ACIT, Kottayam V. M/s.Malankara Wood Ltd, Kottayam

ITA 686/COCH/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73936 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 02-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 07-11-2013
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: ABRAHAM JACOB
• Keywords: Capital asset; Capital receipt; Capital expenditure
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 686/COCH/2013 ASSESSMENT YEAR : 2007-08 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOTTAYAM. VS. M/S. MALANKARA WOOD LTD., MALANKARA BUILDING, KODIMATHA, (POST BOX NO. 72), KOTTAYAM-686038. [PAN: AABCM 4750H] (REVENUE -APPELLANT) (ASSESSEE-RESPONDEN T) REVENUE BY SMT. LATHA V. KUMAR, JR. DR ASSESSEE BY SHRI ABRAHAM JACOB, CA DATE OF HEARING 29/01/2014 DATE OF PRONOUNCEMENT 28/03/2014 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 28- 08-2013 PASSED BY THE LD. CIT(A)-IV, KOCHI AND IT R ELATES TO THE ASSESSMENT YEAR 2007-08. 2. THE REVENUE IS ASSAILING THE DECISION OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS. 79,01,000/- RELATING TO THE PRINCIP AL AMOUNT OF LOAN WAIVED BY ITS HOLDING COMPANY. 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN A SUM OF RS. 79 ,01,000/- AS AN EXTRAORDINARY ITEM OF INCOME IN THE CREDIT SIDE O F THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER NOTICED THAT THE LOAN AMOUNT DUE FROM THE ASSESSEE WAS I.T.A. NO.686/COCH/2013 2 WRITTEN OFF BY THE PARENT COMPANY AND SINCE IT IS N O LONGER PAYABLE, THE ASSESSEE HAS CREDITED THE SAME TO THE PROFIT AND LOSS ACCOUN T AS AN EXTRAORDINARY ITEM OF INCOME. HOWEVER, WHILE COMPUTING THE INCOME FOR TH E PURPOSE OF INCOME TAX ACT, THE ASSESSEE DID NOT OFFER THE SAME FOR TAXATI ON. BEFORE THE ASSESSING OFFICER, THE ASSESSEE FURNISHED THE FOLLOWING EXPLA NATION IN SUPPORT OF ITS CONTENTION THAT THE AMOUNT OF RS.79,01,000/- IS NOT TAXABLE UNDER THE INCOME TAX ACT: THE COMPANY HAD OBTAINED AN UNSECURED LOAN OF RS.7 9,01,000 FROM ITS HOLDING COMPANY IN THE INITIAL YEARS. THE LOAN WAS TAKEN ON INTEREST AND THE TOTAL ACCUMULATED INTEREST WAS RS.61,14,577 AS ON 3 1.03.07. TAX WAS DEDUCTED FROM INTEREST CREDITED AT APPLICABLE RATES FOR EACH YEAR AND PAID TO GOVERNMENT. SINCE THE COMPANY HAD BEEN CONSISTENTL Y INCURRING OPERATING LOSSES FROM THE START OF COMMERCIAL PRODUCTION AND HAD ACCUMULATED LOSSES OF RS.3,44,65,202 AS ON 31.03.06 AGAINST A PAID UP SHA RE CAPITAL OF 3,60,00,000 THEREBY ERASING THE PAID UP CAPITAL BY 95%, THE ASS ESSEE COMPANY REQUESTED THE HOLDING COMPANY (LENDER COMPANY) TO WAIVE THE L OAN AND INTEREST THEREON AND THEREUPON THE LENDER COMPANY, MALANKARA PLANTATIONS LTD, WAIVED THE PRINCIPAL AMOUNT OF LOAN GRANTED TO THE COMPANY. IN VIEW OF THE ABOVE, THE PRINCIPAL PORTION OF THE LOAN AMOUNTING TO RS.79,01,000 HAS BEEN WRITTEN OFF BY CREDITING THE SAME TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY AS PER THE REQUIREMENTS OF PART II OF SCHEDULE VI OF THE COMPANIES ACT-1956. THIS IS A CAPITAL RECEIPT AND N OT A TRADING RECEIPT AND AS SUCH NOT TAXABLE UNDER THE IT ACT. ACCORDINGLY, TH E LOAN WRITTEN OFF IS DEDUCTED WHILE COMPUTING THE TAXABLE INCOME OF THE COMPANY. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE C ONTENTIONS OF THE ASSESSEE. THE ASSESSING OFFICER, BY PLACING RELIANCE ON THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. T.V. SUNDARAM IYENGAR & SONS LTD. (1996) (222 ITR 344) AND ALSO ON THE DECISION OF THE HONBLE HIGH C OURT OF BOMBAY IN THE CASE OF SOLID CONTAINERS LTD. VS. CIT (2009) (308 ITR 417), HELD THAT THE IMPUGNED AMOUNT IS TAXABLE U/S. 28(IV) OF THE ACT. THE OBSE RVATION MADE BY THE ASSESSING OFFICER IN THIS REGARD IS EXTRACTED BELOW: 4. THE CONTENTION OF THE ASSESSEE CANNOT BE ACCEPT ED. THE HON. SUPREME COURT OF INDIA IN CIT VS. T.V. SUNDARAM IYE NGAR & SONS LTD. I.T.A. NO.686/COCH/2013 3 (1996) (222 ITR 344(SC) HELD THAT IF AN AMOUNT IS RECEIVED IN THE COURSE OF A TRADING TRANSACTION, EVEN THOUGH IT IS NOT TAX ABLE IN THE YEAR OF RECEIPT AS BEING OF REVENUE CHARACTER, THE AMOUNT C HANGES ITS CHARACTER WHEN THE AMOUNT BECOMES THE ASSESSEES OWN MONEY BE CAUSE OF LIMITATION OR BY ANY STATUTORY OR CONTRACTUAL RIGHT . WHEN SUCH A THING HAPPENS, COMMON SENSE DEMANDS THAT THE AMOUNT SHOUL D BE TREATED AS INCOME OF THE ASSESSEE. THIS PRINCIPLE WAS REITER ATED BY THE HON. HIGH COURT OF BOMBAY IN SOLID CONTAINERS LTD. VS. CIT (2 009) 308 ITR 417 (BOM). 5. IN THE INSTANT CASE, THE LOAN WAS RECEIVED IN THE COURSE OF CARRYING ON THE BUSINESS IN ORDER TO MEET THE WORKING CAPITAL R EQUIREMENTS OF THE COMPANY. IN OTHER WORDS, THE LOAN WAS AVAILED TO I NFUSE FUNDS INTO THE BUSINESS. WITH THE CREDITOR WRITING OFF THE LOAN, THERE HAS BEEN A WAIVER OF LOAN LIABILITY. AT THE TIME OF AVAILING OF LOAN IT WAS A CAPITAL RECEIPT, BUT ONCE THE LIABILITY ENDED, AND IT WAS CREDITED TO TH E P&L A/C, THE CHARACTER OF THE RECEIPT UNDERWENT A CHANGE. THE APPELLANT HA S BECOME THE RECIPIENT OF A BENEFIT ARISING FROM THE EXERCISE OF HIS BUSINESS BRINGING THE AMOUNT WITHIN THE AMBIT OF SECTION 28(IV) OF THE IT ACT. SUBSECTION (IV) OF SECTION 28 PROVIDES THAT THE VALUE OF BENEFIT OR P ERQUISITE WHETHER CONVERTIBLE INTO MONEY OR NOT ARISING FROM THE BUSI NESS OR EXERCISE OF A PROFESSION COMES WITHIN THE PURVIEW OF BUSINESS IN COME. IN THE INSTANT CASE IT IS THE INTEREST BEARING FUNDS THAT HAVE BEE N WAIVED. SUCH WAIVER OR REMISSION IS IN THE COURSE OF BUSINESS. SO THE ASSESSEE HAS CLEARLY OBTAINED A BENEFIT IN THE COURSE OF BUSINESS. THE R ESOLUTION PASSED BY THE ASSESSEE COMPANYS BOARD MAKES THINGS VERY CLEAR. THE BOARD EXPRESSED THEIR DEEP SENSE OF GRATITUDE TO THE HOLD ING COMPANY, MALANKARA PLANTATIONS LTD. FOR WRITING OFF THE OUTS TANDING LOAN OF RS. 79 LAKHS THUS RELIEVING THIS COMPANY FROM THE LIABILIT Y OF PAYING A LARGE SUM AS YEARLY INTEREST WHICH IT HAS BEEN UNABLE TO DO F OR OVER A DECADE SINCE IT HAS BEEN CONTINUOUSLY INCURRING LOSSES. SECTION 2 8(IV) IS CLEARLY ATTRACTED AND RATIO OF THE APEX COURT DECISION IN TVS IYENGAR CASE APPLIES. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) HEL D THAT THE ASSESSING OFFICER WAS NOT RIGHT IN TREATING THE UNSECURED LOA N AS TRADING RECEIPT AND ACCORDINGLY HELD THAT THE UNSECURED LOAN WAIVED OFF BY THE LENDER CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE U/S. 28(IV) R.W. S. 41(1) OF THE ACT. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAD PLACED RELI ANCE ON THE FOLLOWING CASE LAWS BEFORE THE LD. CIT(A): I.T.A. NO.686/COCH/2013 4 (A) CIT VS. CHETAN CHEMICALS (P) LTD. (2004) 267 IT R 0770 (GUJ.) (B) MAHINDRA & MAHINDRA LTD. VS. CIT (2003) 261 IT R 0501 (BOM). (C) IFB SECURITIES LT. VS. ITO (2006) 101 TTJ (KOL ) 0829. (D) PUNJAB DISTILLING INDUSTRIES LTD. VS. CIT (1965) 57 ITR 1 (SC). (E) DLF HOUSING AND CONSTRUCTION P. LTD. VS. CIT ( 1982) 141 ITR 806 (DEL.). ACCORDINGLY, THE LD. CIT(A) DELETED THE DISALLOWANC E WITH THE FOLLOWING OBSERVATIONS: 1.6 HAVING GONE THROUGH THE DETAILS OF THE FACT A ND THE APPLICABILITY OF LAW, IT APPEARS THAT THE ASSESSING OFFICER HAS TREA TED AN UNSECURED LOAN AS A TRADING RECEIPT AND DEPOSIT. AS A MATTER OF FACT , THE UNSECURED LOAN CANNOT BE HELD TAXABLE IN THE HANDS OF THE APPELLAN T U/S. 28(IV) R.W.S. 41(1) OF THE ACT. OTHERWISE ALSO IT HAS BEEN EXPLAINED B Y THE APPELLANT THAT THE HOLDING COMPANY M/S. MALANKARA RUBBER PLANTATIONS L TD. WHILE WRITING OFF THIS LOAN, HAS WRITTEN OFF IT AS CAPITAL LOSS AND, THOUGHT IT WAS DEBITED TO P&L ACCOUNT BUT WAS AGAIN ADDED BACK IN THE COMPUTA TION OF INCOME. THERE COULD ALWAYS BE THE TWO SIDES OF A TRANSACTIO N. IF THE HOLDING COMPANY HAS TREATED THE WRITING OFF AS THE WAIVER O FF THE LOAN GIVEN TO THE SUBSIDIARY COMPANY AS INCOME; THE SIMULTANEOUS ENTR Y IN THE BOOKS OF THE SUBSIDIARY COMPANY WOULD BE A LOSS. HOWEVER, THERE IS EROSION OF CAPITAL IN THE HANDS OF THE APPELLANT. THE APPELLANT CREDITED THE WAIVER OFF LIABILITY TO THE P&L ACCOUNT. SUCH CREDIT IN ITSELF CANNOT ALTE R THE NATURE OF SUCH LOAN TO AN INCOME. EVEN IF IT WAS CREDITED TO P&L ACCOUN T MERELY BECAUSE OF SUCH ENTRY THE LOAN AMOUNT IS NOT LIABLE TO BE ADDE D BACK TO TOTAL INCOME, FOR THE PURPOSE OF TAX. EVEN IF IT WAS CREDITED TO THE P&L ACCOUNT AN IDENTICAL DEDUCTION FROM THE COMPUTATION OF INCOME IS ALLOWABLE. IN VIEW OF THIS, THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED AND THE APPEAL ON THIS GROUND IS ALLOWED . AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE US. 5. THE LD D.R, BY PLACING STRONG RELIANCE ON THE ASSESSMENT ORDER, SUBMITTED THAT THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD (SUPRA) AND THE DECISIO N RENDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS L TD (SUPRA) SHALL SQUARELY APPLY TO THE FACTS OF THE INSTANT CASE. I.T.A. NO.686/COCH/2013 5 6. ON THE CONTRARY, THE LD A.R SUBMITTED THAT T HE PROVISIONS OF SEC. 28(IV) IS ATTRACTED ONLY WHEN THE BENEFIT OR PERQUISITE ARISE FROM THE BUSINESS ACTIVITIES. HE FURTHER SUBMITTED THAT THE TERM WHETHER CONVERT IBLE INTO MONEY OR NOT USED IN SEC. 28(IV) SIGNIFIES THAT THE SAID SECTION IS A PPLICABLE TO THE BENEFIT OR PERQUISITE RECEIVED IN KIND ONLY. IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. JINDAL EQUIPMENTS LEASING & CONSULTANCY SERVICES LTD (325 ITR 87), WH EREIN THE HONBLE DELHI HIGH COURT HAS HELD AS UNDER:- 9. WITH THIS, WE PROCEED TO EXAMINE THIS ASPECT O N ITS OWN MERITS, VIZ., WHETHER THE PROVISIONS OF SECTION 28(IV) OF THE ACT ARE ATTRACTED IN A GIVEN CASE. THUS, WHAT IS TO BE SEEN IS AS TO WHETHER TH E AMOUNT WRITTEN OFF OF RS.1,46,3,065/- IN ITS BOOKS OF ACCOUNT BY JSPL AMO UNTS TO THE VALUE OF ANY BENEFIT OR PERQUISITE WHETHER CONVERTIBLE INTO MONE Y OR NOT AND CAN BE TREATED AS PROFITS AND GAINS FROM BUSINESS. THE PRE-REQUISITES FOR ATTRACTING THE SAID PROVISION ARE:- (I) BENEFIT OR PERQUISITE ARISING IN THE COURSE OF BUSINESS IS OF THE NATURE, OTHER THAN CASH OR MONEY. IT IS FOR THIS R EASON EXPRESSION WHETHER CONVERTIBLE INTO MONEY OR NOT IS MENTIONE D IN CLAUSE (IV). THE BOMBAY HIGH COURT HAS INTERPRETED THIS VERY CLA USE IN THE CASE OF MAHINDRA AND MAHINDRA LTD VS. CIT (2003) 261 ITR 501 IN THE FOLLOWING MANNER (PAGE 509) THE INCOME WHICH CAN BE TAXED UNDER SECTION 28(IV) MUST NOT ONLY BE REFERABLE TO A BENEFIT OR PERQUISITE, B UT IT MUST BE ARISING FROM BUSINESS. SECONDLY SECTION 28(IV) DOES NOT APPLY TO BENEFITS IN CASH OR MONEY (SEE (1981) 130 ITR 168 (GUJ) (II) BENEFIT OR PERQUISITE MUST BE ONE ARISING IN THE COURSE OF BUSINESS. 10. FOR THIS REASON, WE ARE NOT GOING INTO THE QU ESTION AS TO WHETHER THE SECOND REQUISITE IS FULFILLED OR NOT. IN THE PRESE NT CASE, THE TRIBUNAL HAS HELD THAT THE WAIVER / WRITTEN OFF PART OF PRINCIPA L AMOUNT BY JSPL DOES NOT CONSTITUTE INCOME AT THE HANDS OF THE ASSESSEE. ON THE FACTS OF THIS CASE AND PARTICULARLY HAVING REGARD TO THE NATURE OF BUS INESS ONLY, IT WILL CONSTITUTE CAPITAL RECEIPT. THE LD A.R FURTHER SUBMITTED THAT THE IMPUGNED LOAN WAS OBTAINED BY THE ASSESSEE FROM ITS PARENT COMPANY AS A BORROWED CAPI TAL FOR THE PURPOSE OF I.T.A. NO.686/COCH/2013 6 MEETING CAPITAL EXPENDITURE AND OTHER BUSINESS NEED S OF THE COMPANY AND IT WAS NOT RECEIVED IN THE COURSE OF TRADING TRANSACTIONS. THE LD A.R SUBMITTED THAT THE DECISIONS RELIED UPON BY THE AO VIZ., T.V. SUNDARAM IYENGAR & SONS LTD (SUPRA) AND SOLID CONTAINERS LTD (SUPRA) RELATED TO THE TRA DING RECEIPTS, WHICH WERE WRITTEN OFF SUBSEQUENTLY. THE LD A.R SUBMITTED THA T THIS LEGAL POSITION HAS BEEN EXPLAINED BY HONBLE MADRAS HIGH COURT IN THE CASE OF ISKRAEMECO REGENT LTD VS. CIT (2011)(331 ITR 317)(MAD). ACCORDINGLY, THE LD A.R SUBMITTED THAT THE LD CIT(A) WAS RIGHT IN LAW IN HOLDING THAT THE WAIV ER OF UNSECURED LOAN IS A CAPITAL RECEIPT AND HENCE NOT TAXABLE IN THE HANDS OF THE ASSESSEE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. WE NOTICE THAT THE ASSESSEE HAD RECEIVED LOAN FROM ITS PRINCIPAL COMPANY IN THE EARLIER YEARS AND ALSO PROVIDED FOR INTEREST PAYABL E ON THE SAID LOAN EVERY YEAR. IT IS SUBMITTED THAT THE ASSESSEE HAD DEDUCTED TAX AT SOURCE ON THE INTEREST PAYABLE BY IT IN THE EARLIER YEARS. IN VIEW OF THE ACCUMULATED LOSSES, THE ASSESSEE COULD NOT PAY THE PRINCIPAL AS WELL AS INT EREST TO THE PARENT COMPANY. HENCE, THE PARENT COMPANY HAS WAIVED OFF BOTH THE P RINCIPAL AND INTEREST AMOUNT DUE FROM THE ASSESSEE. IT IS SUBMITTED THAT THE ASSESSEE HAS OFFERED THE INTEREST PORTION SO WAIVED AS ITS INCOME. WITH REG ARD TO THE PRINCIPAL AMOUNT WAIVED OFF BY THE PARENT COMPANY, IT IS CONTENDED T HAT THE SAME CONSTITUTES A CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE AND HENCE NOT TAXABLE. 8. WE NOTICE THAT THE ASSESSING OFFICER HAS TAKE N THE VIEW THAT THE AMOUNT SO WAIVED OFF CONSTITUTES A BENEFIT OR PERQUISITE ARIS ING FROM BUSINESS IN TERMS OF SEC. 28(IV) OF THE ACT. HOWEVER, WE NOTICE THAT TH E HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. JINDAL EQUIPMENTS LEASING & CONS ULTANCY SERVICES LTD (325 ITR 87) AND THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF MAHINDRA AND MAHINDRA LTD VS. CIT (2003) (261 ITR 501) HAVE TAKE N THE VIEW THAT THE PROVISIONS OF SEC. 28(IV) DOES NOT APPLY TO THE BEN EFITS RECEIVED IN CASH OR MONEY. FURTHER IN THE CASE OF JINDAL EQUIPMENTS LEA SING & CONSULTANCY SERVICES I.T.A. NO.686/COCH/2013 7 LTD (SUPRA), THE HONBLE DELHI HIGH COURT HAS UPHEL D THE VIEW TAKEN BY THE TRIBUNAL THAT THE WAIVER OF PRINCIPAL AMOUNT OF LOA N DOES NOT CONSTITUTE INCOME AND IT WILL CONSTITUTE CAPITAL RECEIPT. 9. BEFORE US, THE LD D.R PLACED STRONG RELIANCE ON THE DECISIONS RENDERED IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD (SUPRA ) AND SOLID CONTAINERS LTD (SUPRA). THE CONTENTION OF THE LD A.R IS THAT BOT H THE DECISIONS REFERRED ABOVE SHALL BE APPLICABLE ONLY TO TRADING TRANSACTIONS. WE NOTICE THAT IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD, THE WRITTEN OFF A MOUNT RELATED TO THE TRADING DEPOSITS RECEIVED FROM THE CUSTOMERS IN THE COURSE OF BUSINESS. IN THE CASE OF SOLID CONTAINERS LTD (SUPRA) ALSO, THE HONBLE DELH I HIGH COURT HAS OBSERVED THAT IT WAS A LOAN TAKEN FOR A TRADING ACTIVITY. 10. WE NOTICE THAT THE HONBLE MADRAS HIGH COUR T HAS CONSIDERED BOTH THE DECISION RELIED UPON BY THE REVENUE IN THE CASE OF ISKRAEMECO REGENT LTD (SUPRA). THE FACTS OF THE SAID CASE ARE THAT THE A SSESSEE THEREIN TOOK A LOAN FROM THE BANK FOR PURCHASE OF CAPITAL ASSETS. IN V IEW OF THE LOSS SUFFERED, THE ASSESSEE WENT BEFORE BIFR. IN TERMS OF THE SCHEME OF REHABILITATION SANCTIONED BY BIFR, A ONE TIME SETTLEMENT WAS ARRIVED AT BETWE EN THE ASSESSEE AND THE BANK UNDER WHICH THE BANK WAIVED THE OUTSTANDING DU E OF PRINCIPAL AMOUNT AND INTEREST. THE ASSESSEE DID NOT OFFER THE PRINCIPAL MOUNT WAIVED BY THE BANK AS ITS INCOME. THE ASSESSING OFFICER ASSESSED THE SAM E U/S 28(IV) READ WITH SEC. 2(24) OF THE ACT. WITH REGARD TO THE DECISION REND ERED BY HONBLE SUPREME COURT IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS L TD (SUPRA), THE HONBLE MADRAS HIGH COURT OBSERVED AS UNDER:- 21. THEREFORE, THE HONOURABLE APEX COURT IN THE A BOVE SAID JUDGMENT HAS CLEARLY HELD THAT WHEN IN THE COURSE OF A TRADING T RANSACTION, THE ASSESSEE BECOMES ENTITLED TO THE MONEY SUCH AN AMOUNT WOULD BECOME A TAXABLE INCOME AT THE HANDS OF THE ASSESSEE. 22. IN THE PRESENT CASE ON HAND, ADMITTEDLY THE ASSESSEE WAS NOT TRADING IN MONEY TRANSACTIONS. A GRANT OF LOAN BY A BANK CANNOT BE TERMED I.T.A. NO.686/COCH/2013 8 AS A TRADING TRANSACTION AND IT CANNOT ALSO BE CONS TRUED IN THE COURSE OF BUSINESS. INDISPUTABLY, THE ASSESSEE OBTAINED THE LOAN FOR THE PURPOSE OF INVESTING IN ITS CAPITAL ASSETS. THEREFORE, HE FAC TS INVOLVED IN THE PRESENT CASE ARE TOTALLY DIFFERENT IN THE FACTS INVOLVED IN T.V. SUNDARAM IYENGAR & SONS LTDS CASE (SUPRA). IN THE SAID CASE, ADMITTE DLY THERE WAS A TRADING TRANSACTION WHEREAS, IN THE PRESENT CASE IT IS NOT SO. WHAT HAS BEEN DONE IN THE PRESENT CASE IS A MERE WAIVER OF LOAN. IT I S ONLY A MERE WAIVER WHICH HAS BEEN EFFECTED BY THE BANK IN FAVOUR OF THE ASSE SSEE. THERE IS NO CHANGE OR CHARACTER WITH REGARD TO THE ORIGINAL REC EIPT WHICH WAS CAPITAL IN NATURE INTO THAT OF A TRADING TRANSACTION. IT IS F URTHER SEEN THAT THERE IS A MARKED DIFFERENCE BETWEEN A LOAN AND A SECURITY DEP OSIT. WITH REGARD TO THE DECISION RENDERED BY HONBLE BOM BAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD (SUPRA), THE HONBLE MADRAS HIGH COURT OBSERVED AS UNDER:- 25. THE VERY SAME CONTENTION HAS BEEN RAISED ON BE HALF OF THE REVENUE BEFORE THE DIVISION BENCH OF THE BOMBAY HIGH COURT IN SOLID CONTAINERS LTD.S CASE (SUPRA), BY RELYING UPON THE JUDGMENT OF THE H ONOURABLE APEX COURT RENDERED IN T.V. SUNDARAM IYENGAR & SONS LTD.S CASE (SUPRA). HOWEVER, IN THE SAID CASE, A FINDING WAS GIVEN THAT THE MONEY WAS RECEIVED BY THE ASSESSEE IN THE COURSE OF CARRYING ON IN HIS BUSINESS. AGREEMENT WAS COMPLETELY OBLITERATED. THE LOAN IN ITS ENTIRE TY WAS COMPLETELY WAIVED. THE LOAN ITSELF WAS TAKEN FOR A TRADING ACTIVITY AN D ON WAIVING IT WAS RETAINED IN BUSINESS BY THE ASSESSEE. IN THE SAID JUDGMENT, THE DIVISION BENCH OF THE BOMBAY HIGH COURT HAS DISTINGUISHED TH E EARLIER JUDGMENT OF THE SAID HIGH COURT RENDERED IN MAHINDRA & MAHINDRA LTD.S CASE (SUPRA). THE SAID JUDGMENT RENDERED IN MAHINDRA & MAHINDRA LTD.S CASE (SUPRA) WHICH IS SIMILAR TO THE PRESENT CASE ON HAND WAS DI STINGUISHED BY THE BOMBAY HIGH COURT IN VIEW OF THE FINDING THAT THERE IS A TRADING TRANSACTION AND THE MONEY RECEIVED WAS USED TOWARDS A BUSINESS TRANSACTION AND ACCORDINGLY THE RATIO LAID DOWN IN T.V. SUNDARAM IYENGAR & SONS LTD.S CASE (SUPRA) WAS FOLLOWED. WE NOTICE THAT THE DECISION RENDERED BY HONBLE MAD RAS HIGH COURT (REFERRED SUPRA) WAS RELATED TO A LOAN TAKEN FOR PURCHASE OF CAPITAL ASSETS. 11. WE NOTICE THAT THE HONBLE DELHI HIGH COURT A LSO CONSIDERED ABOUT THE TAXABILITY OF BENEFIT OBTAINED ON LOAN WAIVER IN TH E CASE OF LOGITRONICS P. LTD. V. I.T.A. NO.686/COCH/2013 9 CIT (2011)(333 ITR 386)(DELHI). AFTER CONSIDERING ALL THE DECISIONS REFERRED ABOVE, THE HONBLE DELHI HIGH COURT HAS HELD AS UND ER:- 23. IN THE CONTEXT OF WAIVER OF LOAN AMOUNT, WHAT FOLLOWS FROM THE READING OF THE AFORESAID JUDGMENT IS THAT THE ANSWER WOULD DEPEND UPON THE PURPOSE FOR WHICH THE SAID LOAN WAS TAKEN. IF THE LOAN WAS TAKEN FOR ACQUIRING THE CAPITAL ASSET, WAIVER THEREOF WOULD N OT AMOUNT TO ANY INCOME EXIGIBLE TO TAX. ON THE OTHER HAND, IF THIS LOAN W AS FOR TRADING PURPOSE AND WAS TREATED AS SUCH FROM THE VERY BEGINNING IN THE BOOKS OF ACCOUNT, AS PER T.V. SUNDARAM IYENGAR AND SONS LTD. (1996) 222 ITR 344 (SC), THE WAIVER THEREOF MAY RESULT IN THE INCOME MORE SO WHEN IT WA S TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT. 24. THE TRIBUNAL IN THE IMPUGNED JUDGMENT HAS RIGH TLY APPRECIATED THIS RATIO/PRINCIPLE OF LAW FROM THE AFORESAID JUDGMENTS , AS IS CLEAR FROM THE READING OF PARA 21 OF THE IMPUGNED ORDER: 21. IN THE LIGHT OF THE ABOVE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. V. CIT (2003)261 ITR 501, IT IS CLEAR THAT IN THE CASE WHERE CAPITAL ASSETS ARE ACQUIRED BY OBTAINING A LOAN, AND SUBSEQUENTLY, THE LOAN AMOUNT IS WAIVED BY THE OTHER PARTY, THE PRINCIPAL AMOUNT OF LOAN WAIVED BY THE OTHER PARTY CANNOT BE BROUGHT TO TAX U/S. 28(I V) OF THE ACT OR UNDER SEC. 41(1) OF THE ACT. THE HONBLE DELHI HIGH COURT REITERATED THE ABOVE S AID VIEW IN ANOTHER CASE REPORTED SUBSEQUENTLY, VIZ., ROLLATAINERS LTD VS. C IT (2011)(339 ITR 54). IT IS PERTINENT TO NOTE THAT THE HONBLE DELHI HIGH COURT REJECTED THE CONTENTIONS OF THE ASSESSEE THAT THE RATIO LAID DOWN IN THE CASE O F LOGITRONICS P. LTD (SUPRA) WAS NOT CORRECT PRINCIPLE OF LAW. 12. FROM THE FOREGOING DISCUSSIONS, WE NOTICE TH AT THE COURTS HAVE HELD THAT THE WAIVER OF LOAN TAKEN FOR ACQUIRING CAPITAL ASSE T WOULD NOT AMOUNT TO ANY INCOME EXIGIBLE TO TAX. ON THE OTHER HAND, IF THE LOAN WAS TAKEN FOR TRADING PURPOSES AND WAS TREATED AS SUCH FROM THE VERY BEGI NNING IN THE BOOKS OF ACCOUNT, THEN THE RATIO LAID DOWN BY HONBLE SUPREM E COURT IN THE CASE OF T.V. I.T.A. NO.686/COCH/2013 10 SUNDARAM IYENGAR AND SONS LTD (SUPRA) SHALL APPLY A ND THE WAIVER THEREOF MAY RESULT IN INCOME. 13. IN THE INSTANT CASE, THE PURPOSE FOR WHICH T HE LOAN TAKEN WAS NOT BROUGHT ON RECORD BY THE ASSESSING OFFICER. THOUGH THE LD A.R SUBMITTED THAT THE LOAN WAS GIVEN BY THE PARENT COMPANY FOR MEETING CAPITAL EXPENDITURE AND OTHER BUSINESS NEEDS, YET IN OUR VIEW, THE SAID SUBMISSIO NS REQUIRE VERIFICATION AT THE END OF THE ASSESSING OFFICER. WE NOTICE THAT THE L D CIT(A) HAS RENDERED THE DECISION ON THIS ISSUE WITHOUT EXAMINING THIS IMPOR TANT ASPECT. HENCE, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND REST ORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE NATURE OF LOAN IN THE LIGHT OF DISCUSSIONS MADE SUPRA AND TAKE APPROPRIATE DECISIO N IN ACCORDANCE WITH THE LAW. 14. IN THE RESULT, THE APPEAL FILED BY THE REVE NUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 28-03-2 014. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 28TH MARCH,2014 GJ COPY TO: 1. M/S. MALANKARA WOOD LTD., MALANKARA BUILDING, KO DIMATHA, (POST BOX NO. 72), KOTTAYAM-686038. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCL E-1, KOTTAYAM. I.T.A. NO.686/COCH/2013 11 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-IV, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN