ADDL CIT RG 5(1), MUMBAI V. ESSAR SHIPPING LTD, MUMBAI

ITA 4658/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55864 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 17-11-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 04-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHANTAM BOSE
• Keywords: Capital asset; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH: MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.4658/MUM/2010 (ASSESSMENT YEAR: 2004-05) ACIT-5(1), ROOM NO.568/525, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI -400 020 ....... APPELLANT VS M/S. ESSAR SHIPPING LTD., ESSAR HOUSE, 11, K.K. MARG, MAHALAXMI, MUMBAI -400 034 ..... RESPONDENT PAN: AAACE 8391 D APPELLANT BY: MR. VIJAY MEHTA RESPONDENT BY: MR. SHANTAM BOSE DATE OF HEARING: 17.11.2011 DATE OF PRONOUNCEMENT: 30.11.2011 O R D E R PER R.S. PADVEKAR, JM IN THIS APPEAL THE REVENUE HAS CHALLENGED THE IMPUG NED ORDER OF THE LD. CIT (A) 9, MUMBAI DATED 31.03.2010 FOR THE A.Y. 2004-05. THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GROUN D:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) HAS ERRED IN HOLDING THAT IN T HE CASE OF RECEIPT OF FORFEITED LIABILITY ONLY LOAN LIABILITY IS CONVERTED INTO CAPITAL RECEIPTS WITHOUT CONSIDERING THE FACT THAT THE ADDITION WAS MADE TREATING THE INCOME AS BUSINESS I NCOME WHICH HAS BEEN RECEIVED BY THE ASSESSEE DURING ITS NORMAL COURSE OF BUSINESS AS PER PROVISIONS OF SECTION 28( IV) OF THE I.T. ACT. ITA 4658/MUM/2010 M/S. ESSAR SHIPPING LTD. 2 2. BRIEFLY STATED THE FACTS ARE AS UNDER. THE ASSE SSEE-COMPANY HAD ISSUED 16% SECURED REDEEMABLE PARTLY CONVERTIBL E DEBENTURES OF ` 70/- EACH DURING THE FINANCIAL YEAR 1993-94. EACH DEBENTURE CONSISTED OF TWO PARTS, PART-A ` 20/- AND PART-B ` 50/-. PART A OF ` 20/- EACH WAS TO BE COMPULSORILY CONVERTED WITHOUT ANY ACT OR APPLICATION ON THE PART OF THE DEBENTURE HOLDER INT O THE ONE EQUITY SHARE OF ` 10/- AT A PREMIUM OF ` 10/- PER SHARE ON THE EXPIRY OF SIX MONTHS FROM THE DATE OF ALLOTMENT OF THE DEBENTURES . PART-B OF ` 50/- WAS TO BE REDEEMED AT PAR IN INSTALMENTS OF ` 20/-, ` 15/- & ` 15/- ON THE EXPIRY OF 6TH, 7TH & 8TH YEARS RESPECTIVELY FRO M THE DATE OF ALLOTMENT OF DEBENTURES. IF THERE WAS FAILURE TO P AY THE AMOUNT DUE ON THE ALLOTMENT ON OR BEFORE THE DATE(S) SO FIXED FOR THE PAYMENT REFERRED TO ABOVE, THEN THE DEBENTURES COULD HAVE B EEN FORFEITED. THE DEBENTURES ISSUED WERE FORFEITED AND AMOUNT PARTLY RECEIVED TO THE EXTENT OF ` 67,96,891/- WAS CREDITED TO THE PROFIT & LOSS ACCO UNT AS A MISCELLANEOUS RECEIPT BUT IN THE COMPUTATION OF TOT AL INCOME, THE SAID AMOUNT WAS REDUCED FROM THE PROFIT CLAIMING IT AS CAPITAL RECEIPT. THE A.O. TREATED THE SAID AMOUNT AS A TAXABLE U/S.2 8(IV) OF THE ACT AS A PERQUISITE OR BENEFIT ACCRUED IN THE NORMAL COURS E OF BUSINESS. THE ASSESSEE CHALLENGED THE ADDITION MADE BY THE A.O. B EFORE THE LD. CIT (A) AND FOUND FAVOUR AS THE ADDITION WAS DELETED. NOW, THE REVENUE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD S. THE LD. COUNSEL TOOK US THROUGH THE PAPER BOOK WHERE THE CO PY OF THE LETTER OF OFFER IS PLACED. HE SUBMITS THAT THE BASIC OBJE CT OF THE ISSUE WAS TO ACQUIRE BULK CARRIERS/PRODUCT CARRIERS/CRUDE TANKER S AND HENCE, IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. CIT 261 ITR 50 1, THE AMOUNT RETAINED BY THE ASSESSEE-COMPANY ON THE FORFEITURE OF THE PARTLY PAID DEBENTURES CANNOT BE BROUGHT TO TAX U/S.28(IV) OF T HE ACT. HE FURTHER SUBMITS THAT REVENUE MAY RELY ON THE DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SOLID CONT AINERS LTD. - 308 ITR 417 (BOM) BUT IN THAT CASE THE LOAN WAS TAKEN BY TH E ASSESSEE FOR THE BUSINESS PURPOSE AND NOT FOR THE INVESTMENT IN THE CAPITAL ASSET. ITA 4658/MUM/2010 M/S. ESSAR SHIPPING LTD. 3 4. WE FIND FORCE IN THE ARGUMENT OF LD. COUNSEL. ON THE PERUSAL OF THE LETTER OF OFFER PLACED IN COMPILATION, MORE PARTICULARLY, PAGE NO.10, WE FIND THAT THE ASSESSEE ISSUED THE SAID DE BENTURES FOR ACQUIRING THE VESSELS I.E. BULK CARRIERS, PRODUCT C ARRIERS, CRUDE TANKERS ETC. HENCE, THE AMOUNT PROPOSED TO BE GENER ATED FROM THE ISSUE OF THE DEBENTURES WAS FOR THE PURPOSE OF ACQU IRING THE CAPITAL ASSETS. IN THE CASE OF MAHINDRA AND MAHINDRA LTD. ( SUPRA ), THE ASSESSEE ENTERED INTO AN AGREEMENT WITH M/S. KAISER JEEP CORPORATION (IN SHORT KJC) FOR PURCHASING DIES, WEL DING EQUIPMENTS, AND DIE MODELS ETC. FOR THE PURPOSE OF PRODUCTION O F SPECIAL TYPE OF JEEPS. THE KJC ALSO AGREED TO PROVIDE LOAN FOR AN AMOUNT OF US $ 6,50,000/- WHICH WAS REPAYABLE AFTER TEN YEARS IN I NSTALMENT WITH INTEREST @ 6 PER CENT. THE ASSESSEE EXECUTED THE P ROMISSORY NOTE IN FAVOUR OF THE KJC. THE KJC WAS TOOK OVER BY AMERIC AN MOTOR CORPORATION (IN SHORT AMC) AND AMC AGREED TO WAIVE THE PRINCIPLE AMOUNT OF LOAN ADVANCED BY KJC TO THE ASSESSEE. TH E ISSUE WAS, WHETHER THE WAIVER OF THE PRINCIPLE LOAN CAN BE TRE ATED AS A PERQUISITE OR BENEFIT U/S.28(IV) ? THE HONBLE HIGH COURT HEL D THAT THE SAID WAIVER CANNOT BE TREATED AS A BENEFIT OR PERQUISITE U/S.28(IV) AS THE LOAN HAS DIRECT NEXUS FOR PURCHASING CAPITAL ASSET. IN THE PRESENT CASE, THE DEBENTURES WERE ISSUED FOR ACQUIRING CAPI TAL ASSETS AND HENCE, THE ASSESSEE-COMPANYS CASE IS SQUARELY COVE RED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF MAHINDRA & MAHINDRA (SUPRA). WE, ACCORDINGLY, FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT (A) AND SAM E IS CONFIRMED. 5. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 3 0TH NOVEMBER 2011. SD/- SD/- ( P.M. JAGTAP ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE : 30TH NOVEMBER, 2011 ITA 4658/MUM/2010 M/S. ESSAR SHIPPING LTD. 4 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-9, MUMBAI. 4) THE CIT-5, MUMBAI. 5) THE D.R. F/E BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN ITA 4658/MUM/2010 M/S. ESSAR SHIPPING LTD. 5 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 17.11.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 18.11.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER