DCIT, Udupi V. M/s. Manipal Fianace Corporation Ltd., Manipal

ITA 298/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9410 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-07-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 08-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JASON P BAOZ
• Assessee Lawyers: DINESH
• Keywords: Capital asset; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI K.K. GUPTA, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE. K, JUDICIAL MEMBER ITA NO.298(BANG)/2009 (ASSESSMENT YEAR:2005-06) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, UDUPI. .... APPELLANT VS. M/S.MANIPAL FINANCE CORPORATION LTD. MANIPAL HOUSE, MANIPAL. .... RESPONDENT APPELLANT BY : SHRI JASON P. BAOZ RESPONDENT BY : SHRI DINESH. O R D E R PER GEORGE GEORGE K, JM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), MANGALORE, DATED 6-2-2009. THE ASS ESSMENT YEAR CONCERNED IS 2005-06. 2. THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS: 1) THE LEARNED CIT(A) ERRED IN ALLOWING THE PRINCIPAL PORTION OF DEBENTURES AMOUNTING TO RS.53,87,000 AND PRINCIPAL PORTION OF DEPOSITS AMOUNTING TO RS.10,29,000 (TOTAL RS.64,16,000) AS CAPITAL RECEIPT. 2) THE LEARNED CIT(A) ALSO ERRED IN DELETING THE AMOUNT OF CESSATION OF BANK LIABILITY AMOUNTING TO RS.78,17,000 HOLDING THE SAME AS CAPITAL RECEIPT. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT SINCE THE ASSESSEE IS CARRYING ON FINANCE BUSINESS THE ITA 298/B/2009 PAGE 2 OF 4 BENEFIT ARISING OUT OF CESSATION OF LIABILITY IS TAXABLE U/S 28(IV) OF THE IT ACT. 3) THE LEARNED CIT(A) ERRED IN NOT CONSIDERING THE DECISION OF HONBLE ITAT, BANGALORE BENCH, IN THE CASE OF MANIPAL SOWBHAGYA NIDHI LTD., FOR THE ASSESSMENT YEAR 2003-04 WHO, IN THEIR ORDER DATED 7-11-2008 IN ITA NO.379/BANG/08 THE ITAT, UPHELD THE ASSESSMENT OF PRINCIPAL PORTION OF DEPOSITS FORGONE BY THE DEPOSITORS. 3. THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A NON-BANKING FINANCIAL COMPANY CARRYING ON THE BUSINESS OF ACCEPTANCE OF DEPOSITS, HIRE PURCHASE, LEASE, LOAN TRANSACTIONS ETC. THE ASSESSEE HAS MADE SETTLEMENTS WITH THE DEPOSITO RS AND DEBENTURE HOLDERS WITH MUTUAL CONSENT OF THE CONCER NED PARTIES AND THE PRINCIPAL AMOUNT WRITTEN BACK AT RS.64,16,0 00/- ARISING OUT OF THE SETTLEMENT HAS BEEN CLAIMED AS NON-TAXAB LE CAPITAL RECEIPT. INTEREST WRITTEN BACK PERTAINING TO THE S AID SETTLEMENT OF DEPOSITS AND DEBENTURES HAS BEEN TREATED AS EXCEPT IONAL INCOME AND OFFERED TO TAX. THE ASSESSEE HAS ALSO SETTLED BORROWINGS FROM KARNATAKA BANK, CORPORATION AND UCO BANK. IN THE S ETTLEMENT OF BANK BORROWINGS, ASSESSEE GOT CONCESSION OF RS.78,1 7,000/- WHICH HAS ALSO BEEN CONSIDERED AS CAPITAL RECEIPT C LAIMED TO BE NON-TAXABLE. HOWEVER, THE AO DISALLOWED THE SAID C LAIMS OF THE ASSESSEE AND TREATED THE FOREGOING OF THE PRINCIPAL AMOUNT OF DEBENTURES AND DEPOSITS OF RS.64,16,000/- AND CESSA TION OF BANK LIABILITIES OF RS.78,17,000/- TOTALLING TO RS.1,42, 33,000/- AS INCOME FROM BUSINESS TAXABLE U/S 41(1) READ WITH SE C.28(IV) OF THE IT ACT, 1961. BEING AGGRIEVED, ASSESSEE PREFER RED APPEAL ITA 298/B/2009 PAGE 3 OF 4 BEFORE THE LD. CIT(A). THE LD. CIT(A) DIRECTED THE AO TO DELETE THE AMOUNT OF RS.64,16,000/- REPRESENTING FOREGOING OF PRINCIPAL BY THE DEPOSITORS AND DEBENTURE HOLDERS. THE LD. CI T(A) ALSO DIRECTED THE AO TO VERIFY WHETHER CESSATION OF BANK LIABILITY OF RS.78,17,000/- INCLUDES ANY INTEREST, AND IF SO, WH ETHER INTEREST COMPONENT HAS BEEN CLAIMED AS DEDUCTION IN THE PROF IT AND LOSS ACCOUNT? THE LD. CIT(A) HELD THAT IF INTEREST HAS BEEN CLAIMED AS DEDUCTION IN THE PROFIT AND LOSS ACCOUNT THEN SEC.4 1(1) WOULD COME PLAY AND REMISSION OF LIABILITY TO THAT EXTENT IS CHARGEABLE TO TAX U/S 28(IV) READ WITH SEC.41(1) OF THE IT ACT. BEING AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 4. AT THE TIME OF HEARING COUNSELS OF BOTH SIDES AG REED THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS SQUA RELY COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FO R ASSESSMENT YEARS 2003-04 AND 2004-05 (ITA NOS.626 & 627/BANG/2 007 DATED 7-3-2008). 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE TRIBUNAL, IN ASSESSEES OW N CASE CITED SUPRA, HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. THE RELEVANT PARA. OF THE TRIBUNAL ORDER IS REPRODUCED BELOW: 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS IN OUR OPINION, THE FOLLOWING UNDISPUTED FACTS EMERGE OUT. THE BALANCE AMOUNT OF DEPOSIT WHICH COULD NOT BE PA ID BY THE ASSESSEE TO THE DEPOSITORS WAS NEVER A CHARG E TO THE PROFIT AND LOSS ACCOUNT AND THEREBY AT NO PO INT THE TAX LIABILITY, IF ANY, OF THE EARLIER YEARS WAS REDUCED. WE FIND THE SITUATION IS IDENTICAL TO THE ONE THAT WAS CONSIDERED BY THE BOMBAY HIGH COURT. THER E ITA 298/B/2009 PAGE 4 OF 4 IS NO CESSATION OF A TRADING LIABILITY. WHAT WAS BORROWED BY THE ASSESSEE WAS A CAPITAL ASSET REPAYABLE AS SUCH, COULD NOT BE REPAID IN VIEW OF T HE CIRCUMSTANCES IN WHICH THE ASSESSEE WAS PLACED. SECTION 41(1) OF THE ACT WOULD GET ATTRACTED ONLY W HEN THERE IS AN AMOUNT THAT IS CHARGED TO THE PROFIT AN D LOSS ACCOUNT REDUCING THE TAX LIABILITY OF ANY OF T HE EARLIER YEARS. THAT NOT BEING THE CASE HERE, THE DECISION OF THE BOMBAY HIGH COURT (SUPRA) SQUARELY APPLY AND, ACCORDINGLY, WE UPHOLD THE CLAIM OF THE ASSESSEE. RESPECTFULLY FOLLOWING DECISION OF CO-ORDINATE BENC H OF TRIBUNAL IN ASSESSEES OWN CASE, WE DISMISS THE GROUNDS RAISED IN THIS APPEAL. 6. IN THE RESULT, THE APPEAL FILED BY REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7TH AUGUST, 2009. SD/- SD/- (K.K. GUPTA) (GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE: D A T E D : 7TH AUGUST, 2009. EKS* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A), MANGALORE. 5 DR, ITAT, BANGALORE. 6 GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRA R, ITAT, BANGALORE.