Indus Florabase Limited, CHENNAI V. ITO, CHENNAI

ITA 950/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6358 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 18-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAGADEVAN
• Assessee Lawyers: T BANUSEKAR
• Keywords: Capital asset; Business income

Judgement Text

, .. , IN THE INCOME TAX APPELLATE TRIBUNAL , SMC C BENCH, CHENNAI . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.950/MDS/2017 ( / ASSESSMENT YEAR: 2007-08) M/S. INDUS FLORABASE LIMITED, NO.4E, VANDANA TOWERS, NO.10, HADDOWS ROAD, NUNGAMBAKKAM, CHENNAI 600 034 VS THE INCOME TAX OFFICER, CORPORATE WARD 2(4), CHENNAI 34. PAN: AAACI0884M ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI T. BANUSEKAR, CA /RESPONDENT BY : SHRI SAGADEVAN, JCIT /DATE OF HEARING : 05.07.2017 ! /DATE OF PRONOUNCEMENT : 23.08.2017 / O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS)-9, CHENNAI DATED 20.02.2017 IN ITA NO.72/CIT(A)-9/2009 -10 FOR THE ASSESSMENT YEAR 2007-08 PASSED U/S.250(6) R.W.S.143 (3) OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS APPEAL, HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS ERRED IN 2 ITA NO.950/MDS/2017 UPHOLDING THE ADDITION MADE BY THE LD.AO WITH RESPE CT TO WAIVER OF INTEREST AMOUNTING TO RS.3,03,277/- BY NATIONALI ZED BANK AS INCOME FROM OTHER SOURCES. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A LIMITED COMPANY ENGAGED IN AGRICULTURAL ACTIVITIES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 28.10. 2007 ADMITTING NIL INCOME. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND FINALLY ORDER WAS PASSED U/ S.143(3) OF THE ACT ON 26.11.2009, WHEREIN THE LD.AO TREATED TH E WAIVER OF INTEREST BY CANARA BANK AMOUNTING TO RS.3,03,227/- AS INCOME FROM OTHER SOURCES. THE LD.AO OPINED THAT WAIVER O F INTEREST BY THE BANK IS A BENEFIT ACCRUED TO THE ASSESSEE AND I T IS NOT DERIVED FROM THE BUSINESS ACTIVITY OF THE ASSESSEE. THEREFORE, THE LD.AO ASSESSED THE AMOUNT OF RS.3,03,227/- AS T HE INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER S OURCES. ON APPEAL, THE LD.CIT(A) UPHELD THE ORDER OF THE LD.AO BY OBSERVING AS UNDER:- 3 ITA NO.950/MDS/2017 6.3 DECISION: 6.3.1 I HAVE CONSIDERED THE OBSERVATION OF THE AO I N PARA 6.1 AND THE SUBMISSION OF THE APPELLANT IN PARA 6.2. TH E APPELLANT'S CONTENTION IS THAT. THE EXPENDITURE INC URRED FOR EARNING AGRICULTURAL INCOME IS NOT ALLOWABLE EXPENS ES IN THE COMPUTATION OF TOTAL INCOME, THEREFORE, ANY REMISSI ON BY SUCH EXPENDITURE IS ALSO NOT TAXABLE. THE APPELLANT'S CO NTENTION IS NOT ACCEPTABLE. IN THE CASE OF RAMANIYAM HOMES P. L TD., 68 TAXMANN.COM 289, THE JURISDICTIONAL MADRAS HIGH COU RT HELD THAT THE WAIVER OF A LOAN AVAILED FOR ACQUIRING A C APITAL ASSET WOULD AMOUNT TO ACQUIRING A BENEFIT OR PERQUISITE W HICH MAY NOT ARISE FROM 'THE BUSINESS' OF THE TAXPAYER BUT I T CERTAINLY ARISES FROM 'BUSINESS'. THE HIGH COURT ALSO HELD TH AT THERE IS NO DISTINCTION BETWEEN WAIVER OF A LOAN TAKEN FOR A CQUIRING A CAPITAL ASSET AND WAIVER OF LOAN TAKEN FOR TRADING ACTIVITIES AND IN ACCOUNTING PRACTICE, SUCH WAIVER WOULD BE EI THER CREDITED TO P & L ACCOUNT OR TO THE CAPITAL RESERVE AND NO SUCH DISTINCTION EXISTS. 6.3.2 IN THE CASE OF THE APPELLANT, IT IS CONTENDED DURING THE ASSESSMENT PROCEEDINGS AS WELL AS IN THE WRITTEN SU BMISSIONS REPRODUCED ABOVE THAT INTEREST WAIVER IS RELATING T O THE EXPENDITURE INCURRED FOR THE BUSINESS OF AGRICULTUR E AND ACCORDINGLY DOES NOT FALL WITHIN THE UMBRELLA OF SE CTION 56. IT IS ALSO CONTENDED THAT SINCE INCOME FROM BUSINESS O F AGRICULTURE IS EXEMPT, WAIVER RELATING TO SUCH BUSI NESS IS ALSO EXEMPT. THE SUBMISSION OF THE APPELLANT IS LEGALLY INCORRECT. THE INCOME WHICH IS EXEMPT U/S 10(1) IS AGRICULTURA L INCOME 4 ITA NO.950/MDS/2017 ARISING OUT OF AGRICULTURAL OPERATIONS. 'TRADING IN AGRICULTURAL PRODUCTS IS A BUSINESS INCOME WHICH IS ASSESSABLE U NDER THE HEAD INCOME FROM BUSINESS. THE APPELLANT REFERS TO HIS ACTIVITIES AS AGRICULTURAL BUSINESS AND NOT AGRICUL TURAL OPERATIONS; IN THAT CASE, THERE IS NO QUESTION OF E XEMPTION OF AGRICULTURAL BUSINESS. BUSINESS INCOME IS ALWAYS TA XABLE EVEN IF AGRICULTURAL PRODUCTS ARE TRADED. AGRICULTURAL I NCOME IS NOT A BUSINESS INCOME, BUT SUCH AGRICULTURAL INCOME ONL Y REFERS INCOME ARISING FROM AGRICULTURAL OPERATIONS. THEREF ORE, THE AO IS DIRECTED TO ASCERTAIN THE NATURE OF ACTIVITIE S. IF THE ACTIVITIES ARE BUSINESS IN NATURE, THEN THE JUDGMEN T OF MADRAS HIGH COURT IN THE CASE OF RAMANIYAM HOMES P. LTD., IS APPLICABLE AND THE WAIVER OF INTEREST ARISING FROM BUSINESS IS TAXABLE U/S 28(IV) OF THE ACT. IF THE ACTIVITIES AR E MERE AGRICULTURAL OPERATIONS, THE PRINCIPLE LAID OUT IN RAMANIYAM HOMES P. LTD., IS STILL APPLICABLE AND THE WAIVER O F INTEREST ARISING FROM NON-BUSINESS ACTIVITY MUST BE TAXABLE UNDER U1E HEAD INCOME FROM OTHER SOURCES. THE APPELLANT'S REL IANCE PLACED ON THE DECISION BY CALCUTTA HIGH COURT IN TH E CASE OF B. GUPTA (TEA) P. LTD., IS NOT APPLICABLE BECAUSE I N THAT CASE THE HIGH COURT HELD THAT THE SUM RECEIVED FROM THE INSURANCE COMPANY IN RESPECT OF DAMAGES CAUSED BY HAILSTORM T O GROWING CROP BELONGING TO THE ASSESSEE REPRESENTS A GRICULTURAL INCOME. THE FACTS ARE NOT SIMILAR. THIS IS NOT A CA SE OF EITHER WAIVER OF INTEREST OR LOAN. 6.3.3 IN VIEW OF THE ABOVE, SUBJECT TO THE DIRECTIO NS GIVEN PARA 6.3.2, THE ADDITION OF RS.3,03,227/- IS CONFIRMED. 5 ITA NO.950/MDS/2017 4. BEFORE US THE LD.AR SUBMITTED THAT THE ASSESSEE IS ENGAGED ONLY IN AGRICULTURAL ACTIVITY AND THE LOAN OBTAINED FROM THE BANK IS ALSO FOR AGRICULTURAL OPERATIONS. SINC E AGRICULTURAL INCOME IS EXEMPT FROM TAX, THE ASSESSEE IS NOT LIAB LE TO BE TAXED WITH RESPECT TO THE WAIVER OF INTEREST BECAUSE THE LOAN AMOUNT WAS UTILIZED FOR THE ASSESSEES AGRICULTURAL ACTIVI TIES. THE LD.AR THEREFORE PLEADED THAT THE ADDITION MADE BY THE LD. AO WHICH WAS SUBSEQUENTLY UPHELD BY THE LD.CIT(A) MAY BE DEL ETED. THE LD.DR ON THE OTHER HAND RELIED ON THE ORDERS OF THE LD.REVENUE AUTHORITIES. 5. I HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE, IT IS APPARENT THAT THE ASSESSEE IS ONLY CARRYING OUT AGRICULTURAL OPERATIONS, WHICH IS NOT DISPUTED BY THE LD.REVENUE AUTHORITIES. THEREFORE IT IS FURTHER EVIDENT THAT THE ASSESSEE H AD NOT CLAIMED THE INTEREST CHARGED BY THE BANK AS EXPENDITURE WHI CH IS ALLOWABLE AS DEDUCTION UNDER THE PROVISIONS OF THE ACT. HENCE, IT CANNOT BE SAID THAT THE ASSESSEE HAD RECEIVED ANY T ANGIBLE BENEFIT ON THE WAIVER OF LOAN BY THE BANK. IN FACT , THE WAIVER OF LOAN BY THE BANK IN THE CASE OF THE ASSESSEE IS ONL Y A NOTIONAL 6 ITA NO.950/MDS/2017 BENEFIT AND SUCH NOTIONAL BENEFIT CANNOT BE TREATED AS INCOME UNDER THE PROVISIONS OF THE ACT. FURTHER, IM OF T HE VIEW THAT THE DECISION CITED BY THE LD.CIT(A) IS NOT RELEVANT TO THE CASE OF THE ASSESSEE BECAUSE IN THAT CASE THE ASSESSEE WAS CARR YING ON BUSINESS ACTIVITY, THE INCOME ARISING OUT OF WHICH IS TAXABLE AND THE INTEREST PAYABLE WAS CLAIMED AS ALLOWABLE DEDUC TION. THEREFORE I HEREBY DIRECT THE LD.AO TO DELETE THE A DDITION MADE BY HIM WITH RESPECT TO THE WAIVER OF INTEREST AMOUN TING TO RS.3,03,227/-. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED ON THE 23 RD AUGUST, 2017 AT CHENNAI. SD/- ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER '# /CHENNAI, $% /DATED 23 RD AUGUST, 2017 RSR % '( )( /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. , ( )/CIT(A) 4. , /CIT 5. (-. / /DR 6. .0 /GF