFIT OR PERQUIS ITE WHETHER CONVERTIBLE INTO MONEY OR NOT. (C) BENEFIT OR PERQUISITE SHOULD ARISE FROM BUSINE SS OR THE EXERCISE OF PROFESSION. 7.2 IN THIS REGARD, FOLLOWING CASE LAWS ARE RELEVAN T AND RIGHTLY RELIED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). - MAHINDRA AND MAHINDRA VS. C.I.T. [2003] 261 ITR 501. - TOSHA INTERNATIONAL LTD. VS. C.I.T. [2009] 176 TA XMAN 187 (DELHI). 7.3 LD. COMMISSIONER OF INCOME TAX (APPEALS)S HAS O BSERVED THAT IN BOTH THESE CASES, THE COURTS HAVE HELD THAT A CAP ITAL LIABILITY NO LONGER REQUIRED CAN BE BROUGHT TO TAX U/S. 28(IV) ONLY IF THE ASSESSEE IS IN THE BUSINESS OF TAKING LOANS AND THE WRITE BACK HAS ARISEN SQUARELY ON ACCOUNT OF THE BUSINESS OF THE ASSESSEE. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF ITES. 7.4 IN THE CASE OF TOSHA INTERNATIONAL LTD. VS. C.I .T. (SUPRA), IT WAS HELD THAT AMOUNT OF LOAN AND INTEREST DUE BY THE AS SESSEE TO THE BANKS AND FINANCIAL INSTITUTIONS, HAVING NEVER BEE N CLAIMED BY THE ITA NO. 1174/DEL/2011 6 ASSESSEE AS DEDUCTION, THE WAIVER OF THE INTEREST A ND PART OF THE PRINCIPAL BY BANKS/FINANCIAL INSTITUTIONS DID NOT G IVE RISE TO PROFIT CHARGEABLE TO TAX U/S 41(1) OF THE IT ACT. 7.5 IN THE CASE OF MAHINDRA AND MAHINDRA VS. C.I.T. (SUPRA), IT WAS HELD THAT SECTION 28(IV) DID NOT APPLY TO THE WAIVE R OF PRINCIPAL AMOUNT OF LOAN WHICH WAS ADVANCED TO THE ASSESSEE BY THE SUPPLIER OF CAPITAL ASSETS. ACCORDINGLY, BASED ON THE FACTS AND THE LE GAL PRINCIPLES AS EXPLAINED BY VARIOUS JUDICIAL PRONOUNCEMENTS, THE SAID TRANSFER FORM SHARE APPLICATION ACCOUNT TO CAPITAL RESERVE CANNOT BE BROUGHT TO TAX U/S. 28(IV). ACCORDINGLY, WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDI NG THAT ADDITION OF ` 1,32,88,530/- MADE BY THE ASSESSING OFFICER U/ S 28(IV) IS DIRECTED LIABLE TO BE DELETED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/9/2011. SD/- SD/- [ [[ [I.P. BANSAL I.P. BANSAL I.P. BANSAL I.P. BANSAL] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 30/9/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES