M/S.MANIPAL SOWBHAGYA V. THE DEPUTY COMMISSIONER

ITA/730/2009

AI Insights

The case involves Manipal Sowbhagya Nidhi Limited, a non-banking financial institution, which faced huge losses and proposed a scheme of compromise and arrangement under Section 391 of the Companies Act. This scheme involved settling certain dues on deposits and debentures, where part payments were made and the balance treated as capital receipts. The Income Tax Department assessed these settlements as revenue receipts, leading to substantial additions to the assessee's income for the assessment years 2004-05, 2005-06, and 2006-07. The assessee's appeals to the Commissioner of Income Tax (Appeals) and subsequently to the Tribunal were dismissed, prompting the filing of these appeals in the High Court. The main legal questions pertained to the taxability of the waived deposits and whether they should be considered capital or revenue receipts.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 742688 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 10-12-2018
• Assessment Year: misc
• Other Referred Cases: Income Tax Appeal Nos.794 and 795 of 2008
• Laws Referred To: Income Tax Act, 1961, Companies Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: JINITA CHATTERJEE
• Keywords: Capital Receipts; Compromise and Arrangement; Income tax appeal; Nidhi Company; Revenue Receipts
• Section: 147; 143(3); 260A; 391

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU ON THE 10TH DAY OF DECEMBER, 2018 BEFORE THE HON'BLE MR. JUSTICE RAVI MALIMATH AND THE HON'BLE MR. JUSTICE K. NATARAJAN INCOME TAX APPEAL NO.730 OF 2009 AND INCOME TAX APPEAL NOS.760-761 OF 2009 BETWEEN: M/S. MANIPAL SOWBHAGYA NIDHI LIMITED, MANIPAL HOUSE, MANIPAL, REPRESENTED BY ITS DIRECTOR, SRI T. SANJAY PAI, AGED ABOUT 36 YEARS, SON OF T. NARAYAN M. PAI. ... APPELLANT (BY MRS. JINITA CHATTERJEE, ADVOCATE, FOR SRI S. PARTHASARATHI, ADVOCATE) 2 AND: THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, UDUPI. ... RESPONDENT (BY SRI K.V. ARAVIND, ADVOCATE) * * * THESE INCOME TAX APPEALS ARE FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEALS AND SET-ASIDE THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, BEARING I.T.A. NOS.350, 361 AND 362/BANG/2009, DATED 7-8-2009, FOR ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07. THESE INCOME TAX APPEALS COMING ON FOR HEARING THIS DAY, RAVI MALIMATH, J., DELIVERED THE FOLLOWING: 3 J U D G M E N T The appellant is a non-banking financial institution carrying on the business of accepting deposits from members and lending the same to other members. On account of huge losses, a Scheme of compromise and arrangement was proposed under Section 391 of the Companies Act before this Court for Assessment Year 2004-05, 2005-06 and 2006-07. Under these exceptional circumstances, the Company had settled certain dues on account of deposits and debentures to certain persons by paying them a part of the amount and the balance was treated as capital receipts. The Assessing Officer completed the assessment under Section 143(3) of the Income Tax Act, 1961, (for short, ‘the Act’) read with Section 147 of the Act for Assessment Years 2004-05 and 2005-06 by making additions of Rs.2,18,78,000/- and Rs.3,79,24,000/- respectively and completed the assessment under Section 143(3) of the Act for 4 Assessment Year 2006-07 by making an addition of Rs.1,58,41,000/- of the forfeited principal portion of settlement amount treating it as revenue receipts and as income from business. Aggrieved by the same, an appeal was filed before the Commissioner of Income Tax (Appeals), which was dismissed. Thereafter, appeals were filed before the Tribunal. The Tribunal while relying on the earlier orders in the case of the assessee itself in I.T.A. Nos.379/BANG/2008, dated 7-11-2008, for Assessment Year 2003-04 dismissed the appeals. Hence, the present appeals. 2. By the order dated 20-11-2009, the appeals were admitted to consider the following substantial questions of law: i. Whether the Tribunal was justified in holding that the appellant being a Nidhi Company, the waiver of part of deposits/debentures by the holders would enure income to the 5 appellant which is taxable under the Act? ii. Whether the deposits/debentures held by the appellant were capital and partial waive of deposits/debentures would enure only capital receipt outside the purview of taxation? 3. The appeals were directed to be considered along with Income Tax Appeal No.99 of 2009, wherein it was admitted to consider the substantial questions of law raised in Income Tax Appeal Nos.794 and 795 of 2008. By the order dated 7-10-2014, Income Tax Appeal Nos.794 and 795 of 2008 were held in favour of the assessee and against the Revenue. Against the said order, a Special Leave Petition was filed before the Hon'ble Supreme Court and on leave being granted, the appeals were dismissed on the ground of monetary limits. 6 4. Under these circumstances, since the earlier order of the Tribunal was followed in the assessee’s case, we do not propose to take a different view. In terms of the earlier order passed by the Tribunal and as confirmed by this Court in Income Tax Appeal Nos.794 and 795 of 2008, disposed off on 7-10-2014, the substantial questions of law are answered in favour of the assessee and against the Revenue. The appeals are, accordingly, disposed off. SD/- SD/- JUDGE JUDGE kvk "