CABLE CORPORATION OF INDIA LTD, MUMBAI V. DCIT 2(1), MUMBAI

ITA 7369/MUM/2012

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6348 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 15-09-2015
• Assessment Year: 2000-2001
• Appeal Filed On: 13-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AWUNGSHI GIMSON
• Assessee Lawyers: NISHIT KHATRI
• Keywords: Capital asset; Business income; Salary income; Scheme of amalgamation; Capital receipt; Set aside
• Section: 271(1)(c); 143(3); 143(1); 195; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER & SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO.7417/MUM/2010 & 7369/MUM/2012 ASSESSMENT YEARS: 2000-01 CABLE CORPORATION OF INDIA LIMITED LAXMI BUILDING,6 SHOORJIVALLABHDAS MARG BALLARD ESTATE MUMBAI-400 001 PAN: AAAC C2936J VS. DCIT, CIRCLE-2(1) 5 TH FLOOR, AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 (ASSESSEE) (REVENUE) REVENUE BY : SHRI AWUNGSHI GIMSON ASSESSEE BY : SHRI PERCY PARDIWALLA & NISHIT KHATRI DATE OF HEARING :05.03.2019 DATE OF PRONOUNCEMENT : 30.04.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER 1. THE PRESENT APPEALS FILED BY THE ASSESSEE ARE AR ISING OUT OF ORDER OF THE LD. COMMISSIONER OF INCOME-TAX (APPEAL S)-4 [HEREINAFTER REFERRED TO AS CIT(A)], MUMBAI, IN APP EAL NO.CIT(A)- 4/DC.2(1)/IT-1/03-04 DATED 17/08/2010 AND ORDER DAT ED 03/09/2012 RESPECTIVELY. ITA NO. 7417/MUM/2010 . 2. THE GROUNDS OF THE ASSESSEE RAISED ARE AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE LEARNED DEPUTY COMMISSIONER INCOM E-TAX (THE ASSESSING OFFICER) IN HOLDING THAT THE 'GAIN ON ASS IGNMENT OF LOAN OBLIGATION'' CONSTITUTES ''INCOME' CHARGEABLE TO LA X IN THE HANDS OF 2 ITA NO.7417/MUM/2010 & 7369/MUM/2012 CABLE CORPORATION OF INDIA LIMITED. APPELLANT. THE APPELLANT SUBMITS THAT THE 'GAIN ON ASSIGNMENT OF LOAN OBLIGATION' IS CAPITAL RECEIPT AND NOT AN INCOME CH ARGEABLE TO LAX, 2. THE APPELLANT SUBMITS THAT THE FOLLOWING OBSERVA TIONS/FINDINGS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AR E NOT AT ALL RELEVANT TO THE ISSUE UNDER CONSIDERATION:- (A) THE SUM OF RS,12.75 CORES GIVEN BY THE APP ELLANT TO MEMORIC PICTURES PVT, LTD. (MPPL) AS SHARE APPLICATION MONEY WAS RECEIVED BACK AS LOAN TO APPELLANT; (B) THE TREATMENT TO THE AFORESAID TRANSACTIO N OF LOAN, SHARE APPLICATION AND ASSIGNMENT OF LOAN IN THE BOOKS OF THE APPELLANT, MPPL AND CHAMPIONS PICTURES PVT. LTD. (CPPL); (C) THE APPELLANT AND THE OTHER COMPANIES HAV E CHANGED THEIR ACCOUNTING PERIOD UNDER THE COMPANIES ACT, 3. (A) THE APPELLANT SUBMITS THAT THE LEARNED COM MISSIONER OF INCOME TAX (APPEALS) FAILED TO TAKE NOTE OF THE DIS TINCTION BETWEEN LOAN TAKEN FOR THE PURPOSE OF BUSINESS AND THE BUSI NESS OF BUYING AND SELLING OF LOAN. (B) THE APPELLANT SUBMITS THAT THE LEARNED COMMISSI ONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT AS MPPL AND CPP L GOT MERGED WITH THE APPELLANT, IT GOT THE BENEFIT OF RS, 11.64 C RORES WHICH WAS ORIGINALLY A LOAN AND A CAPITAL TRANSACTION BUT DUE TO INFLUX OF TIME THE SAME CHANGED ITS CHARACTER. (C) THE APPELLANT SUBMITS THAT THE LEARNED COMMISSI ONER OF INCOME TAX (APPEALS) ERRED IN RELYING ON THE DECISION OF THE S UPREME COURT IN THE CASE OF CIT V T.V.SUNDERAM LYANGER &SONS LTD. [222 ITR 344 (SC) AS THE SAID DECISION WAS NOT APPLICABLE TO THE FACTS OF THE APPELLANT'S CASE, THERE BEING NO BENEFIT ON ACCOUNT OF ANY TRADING OPERATION. 4. THE APPELLANT SUBMITS THAT THE ASSESSING OF FICER BE DIRECTED TO TREAT THE 'GAIN ON ASSIGNMENT OF LOAN OBLIGATION'' AS A CAPITAL RECEIPT AND NOT AS AN INCOME AND TO MODIFY THE ASSESSMENT I N ACCORDANCE WITH THE PROVISIONS OF THE ACT. 5. EACH OF THE ABOVE GROUNDS OF APPEAL ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. 6 THE APPELLANT CRAVES LIBERTY TO ADD, TO ALTER AND /OR AMEND THE GROUNDS OF APPEAL AS AND WHEN GIVEN. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALES OF CABLE S. DURING THE YEAR, THE ASSESSEE FILED THE RETURN OF INCOME ON 29 /11/2000 DECLARING A LOSS OF RS. 41,67,90,642/- WHICH WAS PR OCESSED U/S 143(1) OF THE I.T.ACT ON 13/12/2000 ACCEPTING THE R ETURNED INCOME. THEREAFTER, THE CASE OF THE ASSESSEE WAS SE LECTED FOR SCRUTINY AND STATUTORY NOTICES WERE DULY ISSUED AND SERVED UPON THE ASSESSEE. DURING THE YEAR, THE ASSESSEE ENTERED INTO AN 3 ITA NO.7417/MUM/2010 & 7369/MUM/2012 CABLE CORPORATION OF INDIA LIMITED. AGREEMENT DATED 17/11/1999 WITH MEMORIC PICTURES PR IVATE LIMITED (HEREINAFTER REFERRED TO AS MPPL) WHEREBY MPPL HAD AGREED TO ADVANCE AN INTEREST FREE LOAN OF RS. 12 CRORES TO THE ASSESSEE COMPANY. AS PER THE SAID AGREEMENT, THE AS SESSEE COMPANY WAS TO REPAY THE SAID LOAN AMOUNT TO MPP L OVER A PERIOD OF 100 YEARS. THE SAID LOAN WAS UTILISED FO R THE PURCHASE OF SHARES BY THE ASSESSEE AND WAS NOT USED FOR ITS LINE OF ACTIVITY/BUSINESS. THEREAFTER, THE ASSESSEE ENTERE D INTO TRIPARTITE AGREEMENT DATED 01/03/2000 ENTERED INTO BETWEEN THE ASSESSEE COMPANY, MPPL AND CHAMPION PICTURES PRIVAT E LIMITED (HEREINAFTER REFERRED AS CPPL) UNDER WHICH THE OBLI GATION OF REPAYING THE ABOVE MENTIONED LOAN OF RS. 12 CRORES WAS ASSIGNED TO CPPL AT A DISCOUNTED PRESENT VALUE OF RS. 0.36 C RORES. THE RESULTANT DIFFERENCE OF RS. 11.64 CRORES WAS CREDIT ED BY THE ASSESSEE TO THE PROFIT AND LOSS ACCOUNT AS GAIN ON ASSIGNMENT OF LOAN OBLIGATION UNDER THE HEAD INCOME FROM OTHER SO URCES. HOWEVER, WHILE COMPUTING THE TAXABLE INCOME THE ASS ESSEE REDUCED THE SAID AMOUNT FROM THE TAXABLE RECEIPT ON THE GROUND THAT SAME CONSTITUTE A CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE AND IS NOT TAXABLE. THEREAFTER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO AFTER NOTICING THE S AID TRANSACTIONS ISSUED SHOW CAUSE NOTICES TO THE ASSES SEE AS TO WHY THE PROFIT ON ASSIGNMENT OF LOAN SHOULD NOT BE ADDE D TO THE INCOME OF THE ASSESSEE, WHICH WAS REPLIED BY THE AS SESSEE VIDE LETTER DATED 21/11/2002 AS UNDER: - OUR CLIENT IS NOT ENGAGED IN THE BUSINESS OF BUYIN G AND SELLING OF LOANS AND THE AFORESAID TRANSACTIONS WAS A ONE-TIME TRANS ACTION. THE DIFFERENCE ARISING ON TRANSFER OF THE OBLIGATIONS O F REPAYING THE LOAN CANNOT BE TREATED AS BUSINESS RECEIPT (THERE BEING NO RECEIPT AT ALL) OR PROFIT ARISING OUT OF BUSINESS OF THE ASSESSEE COMP ANY. FURTHER, ANY 4 ITA NO.7417/MUM/2010 & 7369/MUM/2012 CABLE CORPORATION OF INDIA LIMITED. AMOUNT, WHICH IS NOT A BUSINESS RECEIPT, CANNOT BE TAXED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. WE MAY FURTHER SUBMIT THAT: OUR CLIENT RECEIVED A SUM OF RS. 12 CRORES AS A LOA N. RECEIPT OF MONEY, AS LOAN, CAN NEVER BE INCOME IN THE HANDS OF OUR CLIENT. OUR CLINE WAS ABLE TO OBTAIN A BENEFIT BECAUSE CP PL AGREED TO REPAY THE LOAN ON BEHALF OF OUR CLIENT AND FOR OBTAINING THIS BENEFIT OUR CLIENT WAS REQUIRED TO PAY A SUM OF ONLY RS. 0.36 CRORES. THE QUESTION IS WHETHER THIS BENEFIT IS INCOME AN D IF SO WHETHER , IT IS TAXABLE AS PROFITS AND GAINS FROM BUSINESS OR PROF ESSION OR AS CAPITAL GAINS OR AS INCOME FROM OTHER SOURCES. IT IS SUBMITTED THAT A BENEFIT ARISING TO A PERSO N IS NOT INCOME UNLESS THE ACT SPECIFICALLY SO PROVIDE, E.G. IN RELATION TO SALARY INCOME, PERQUISITES AND BENE FITS ARE SPECIFICALLY PROVIDED TO FALL WITHIN THE SCOPE OF THE TERM INCO ME UNDER SECTION 17(2) AND (3) OF THE ACT. IN RELATION TO BUSINESS INCOME, PERQUISITES AND BE NEFIT ARE SPECIFICALLY PROVIDED TO FALL WITHIN THE SCOPE OF THE TERM INCO ME UNDER SECTION 28(IV) OF THE ACT. SINCE OUR CLIENT IS NOT AN INDIVIDUAL WHO EARNS SAL ARY INCOME, NO PORTION OF THE BENEFIT DERIVED BY IT CAN BE TAXED AS SALAR IES THE BENEFIT ARISING TO OUR CLIENT DID NOT ARISE F ROM BUSINESS. THE TRANSFER OF THE LIABILITY TO REPAY THE LOAN WAS NOT A TRANSFER IN THE COURSE OF BUSINESS. THE DIFFERENCE ARISING ON SUCH TRANSFER CANNOT BE TAXED AS BUSINESS INCOME. THE SUM OF RS. 12 CRORES WAS RECEIVED BY WAY OF A L OAN AND NOT AS A BUSINESS RECEIPT. THE SUBSEQUENT TRANSACTIONS OF ASSIGNMENT OF THE LOAN DOES NOT CHANGE THE CHARACTER OF THE AMOUNT AN D TURN THE SAME INTO A BUSINESS RECEIPT. THIS VIEW IS SUPPORTED B Y THE RULING IN CASE OF MORELY V TATTERSALL (22 TC 51). (COPY OF THE DECISI ON IS ENCLOSED AT PAGES 182 TO 190) FURTHER, SECTION 41(1) OF THE ACT READS AS UNDER: (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN TH E ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRA DING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REFERRED TO A S THE FIRST- MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVI OUS YEAR,- (A) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF S UCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRAD ING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT O BTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHAL L BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACC ORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREV IOUS YEAR, WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WH ICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT OR (B) ------ ON PERUSAL OF THE AFORESAID SECTION, IT CAN BE OBSE RVED THAT WHERE AN ASSESSEE HAS: 5 ITA NO.7417/MUM/2010 & 7369/MUM/2012 CABLE CORPORATION OF INDIA LIMITED. CLAIMED AS DEDUCTION IN COMPUTING HIS TAXABLE PROFI TS FOR ANY YEAR, ANY LOSS, EXPENDITURE , OR TRADING LIABILITY; OR HAS BEEN ALLOWED AS DEDUCTION IN COMPUTING HIS TAXA BLE PROFITS FOR ANY YEAR, ANY LOSS, EXPENDITURE, OR TRADING LIABILITY A ND WHERE THE ASSESSEE HAS OBTAINED ANY BENEFIT BY WAY OF REMISSION OR CES SATION OF SUCH LOSS, EXPENDITURE, OR TRADING LIABILITY THEN IN SUCH AN E VENT, THE AMOUNT SO CLAIMED/ALLOWED AS DEDUCTION IS CHARGEABLE TO TAX I N THE YEAR OF SUCH REMISSION/CESSION. IN THE PRESENT CASE: OUR CLIENT HAD TAKEN A LOAN OF R. 12 CRORES FROM MP PL WHICH HAS BEEN SUBSEQUENTLY ASSIGNED TO CPPL AT A DISCOUNTED PRESE NT VALUE SUCH LOAN IS NOT IN THE NATURE OF LOSS, EXPENDIT URE OR TRADING LIABILITY OUR CLIENT HAS NEITHER CLAIMED NOR HAS BEEN ALLOWED TO CLAIM ANY DEDUCTION IN COMPUTING ITS TAXABLE PROFITS FOR ANY YEAR IN RESPECT OF SUCH AMOUNT. THEREFORE, THE PROVISIONS OF SECTION 41(1) OF THE A CT ARE NOT APPLICABLE TO THE INSTANT CASE. THUS, NO AMOUNT CAN BE TAXED IN T HE HANDS OF OUR CLIENT BY VIRTUE OF SECTION 41(1) OF THE ACT. 4. THE LD. AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE WAS NOT CONVINCED THEREWITH FOR VARIOUS RE ASONS. THE LD. AO REFERRED TO DECISION OF CIT VS KARTHIKEYAN, 201 ITR 866(SC) WHEREIN, IT HAS BEEN HELD THAT THE WORD INC OME IS INCLUSIVE AND ALSO REFERRED TO VARIOUS SUB CLAUS ES TO SECTION 2(24) WHICH ACCORDING TO AO WIDENS THE IMPORT OF WO RD INCOME. THE AO RELIED ON THE DECISION OF SUPREME COURT IN THE CASE OF CIT VS KADAMBANDE (1992) 195 ITR 877(SC) WHEREIN T HE HONBLE SUPREME COURT HELD THAT THE WORD INCOME DOES NOT INCLUDE ONLY THE SPECIFIC ITEMS AS ENUMERATED IN THE VARIOUS SU B-CLAUSES BUT ALSO ALL SUCH RECEIPTS S WHICH CAN BE DESCRIBED A S INCOME IN ITS NATURE AND GENERAL MEANING. THE IDEA BEHIND PROVID ING INCLUSIVE DEFINITION IN SECTION 2(24) IS NOT TO LIM IT ITS MEANING BUT TO WIDE ITS ACT AND THUS THE AO CAME TO CONCLUSION THAT THE INCOME/GAIN/SURPLUS/BENEFIT OF ANY KIND IS TO BE BR OUGHT TO TAX AND ACCORDINGLY RS. 11.64 CRORES ACCRUED TO THE AS SESSEE AS A 6 ITA NO.7417/MUM/2010 & 7369/MUM/2012 CABLE CORPORATION OF INDIA LIMITED. RESULT OF ASSIGNMENT OF LOAN HAS TO BROUGHT TO TAX. THE LD. AO ALSO REFERRED TO THE PROVISIONS OF SECTION 41(1) OF THE ACT AND HELD THAT SINCE THE LOAN WAS ASSIGNED TO, M/S CPPL AT D ISCOUNTED AMOUNT ON RS. 0.36 CRORES VIDE TRIPARTITE AGREEMENT BETWEEN M/S MPPL, M/S CPPL AND THE ASSESSEE. M/S. CPPL ACCEPTED THE LIABILITY AFTER RECEIVING RS. 0.36 CRORES FROM THE ASSESSEE AND BALANCE OF RS. 11.64 CRORES REMAINED WITH THE ASSES SEE COMPANY. THE LENDER M/S MPPL HAD ACCEPTED ARRANGEMENT OF AS SIGNMENT THE LOAN TO CPPL AND CPPL STARTED PAYING THE INSTAL MENT TO MPPL AS PER THE SAID TRIPARTITE AGREEMENT. THUS TH E AO HELD THAT LIABILITY OF THE ASSESSEE COMPANY WAS CEASED/E XTINGUISHED THE LD. AO HELD THAT THE PROVISION OF SECTION 41(1) ARE APPLICABLE TO THIS CASE AS THE ASSESSEE HAS OBTAINED BENEFIT IN RESPECT OF TRADING LIABILITY BY WAY OF CESSATION LIABILITY TO THE TUNE OF RS. 11.64 CRORES AS THE ASSESSEE DURING THE COURSE OF H IS BUSINESS BORROWED FUNDS TO THE TUNE OF RS. 12 CRORES AND AS SIGNED THE SAME TO M/S CPPL FOR RS. 0.36 CRORES THEREBY RESUL TANT BENEFIT OF RS. 11.6 CRORES BY CESSATION OF LIABILITY IS A TRADING SURPLUS AND HAS TO BE TAXED . 5. THE AO ALSO FURTHER OBSERVED THAT THE ASSESSEE HIMSELF HAS CREDITED RS. 11.64 CRORES TO THE P&L ACCOUNT AS GAI N ON ASSIGNMENT OF LOAN UNDER THE HEAD OTHER INCOME. THE AO ALSO BRUSHED ASIDE THE CONTENTIONS OF THE ASSESSEE THAT ASSESSEE HAS NOT CLAIMED ANY DEDUCTION IN THE COMPUTING THE TAX ABLE PROFITS FOR ANY YEAR IN RESPECT OF SUCH AMOUNT /LOAN. THE HONBLE SUPREME COURT DECISION IN CIT VS T.V.SUNDARAM IYENG AR & SONS LTD. [(1996) 222 ITR 344 WAS HEAVILY RELIED BY THE AO WHEREIN HONBLE SUPREME COURT HAS HELD THAT IF A COMMON SE NSE VIEW OF 7 ITA NO.7417/MUM/2010 & 7369/MUM/2012 CABLE CORPORATION OF INDIA LIMITED. THE MATTER WAS TAKEN, THE ASSESSEE BECAUSE OF TRADING OPERATION, HAD BECOME RICHER BY THE AMOUNT WHICH IT TRANSFERR ED TO ITS PROFIT AND LOSS ACCOUNT. THE MONEY HAD ARISEN OUT OF TRADING TRANSACTIONS. THE COURT HELD THAT ALTHOUGH THE AMOU NTS RECEIVED ORIGINALLY WERE NOT OF INCOME NATURE, BUT THE AMOUN TS REMAINED WITH THE ASSESSEE FOR A LONGER PERIOD UNCLAIMED BY THE TRADE PARTIES. BY LAPSE OF TIME, THE CLAIM OF DEPOSIT B ECAME TIME BARRED AND IT BECOME A TRADE SURPLUS. THE AO ALSO REFERRED TO CIT VS ARIES ADVERTISING PVT. LTD. 255 ITR 510 WHER EIN THE MADRAS HIGH COURT AFTER RELYING ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. T.V. SUNDARAM IYENGAR & SONS LTD. (SUPA). FINALLY THE LD. AO RELYING ON VARIOUS DE CISIONS AS STATED ABOVE ADDED RS. 11.64 CRORES TO THE INCOME O F THE ASSESSEE UNDER THE HEAD PROFIT AND GAINS FROM BUSIN ESS BY FRAMING ASSESSMENT U/S 143(3) DATED 23/03/2013. 6. IN THE APPELLATE PROCEEDINGS THE LD. CIT(A), AFT ER TAKING INTO ACCOUNT THE CONTENTIONS OF THE ASSESSEE, DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING HOLDING AS UNDER: 13. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND THE SUBMISSIONS OF THE APPELLANT. DURING THE COURSE OF HEARING OF APPEAL, SOME FURTHER INFORMATION WAS ALSO OBTAINED FROM THE ASSESSEE. IT IS SEEN THAT COMPLETE FACTS HAVE NOT BEEN BROUGHT ON R ECORD EITHER BY THE A.O. OR BY THE ASSESSEE IN ITS SUBMISSIONS. ON THE BASIS OF INFORMATION OBTAINED DURING THE COURSE OF HEARING OF APPEAL IT IS SEEN THAT ON 27/7/99 THE APPELLANT COMPANY APPLIED FOR 10 LAKH E QUITY SHARES OF RS.10 EACH AT A PREMIUM OF RS.75/- PER SHARE AND RS .4,25,000/- OPTIONALLY CONVERTIBLE NON-CUMULATIVE REDEEMABLE 12 % PREFERENCE SHARES OF RS.100/- EACH AGGREGATING TO RS.12.75 CRO RE BEING 100% OF THE ISSUES SUBSCRIBED AND PAID UP CAPITAL OF M/S. M PPL. THE APPELLANT COMPANY MADE FOLLOWING PAYMENTS TO M/S. MPPL TOWARD S SHARE APPLICATION MONEY 8 ITA NO.7417/MUM/2010 & 7369/MUM/2012 CABLE CORPORATION OF INDIA LIMITED. DATE CHEQUE NO. AMOUNT (RS.) 19-11-1999 317385 11,00,000 19-11-1999 317386 11,00,000 19-11-1999 317387 11,00,000 19-11-1999 317388 11,00,000 19-11-1999 317389 11,00,000 19-11-1999 317390 11,00,000 19-11-1999 317391 11,00,000 19-11-1999 317392 11,00,000 19-11-1999 317393 11,00,000 19-11-1999 317394 10,00,000 19-11-1999 317395 75,00,000 22-11-1999 317396 11,00,000 TOTAL 12,75,00,000 14. ON THE SAME DATES M/S. MPPL ISSUED FOLLOWI NG CHEQUES BY WAY OF LOAN TO THE APPELLANT COMPANY: DATE CHEQUE NO. AMOUNT (RS.) 19-11-1999 253410 11,00,000 19-11-1999 _, 253411 11,00,000 19-11-1999 253412 11,00,000 19-11-1999 253413 11,00,000 9 ITA NO.7417/MUM/2010 & 7369/MUM/2012 CABLE CORPORATION OF INDIA LIMITED. 19-11-1999 253414 11,00,000 19-11-1999 253415 11,00,000 19-11-1999 253416 11,00,000 19-11-1999 253417 11,00,000 19-11-1999 253418 11,00,000 19-11-1999 253419 10,00,000 19-11-1999 253420 10,00,000 TOTAL 12,00,00,000 15. WITHIN FOUR MONTHS OF THE TRANSACTIONS THE LOAN WAS ASSIGNED TO M/S. CPPL BY PAYING A SUM OF RS.35,50,500/-. IN THE BALA NCE-SHEET OF M/S. CPPL THE LOAN AMOUNT IS SHOWN AT RS.35,50,500/- AND NOT RS.12 CRORE. A PERUSAL OF THE BALANCE-SHEET OF M/S. MPPL FOR THE F.Y. 2000-01 SHOWS THAT THE SHARE APPLICATION MONEY OF RS.12.75 CRORE WAS RETURNED BA CK TO THE APPELLANT COMPANY THOUGH THE LOAN ADVANCE OF RS.12 CRORE CONT INUES TO APPEAR IN THE BALANCE-SHEET. THUS, THE SUM OF RS.12.75 CRORE GIVE N BY THE APPELLANT COMPANY TO M/S. MPPL AS SHARE APPLICATION MONEY WAS RECEIVED BACK AS LOAN ON THE SAME DAY. IT IS ALSO INFORMED BY THE APPELLA NT THAT M/S. MPPL AND M/S. CPPL AMALGAMATED WITH CABLE CARE TELECOM LTD. W.E.F. 30/6/2002. ON 1/7/2002 CABLE CARE TELECOM LTD. AMALGAMATED WITH T HE APPELLANT COMPANY. THE SCHEME OF AMALGAMATION WAS DULY APPROV ED BY THE HON'BLE MUMBAI HIGH COURT. 16. THE TRANSACTION WAS SHOWN IN THE BOOKS OF ACCOUNT OF THE THREE COMPANIES KL THE FOLLOWING MANNER: IN THE BOOKS OF CABLE CORPORATION OF INDIA LTD.: 10 ITA NO.7417/MUM/2010 & 7369/MUM/201 2 CABLE CORPORATION OF INDIA LIMITED. BALANCE SHEET AS ON MANNER OF TRANSACTION 31/3/2000 A. THE SHARE APPLICATION MONEY OF RS.12.75 SHOWN AS ADVANCE FOR ALLOTMENT OF SHARES HEAD LOANS AND ADVANCES CRORE WAS UNDER THE B. SINCE THE LOAN WAS DISCOUNTED THE LOAN AMOUNT OF RS.12 CRORE DOES NOT APPEAR IN THE BALANCE- SHEET. HOWEVER, GAIN ON ASSIGNMENT OF LOAN OBLIGATION AMOUNTING TO RS. 11, 64,50,000 IS SHOWN AS OTHER INCOME. 30/9/2001 A. THE SHARE APPLICATION MONEY OF RS.12.75 SHOWN AS ADVANCE FOR ALLOTMENT OF SHARES HEAD 'LOANS AND ADVANCES.' CRORE WAS UNDER THE IN THE BOOKS OF MEMORY PICTURES P. LTD.: BALANCE SHEET AS ON MANNER OF TRANSACTION 30/6/2000 A. SHARE APPLICATION MONEY OF RS.12.75 CRORE IS SHOWN AS PART OF SHARE CAPITAL. B. LOAN OF RS.12 CRORE IS SHOWN IN THE NAME OF CHAMPION PICTURES P. LTD. SHOWN UNDER THE HEAD 'LOANS AND ADVANCES. 31/3/2001 A. THE SHARE APPLICATION MONEY OF RS.12.75 CRORE NO LONGER APPEARS IN THE BALANCE-SHEET. B. LOAN TO CPPL AT RS.11.96 CRORE APPEARS UNDER THE HEAD 'LOANS AND ADVANCES.' 30/6/2002 A. LOAN TO CPPL AT RS.11,96 CRORE IS SHOWN UNDER THE HEAD LOANS AND ADVANCES.' IN THE BOOKS OF CHAMPION PICTURES P. LTD.: 11 ITA NO.7417/MUM/2010 & 7369/MUM/201 2 CABLE CORPORATION OF INDIA LIMITED. BALANCE SHEET AS ON MANNER OF TRANSACTION 31/3/2000 A. THE DISCOUNTED VALUE OF LOAN AT RS.35,29,427/- APPEARS AS PART OF UNSECURED LOAN. NOTE 2 TO SCHEDULE I STATES THAT THE COMPANY HAS TAKEN OVER THE OBLIGATION TOWARDS REPAYMENT OF INTEREST FREE LOAN OF RS.12 CRORE FROM ANOTHER COMPANY REPAYABLE OVER 100 YEARS FOR A CONSIDERATION OF RS.35,50,000/- . THE SAID LOAN IS REFLECTED IN THE BOOKS OF THE COMPANY AT THE DISCOUNTED PRESENT VALUE AT 13% P.A. WHICH AMOUNTS TO RS.35,29,427/- . THE DIFFERENCE BETWEEN THE CONSIDERATION RECEIVED OF RS.35,50,000/- AND THE ABOVE DISCOUNTED VALUE OF RS. 35,29, 427/- HAS BEEN TREATED AS A GAIN ON TAKEOVER OF THE OBLIGATION OF REPAYMENT OF ABOVE LOAN TO THE COMPANY AND HAS BEEN CREDITED TO THE PROFIT AND LOSS A/C. 31/3/2001 A. THE UNSECURED LOAN IS SHOWN AT RS.31,75,445/-. THE DISCOUNTING CHARGES OF RS.46,018/- WERE CHARGED TO THE PROFIT AND LOSS A/C. 30/6/2002 THE LOAN IS SHOWN AT DISCOUNTING CHARGES OF RS.86 PROFIT AND LOSS A/C. RS. 28,62, 186/- AND THE ,741/- WERE CHARGED TO THE IT IS ALSO WORTH NOTING THAT ALL THE THREE COMPANIE S CHANGED THEIR ACCOUNTING PERIOD SEVERAL TIMES BETWEEN F.Y. 98-99 TO F.Y. 200 1-02. 17. IN THE FACTS AND CIRCUMSTANCES OF THE CASE I HO LD THAT THE A.O. IS JUSTIFIED IN TREATING THE LOAN OF RS,11,64,49,500/- AS INCOME OF THE ASSESSEE. I DO NOT AGREE WITH THE AUTHORIZED REPRES ENTATIVE THAT THE LOAN WAS NOT RECEIVED IN COURSE OF BUSINESS OR THAT THE ASSESSEE IS NOT IN THE BUSINESS OF BUYING AND SELLING LOAN. OBVIOUS LY THE ASSESSEE HAS OBTAINED THE LOAN FOR ITS BUSINESS. IT IS ABUNDANTL Y CLEAR THAT THE ASSESSEE IS NOT REQUIRED TO REPAY THE LOAN AS THE L OAN WAS ASSIGNED CPPL FOR A SUM OF RS.35.50 LAC. FROM THE FACTS NARR ATED ABOVE IT IS ALSO ABUNDANTLY CLEAR THAT THE ASSESSEE COMPANY WAS AMAL GAMATED WITH MPPL AND CPPL WITHIN TWO YEARS WITH THE RESULT THAT NO ONE IS TO PAY ANYONE. IN OTHER WORDS THE IDENTITY OF PAYER AND P AYEE HAS DISAPPEARED. ACCORDINGLY IT CAN BE CONCLUDED THAT T HE ASSESSEE GOT THE BENEFIT OF RS.11.64 CRORE WHICH WAS ORIGINALLY A LO AN AND A CAPITAL 12 ITA NO.7417/MUM/2010 & 7369/MUM/201 2 CABLE CORPORATION OF INDIA LIMITED. TRANSACTION BUT DUE TO INFLUX OF TIME THE SAME HAS CHANGED ITS CHARACTER. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THIS IS REQUIRED TO BE TREATED AS INCOME OF THE ASSESSEE IN VIEW OF SUPREME COURT'S DECISION IN THE CASE OF CIT VS. T.V. SUNDARAM LYENG AR & SONS LTD. (222 ITR 344) WHEREIN IT WAS HELD THAT, IF A COMMONSENSE VIEW OF THE MATTER WERE TAKEN, THE ASSESSEE, BECAUSE OF THE TRADING OP ERATION, HAD BECOME RICHER BY THE AMOUNT WHICH IT TRANSFERRED TO ITS PR OFIT AND LOSS ACCOUNT. THE MONEYS HAD ARISEN OUT OF ORDINARY TRADING ACTIO NS. ALTHOUGH THE AMOUNTS RECEIVED ORIGINALLY WERE NOT OF INCOME THE AMOUNTS REMAINED WITH THE ASSESSEE FOR A LONG PERIOD UNCLAIMED BY TH E TRADE PARTIES. BY LAPSE OF TIME, THE CLAIM OF THE DEPOSIT BECAME TIME -BARRED AND THE AMOUNT ATTAINED A TOTALLY DIFFERENT QUALITY. IT BEC AME A DEFINITE TRADE SURPLUS. THIS GROUND OF APPEAL IS DISMISSED. 7. THE LD. AR SUBMITTED BEFORE THE BENCH THAT THE A SSESSEE HAS TAKEN A LOAN OF RS. 12 CRORES FROM M/S MPPL VID E AGREEMENT DATED 17/11/1999 WHICH WAS TO BE REPAID OVER A PER IOD OF 100 YEARS. THE LD AR SUBMITTED THAT THE SAID LOAN WAS INVESTED IN THE PURCHASE OF SHARES BY REFERRING TO THE COPY OF BALANCE SHEET AS ON 31 ST MARCH, 2000 PARTICULARLY SCH LOANS & ADVANCES AND A NOTE WAS APPENDED IN SCH (9) TO THAT EFFECT T HAT ASSESSEE HAD PAID RS. 12,75,00,000/- OF THE PURCHASE OF SHAR ES WHICH HAS BEEN SHOWN UNDER THE HEAD OF LOANS & ADVANCES PE NDING THE ALLOTMENT OF SHARES. THE ASSESSEE ENTERED INTO A TR IPARTITE AGREEMENT DATED 01/03/2000 BETWEEN M/S CPPL AND M/S MPPL WHEREUNDER THE ASSESSEE HAS ASSIGNED THE SAID LO AN TO CPPL AT PRESENT VALUE OF RS. 0.36 CRORES AND THUS THERE IS CREDIT BALANCE OF RS. 11.64 CRORES IN THE BOOKS OF THE ASSESSEE W HICH WAS CREDITED THE PROFIT AND LOSS ACCOUNT BUT WHILE FIL ING THE RETURN OF INCOME THE SAME WAS REDUCED ON THE GROUND THAT THE SAME IS NOT TAXABLE AT ALL ON THE GROUND THAT THE SAME IS N OT INCOME OF THE ASSESSEE U/S 2(24) OF THE ACT NOR COVERED BY TH E PROVISION OF SECTION 41(1) OF THE ACT. 13 ITA NO.7417/MUM/2010 & 7369/MUM/201 2 CABLE CORPORATION OF INDIA LIMITED. 8. THE LD. AR VEHEMENTLY SUBMITTED BEFORE US THAT T HE PROVISION OF SECTION 41(1) OF THE ACT WAS NOT APPLI CABLE TO THE ASSESSEE AS ASSESSEE HAS NOT CLAIMED ANY ALLOWANCE/ DEDUCTIONS IN RESPECT OF THE LOAN TAKEN FROM M/S MPPL WHICH I S UNDISPUTED AND UNCONTROVERTED FACT. THE LD. AR SUBM ITTED THAT IT IS PRE-CONDITION OR SINE QUO NON THAT THERE SH OULD BE ALLOWANCE/ DEDUCTION BY THE ASSESSEE IN ANY AY IN RESPECT OF SAID EXPENDITURE OR TRADING LIABILITY IN ORDER TO B RING THE IMPUGNED ITEM OF ADDITION IN THE AMBIT OF SECTION 4 1(1) OF THE ACT BUT THAT IS NOT THE CASE OF THE ASSESSEE. THE LD. AR SUBMITTED THAT IN THIS CASE, THE ASSESSEE HAS ONLY TAKEN A LOAN FROM M/S MPPL AND THERE IS NO WAIVER OF ANY LOAN BY THE SAID COMPANY. THE LOAN WAS IN FACT ASSIGNED TO THIRD PARTY M/S CP PL AT NET PRESENT VALUE OF THE FUTURE LIABILITY WHICH CANNOT BE TERMED AS WAIVER/EXTINGUISHMENTS OF LOAN IN ANY CASE. THE LD. AR RELIED HEAVILY ON THE DECISION OF CIT VS MAHINDRA & MAHIND RA LTD. 404 ITR 001 (SC) AND SUBMITTED THAT THE ORDER OF THE CIT(A ) IS BAD IN LAW AS IT IS AGAINST THE PROVISIONS OF ACT AND A LSO CONTRARY TO RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CA SE OF CIT VS MAHINDRA & MAHINDRA LIMITED (SUPRA). THE LD. AR FUR THER SUBMITTED THAT IN THE PRESENT CASE THE OBLIGATION T O REPAY WAS TAKEN OVER BY THE THIRD COMPANY M/S CPPL AND THERE FORE, THERE IS NO QUESTION OF CESSATION/EXTINGUISHMENT OF ANY LOAN LIABILITY. THE LD. AR IN DEFENSE OF HIS ARGUMENTS RELIED ON D ECISION OF SPECIAL BENCH IN THE CASE OF SULZER INDIA LTD VS JCIT 2010 42 SOT 457(MUMBAI SPL. BENCH). THE LD. AR SUBMITTED TH AT IN THE SAID DECISION, THE HONBLE SPECIAL BENCH HELD THAT WHERE UNDER A SCHEME BROUGHT OUT BY THE STATE GOVERNMENT, IF SOM E DEALER 14 ITA NO.7417/MUM/2010 & 7369/MUM/201 2 CABLE CORPORATION OF INDIA LIMITED. OPTED TO PAY THE FUTURE LIABILITY AT DISCOUNTED VA LUE AT NET PRESENT VALUE IMMEDIATELY THEN IT WOULD BE SIMILAR CASE OF COLLECTING THE AMOUNT OF NET PRESENT VALUE OF FUTUR E LIABILITY AND THEREFORE, SUCH PAYMENT OF NET PRESENT VALUE OF FU TURE LIABILITY COULD NOT REGARDED AS REMISSION OR CESSATION OF LI ABILITY SO AS TO ATTRACT THE PROVISION OF SECTION 41(1) OF THE ACT WHERE THE DEALERS HAVE COLLECTED THE SALE TAX U NDER DEFERRED SALES TAX SCHEME WHICH IS PROVIDED BY THE STATE GOV ERNMENT TO INCENTIVIZE THE A SECTION OF THE TRADE AND INDUSTRY . THE SAID DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL WAS F URTHER AFFIRMED BY THE BOMBAY HIGH COURT AS REPORTED IN 369 ITR 717 (BOM). THE HONBLE APEX COURT IN THE CASE OF CIT VS BALKRISHNA INDUSTRIES LTD. (2017) 88 TAXMANN.COM 273(SC) , THE DECISION O F HE HONBLE BOMBAY IN THE CASE OF CIT VS SULZER INDIA LTD 36 9 ITR 717 (BOM) WAS CONSIDERED AND ACCEPTED. THE LD AR SUBMI TTED THAT IN THE CASE OF THE LD. AR ALSO SUBMITTED THAT THE LOA N WAS UTILIZED FOR THE PURPOSE OF INVESTMENTS IN SHARES AND NOT US ED IN CONNECTION WITH THE BUSINESS ACTIVITIES OF THE ASS ESSEE AT ALL AND THEREFORE THAT CAN NOT FALL UNDER SECTION 41(1) THE SAID EXTINGUISHMENT/CESSATION OF LIABILITY IS IN THE NAT URE OF CAPITAL RECEIPT AND CAN NOT BE BROUGHT TO TAX U/S 41(1) OF THE ACT AS THE NECESSARY CONDITIONS CONTAINED THEREIN ARE NOT SAT ISFIED IN THE CASE OF THE ASSESSEE. THE LD. AR SUBMITTED THAT THE DECISIONS RELIED UPON BY THE LOWER AUTHORITIES IN THE CASE OF CIT VS. T.V.SUNDERAM IYENGAR & SONS LIMITED 222 ITR 344 I S CLEARLY DISTINGUISHED ON FACTS AS IN THE SAID CASE IT HAS B EEN HELD THAT IF THE ASSESSEE BECOME THE RICHER BECAUSE OF TRADING OPERATION AND THE AMOUNT WAS TRANSFERRED TO P&L ACCOUNT THEN THE SAID MONEY 15 ITA NO.7417/MUM/2010 & 7369/MUM/201 2 CABLE CORPORATION OF INDIA LIMITED. HAS ARISEN OUT OF ORDINARY TRADING OPERATION WHER EAS IN THE PRESENT CASE THE FACTS ARE COMPLETELY DIFFERENT AS THE ASSESSEE HAS UTILIZED THE MONEY FOR THE PURCHASES OF SHARES AND NOT FOR THE TRADING PURPOSES. FINALLY THE LD. AR PRAYED BEF ORE THE BENCH THAT IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS MAHINDRA & MAHINDRA LTD (SUPR A) AND VARIOUS JUDICIAL FORUMS , THE ORDER OF CIT(A) MAY B E SET ASIDE AND THE AO MAY BE DIRECTED TO DELETE THE ADDITION OF RS . 11.64 CR. 9. THE LD. DR ON THE OTHER HAND RELIED HEAVILY ON T HE ORDER OF AUTHORITIES BELOW BY SUBMITTING THAT THE ASSESSEE HAS ACCRUED A BENEFIT / SURPLUS OF RS. 11.64 CRORES FOLLOWING A T RIPARTITE AGREEMENT BETWEEN THE ASSESSEE, M/S MPPL AND M/S C PPL WHEREUNDER M/S CPPL HAS UNDERTAKEN THE LIABILITY OF RS. 12.00 CR TO BE REPAID OVER 100 YEARS AT PRESENT VALUE OF RS. 0.36 CRORES AND THEREFORE, IT IS A CLEAR CUT CASE OF BUSINESS BENEFIT ACCRUING IN FAVOUR OF THE ASSESSEE. THE LD. DR FURTHER CONTE NDED THAT THE SAID LOAN WAS TAKEN BY THE ASSESSEE FOR WORKING CA PITAL PURCHASES THOUGH THE SAME WAS UTILIZED FOR PURCHASE OF SHARES. THEREFORE, IT WOULD NOT CHANGE THE CHARACTER OF TH E TRANSACTION. THE LD. DR RELIED ON THE DECISION OF SOLID CONTAINE RS LTD. VS DCIT 2009 187 TAXMANN 192 BOMBAY WHEREIN IT IS HELD THAT VALUE OF ANY BENEFIT ARISING FROM BUSINESS OR EXC ISE OF PROFESSION BY WAY OF EXTINGUISHMENT OF THE LIABILITY HAS TO BE TAXED U/S 28 OF THE ACT AS IT WAS DIRECTLY ARISING OUT OF BUS INESS ACTIVITY. THE LD. DR SUBMITTED THAT IN THIS CASE THE ASSESSE E HAS TAKEN A LOAN FOR A BUSINESS PURPOSES WHICH WAS WRITTEN BA CK DURING THE YEAR AS A RESULT OF CONSENT TERMS BETWEEN THE ASS ESSEE AND THE 16 ITA NO.7417/MUM/2010 & 7369/MUM/201 2 CABLE CORPORATION OF INDIA LIMITED. LENDER. THE ASSESSEE CLAIMED A SAID LOAN A CAPITAL RECEIPT AND NOT COVERED U/S 41(1) OF THE ACT. THE TRIBUNAL FO LLOWING THE DECISION OF HONBLE APEX COURT IN THE CASE OF T.V. SUNDERAM IYENGAR & SONS LTD UPHELD THE ORDER OF AO BY TREATI NG THE SAME AS BUSINESS RECEIPT TAXABLE UNDER SECTION 28 OF THE ACT AND THE SAID ORDER OF THE TRIBUNAL WAS UPHELD BY THE JURI SDICTIONAL HIGH COURT. THE LD. DR FURTHER CONTENDED THAT THE CASE O F SOLID CONTAINERS LTD VS DCIT (SUPRA) HAS NOT BEEN CONSI DERED IN THE MAHINDRA & MAHINDRA LTD. (SUPRA) BY THE HONBLE SUP REME COURT. THE LD. DR ALSO RELIED ON THE DECISION OF MA DRAS HIGH COURT IN THE CASE OF CIT VS. RAMANIYAM HOMES (P) LT D. (2016) 68 TAXMANN.COM 289 (MADRAS) WHEREIN IT HAS BEEN HELD T HAT IF THE PRINCIPAL LOAN IS WAIVED OFF BY THE BANK UNDER ONE TIME SETTLEMENT SCHEME , THE SAME WOULD CONSTITUTE INC OME FALLING UNDER THE HEAD 28(IV) OF THE ACT. THE LD. DR ALSO R ELIED ON THE CASE OF GOLDEN TOBACCO LTD. VS ACIT, ITA NO. 9127/M UM/2004 AY 2001-02 DATED 27/06/2018. FINALLY THE LD. DR SU BMITTED THAT SINCE IN THIS CASE THE ASSESSEE HAS OBTAINED B ENEFIT BY WAY OF EXTINGUISHMENT OF LOAN TAKEN FROM M/S MPPL AS A RESULT OF ASSIGNMENT IN FAVOUR OF THE M/S CPPL RESULTING IN TO BENEFIT OF RS. 11.64 CRORES WHICH IS OBVIOUSLY AND DEFINITEL Y INCOME OF THE ASSESSEE WHICH HAS TO BE TAXED UNDER THE PROVISION S OF SECTION 41(1) OF THE ACT. THE LD. DR SUBMITTED THAT CONSI DERING THE VARIOUS DECISIONS OF THE JURISDICTIONAL HIGH COURT AND COORDINATE BENCHES, THE ORDER OF CIT MAY BE CONFIRMED. 10. IN THE REBUTTAL, THE LD. AR SUBMITTED THAT THE LOAN WAS UTILIZED FOR PURCHASE OF SHARES AND THEREFORE THE LOAN WAS 17 ITA NO.7417/MUM/2010 & 7369/MUM/201 2 CABLE CORPORATION OF INDIA LIMITED. UTILIZED FOR NON BUSINESS PURPOSES AND IS BEYOND T HE AMBIT OF SECTION 41(1) OF THE ACT. THE LD. AR ALSO SUBMITTE D THAT THE BENEFIT HAS ACCRUED IN THE FAVOR OF THE ASSESSEE H AS PAID/DISCHARGED AT PRESENT VALUE OF THE FUTURE LI ABILITY AND THE CASE OF THE ASSESSEE IS CLEARLY COVERED BY THE DECI SION OF HONBLE APEX COURT IN THE CASE OF MAHINDRA AND MAHINDRA LTD (SUPRA). AS A RESULT OF ASSIGNMENT OF THE LOAN , THE LENDER WILL GET THE REPAYMENT OF LOAN FROM THIRD PARTY INSTEAD OF THE A SSESSEE. SO IT IS NOT CESSATION/EXTINGUISHMENT OF LIABILITY AS IS SQUARELY COVERED BY THE DECISION OF SPECIAL BENCH, MUMBAI IN THE CAS E SULZER INDIA LTD VS JCIT (SUPRA) WHICH HAS UPHELD BY BOMBAY HIGH COURT IN THE CASE OF CIT VS SULZER INDIA LTD 369 ITR 717 (B OM) WHICH WAS ALSO REFERRED TO BY THE APEX COURT IN THE CASE OF C IT VS BALKRISHAN INDUSTRIES LTD (2017) 88 TAXMANN.COM273( SC). THE LD. A.R. CONTENDED THAT WHEREAS THE CASE OF THE HON BLE SUPREME COURT IN THE CASE OF MAHENDRA & MAHENDRA LTD (SUPRA ) IS APPLICABLE, THE DECISIONS OF JURISDICTIONAL HIGH CO URT OR OTHER FORUMS CAN NOT BE APPLIED TO THE DECIDE THE ASSESSE ES CASE AS RENDERED UNDER DIFFERENT FACTS. FINALLY THE LD. AR PRAYED FOR THE BENCH THAT IN VIEW OF THE BINDING DECISION OF THE H ONBLE APEX COURT AND VARIOUS OTHER JUDICIAL FORUMS ,THE ORDER OF CIT(A) MAY BE SET ASIDE AND THE APPEAL OF THE ASSESSEE ALLOWED . 11. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE DECISIONS RELIED BY THE RIVAL PARTIES AND IMPUGNED ORDER OF CIT(A) UNDER CHALLENG E BEFORE US. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE HAS BOR ROWED A SUM OF RS. 12.00 CRORES FROM M/S MPPL TO BE REPAID OVER A PERIOD OF 18 ITA NO.7417/MUM/2010 & 7369/MUM/201 2 CABLE CORPORATION OF INDIA LIMITED. 100 YEARS. UNDISPUTABLY THE AMOUNT WAS UTILIZED FO R THE PURCHASE OF SHARES AND THE AMOUNT INVESTED WAS RS. 12.75 CR AS IS APPARENT FROM THE BALANCE SHEET AS AT 31 ST MARC H, 2000. THE ASSESSEE IS IN THE LINE OF MANUFACTURING OF CABLE AND TRADING THEREOF AND NOT IN THE PURCHASE AND SALE OF SHARES AND SECURITIES. THEREFORE, IT IS APPARENT FROM THE FACTS BEFORE US THAT THE LOAN WAS UTILIZED FOR THE PURPOSE OF PURCHASE OF SHARES WHICH IS NOT A TRADING ACTIVITY OF THE ASSESSE. IT IS ALSO UNDISPU TED THAT THE LIABILITY OF LOAN OF RS. 12 CRORES TO BE DISCHARGE D OVER A PERIOD OF 100 YEARS WAS ASSIGNED TO THE THIRD PARTIES M/S CPP L BY MAKING A PAYMENT OF RS. 0.36 CRORES IN TERMS OF PRESENT V ALUE OF THE FUTURE LIABILITY AND THE SURPLUS RESULTING FROM ASS IGNMENT OF LOAN LIABILITY WAS CREDITED TO THE PROFIT & LOSS ACC OUNT UNDER THE HEAD INCOME FROM OTHER SOURCES BUT WHILE COMPUTING THE TOTAL INCOME, THE SAID INCOME WAS REDUCED FROM THE INCOME ON THE GROUND THAT THE SURPLUS OF RS. 11.64 CRORES REPRESE NTED THE CAPITAL RECEIPT AND THEREFORE NOT TAXABLE. IT IS AL SO TRUE THAT BOTH COMPANIES M/S MPPL AND M/S CPPL WERE AMALGAMATED WI TH THE ASSESSEE LATER ON WITH ALL CONSEQUENCES. SO THE ISS UE BEFORE US IS WHETHER THE SURPLUS RS. 11.64 CR RESULTING FROM THE ASSIGNMENT OF LOAN TO M/S CPPL UNDER TRIPARTITE AGREEMENT BET WEEN THE ASSESSEE , M/S MPPL AND M/S CPPL IS A REVENUE RECE IPT LIABLE TO TAX OR A CAPITAL RECEIPT AS HAS BEEN CLAIMED BY THE ASSESSEE. CONSIDERING THE FACTS OF THE CASE OF THE ASSESSEE , ADMITTEDLY THE LOAN OF RS. 12.00 CR AMOUNT WAS UTILIZED FOR PURCH ASE OF SHARES AND WAS NOT USED FOR IN RELATION TO TRADING ACTIVIT Y AT ALL. THE PURCHASE OF SHARES BY THE ASSESSEE IS A NON TRADING TRANSACTION AND IS OF CAPITAL NATURE. THE SURPLUS RESULTING FROM THE 19 ITA NO.7417/MUM/2010 & 7369/MUM/201 2 CABLE CORPORATION OF INDIA LIMITED. ASSIGNMENT OF LOAN AS REFERRED TO ABOVE IS NOT RESU LTING FROM TRADING OPERATION AND THEREFORE NOT TO BE TREATED A S REVENUE RECEIPT. THE PROVISIONS OF SECTION 41(1) OF THE ACT ARE NOT APPLICABLE TO THE SAID SURPLUS AS THE BASIC CONDITI ONS AS ENVISAGED IN SECTION 41(1) ARE NOT FULFILLED. IN OT HER WORDS, THE ASSESSEE HAS NOT CLAIMED IT AS DEDUCTION IN THE PRO FIT & LOSS ACCOUNT IN THE EARLIER OR CURRENT YEAR. IN ORDER TO BRING A ALLOWANCE OR DEDUCTION WITHIN THE AMBIT OF SECTION 41(1) OF THE ACT , IT IS NECESSARY THAT A DEDUCTION/ALLOWANCE IS GRANTED TO THE ASSESSEE. IN THE PRESENT CASE BEFORE US, IT ABUNDAN TLY CLEAR THAT THE LOAN WAS UTILIZED FOR THE PURPOSE OF PURCHASING THE SHARES WHICH IS NOT THE BUSINESS OF THE ASSESSEE AND THER EFORE THE SURPLUS ARISING FROM THE ASSIGNMENT OF LOAN CAN NOT BE SAID TO HAVE ARISEN FROM THE TRADING OPERATION OF THE ASSES SEE. WE HAVE CAREFULLY PERUSED DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS MAHINDRA & MAHINDRA LTD (SUPRA). THE HONBLE APEX COURT HAS HELD THAT WAIVER OF LOAN TAKEN FOR ACQUIR ING CAPITAL ASSETS CAN NOT BE BROUGHT TO TAX EITHER UNDER THE PROVISIONS OF SECTION 28(IV) OR UNDER SECTION 41(1) OF THE ACT. THE HONBLE APEX COURT HELD THAT IT CAN NOT BE BROUGHT TO TAX U/S 28 (IV) BECAUSE THE BENEFIT HAS TO BE IN SOME OTHER FORM THAN IN TH E SHAPE OF MONEY. SINCE THE WAIVER REPRESENTED CASH/MONEY, TH E PROVISIONS OF SECTION 28(IV) ARE NOT APPLICABLE. IT WAS FURTHE R HELD THAT WAIVER CAN ALSO NOT BE TAXED U/S 41(1) OF THE ACT AS SINE QUA NON FOR FOR BRING A RECEIPT U/S 41(1) IS THAT THERE HAS TO BE ALLOWANCE OR DEDUCTION CLAIMED BY THE ASSESSEE IN RESPECT OF LOS S, EXPENDITURE OR TRADING LIABILITY INCURRED. IN THE INSTANT CASE BEFORE US THE LOAN WAS UTILIZED FOR PURCHASING SHARES WHICH IS CA PITAL ASSET IN 20 ITA NO.7417/MUM/2010 & 7369/MUM/201 2 CABLE CORPORATION OF INDIA LIMITED. THE BUSINESS OF THE ASSESSEE AND THE SURPLUS RESULT ING FROM ASSIGNMENT OF LOAN IS A CAPITAL RECEIPT NOT LIABLE TO BE TAXED EITHER U/S 28(IV) OR U/S 41(1) OF THE ACT . IN OUR CONSIDERED VIEW THE CASE OF THE ASSESSEE IS SQUARELY COVERED RATIO LAID IN THE SAID DECISION BY THE APEX COURT IN THE CASE OF CIT VS M AHINDRA & MAHINDRA LTD (SUPRA). ACCORDINGLY THE SURPLUS ARIS ING FROM ASSIGNMENT OF LOAN IS NOT COVERED BY THE PROVISIONS OF SECTION 41(1) OF THE ACT AND CONSEQUENTLY CAN NOT BE BROUGH T TO TAX EITHER U/S 28(IV) OR U/S 41(1) OF THE ACT. WE FURTH ER NOTE THAT THE SURPLUS HAS RESULTED FROM THE ASSIGNMENT OF LIABIL ITY AS THE ASSESSEE HAS ENTERED INTO TRIPARTITE AGREEMENT UNDE R WHICH THE LOAN WAS TO BE REPAID BY THE THIRD PARTY IN CONSIDE RATION OF PAYMENT OF NET PRESENT VALUE (NPV) OF FUTURE LIABIL ITY. THUS SURPLUS RESULTING FROM ASSIGNMENT OF LOAN AT PRESEN T VALUE OF FUTURE LIABILITY IS NOT CESSATION OR EXTINGUISHMENT OF LIABILITY AS THE LOAN IS TO BE REPAID BY THE THIRD PARTY AND THE REFORE CAN NOT BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE. SI MILAR ISSUE HAS BEEN DECIDED BY THE SPECIAL BENCH, MUMBAI IN THE CA SE SULZER INDIA LTD VS JCIT (SUPRA) WHICH HAS UPHELD BY BOMBAY HIGH COURT IN THE CASE OF CIT VS SULZER INDIA LTD 369 I TR 717 (BOM).THE VIEW TAKEN BY THE BOMBAY HIGH COURT HAS B EEN AFFIRMED BY THE APEX COURT IN THE CASE OF CIT VS B ALKRISHAN INDUSTRIES LTD (2017) 88 TAXMANN.COM273(SC) WHEREIN IT HAS BEEN SURPLUS RESULTING FROM THE PAYMENT OF NET PRES ENT VALUE OF FUTURE LIABILITY IS CESSATION/EXTINGUISHMENT OF LI ABILITY AND THEREFORE CAN NOT BE TAXED AS TRADING RECEIPT. THE SAID DECISION WAS RENDERED IN THE CONTEXT OF SURPLUS MADE BY THE ASSESSEE WHEN IT CHOSE TO PAY THE NET PRESENT VALUE OF THE LIABILITY WHICH 21 ITA NO.7417/MUM/2010 & 7369/MUM/201 2 CABLE CORPORATION OF INDIA LIMITED. WAS TO BE DISCHARGED AFTER SEVEN YEARS IS PAID AT PRESENT VALUE OF FUTURE LIABILITY UNDER A SCHEME FLOATED BY THE STAT E GOVT. UNDER THE SCHEME THE SALES TAX COLLECTED UNDER DEFERRED S CHEME TO INCENTIVIZE THE INDUSTRY WAS TO BE PAID AFTER CERTA IN YEARS BUT THE GOVT CAME WITH ANOTHER SCHEME OFFERING THE INDUSTRY TO PAY THE PRESENT VALUE OF THAT SALES TAX LIABILITY TO BE DIS CHARGED IN FUTURE. APPLYING THE SAME ANALOGY TO THE ASSESSEE CASE, WE HOLD THAT THE ASSESSEE HAS ASSIGNED THE LOAN BY PAYING THE PRESE NT VALUE OF FUTURE LIABILITY AND THE SURPLUS IS NOT TAXABLE AS IT IS NOT CESSATION OR EXTINGUISHMENT OF LIABILITY. THE DECI SIONS RELIED BY THE LD DR ARE ALSO PERUSED AND FOUND TO BE NOT APP LICABLE TO THE PRESENT CASE. THEREFORE IN VIEW OF THE ABOVE DISCUS SIONS AND VARIOUS DECISIONS OF THE HONBLE APEX COURT AND JUR ISDICTIONAL HIGH COURT , WE ARE INCLINED TO SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 11.64 CR. THE APPEAL OF THE ASSESSEE IS ALLOWED. 7369/MUM/2012 THE ASSESSEE HAS CHALLENGED IN THIS APPEAL THE CONF IRMATION OF PENALTY BY THE LD CIT(A) AS IMPOSED BY THE LD AO U/ S 271(1)(C) OF THE ACT. SINCE WE HAVE ALLOWED THE APPEAL OF THE AS SESSEE DELETING THE ADDITION IN QUANTUM APPEAL, THEREFORE THE PENA LTY HAS NO LEGS TO STAND AND IS ORDERED TO BE DELETED. IN RESULT BOTH THE APPEALS OF THE ASSESSEE ARE ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 30.04. 2019 22 ITA NO.7417/MUM/2010 & 7369/MUM/201 2 CABLE CORPORATION OF INDIA LIMITED. SD/- SD/- (AMARJIT SINGH) (RAJES H KUMAR) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED :30.04.2019 * THIRUMALESH, SR.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. THE CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI