This appeal by assessee is directed against order of CIT(A) on solitary ground that CIT(A) has erred in upholding action of Assessing Officer in treating amount written back on forfeiture of debentures as income exigible to tax thereby adding sum of Rs. 14,19,000 to total income of assessee. 2. Having heard rival submissions and from careful perusal of record we find that assessee has issued 38 lakhs debentures, 13.5 per cent non-convertible debentures of Rs. 150 each. During previous years relevant to impugned assessment year, 62,250 non-convertible debentures (NCDs) were forfeited due to nonpayment of call money. This can be reissued at option of assessee. On account of forfeiture of debentures, amount paid earlier on such debentures have been written back. In 'Schedule D' of Audited Accounts, assessee credited amount of Rs. 14.19 lakhs being amount written back on forfeiture of debentures and set it off against expenditure of Rs. 6,482.59 lakhs. According to Assessing Officer, though commercial production had not been commenced by 31-3-1993 monies were borrowed through non-convertible debentures for purpose of business. As NCD's holders defaulted in making payment of call money, they lost right to retrieve amount paid and forfeited NCDs can be reissued upon option of assessee only. Thus, benefit has been derived by assessee-company in monetary terms and same was liable to be taxed as income of assessee. Assessing Officer further held following judgment of Hon'ble Apex Court in case of CIT v. T.V. Sundaram Iyengar & Sons Ltd. [1996] 222 ITR 344 that even though it was derived from course of setting up of business same do not loose character of income and is liable to tax as income from other sources. 3. assessee has filed appeal before CIT(A) with submissions that it is settled position of law that by charging provisions of sections 4 and 5, general liability to tax is imposed upon income but Income-tax Act does not provide that whatever is received by person must be regarded as income chargeable to tax. In all cases in which receipt is sought to be taxed as income, burden lies upon department to prove that it is within taxing provisions, in view of judgment of Apex Court in case of Parimmisetti Seetharamamma v. CIT [1965] 57 ITR 532. revenue has not discharged burden cast on it to establish that amount forfeited partakes character of income. amount which assessee has initially received by issuance of debentures was not of income in nature. mere fact that subsequently debenture holder, on account of failure on his part to pay call money has forfeited his right to receive back amount does not change character of receipt. character of amount when it was received that of loan. On account of forfeiture by assessee of debenture character of receipt does not change to that of income in absence of specific provision made in Act to that effect. In support of this plea he has placed reliance upon judgment in case of Commissioner of Agricultural Income-tax v. Kerala Estate Mooriad Chalapuram [1986] 161 ITR 155. CIT(A) reexamined issue in light of various judicial pronouncement but was not convinced with explanation of assessee and has held that benefit has been derived by assessee in monitory terms which is liable to be taxed as income of assessee, relying upon judgment of Hon'ble Apex Court in case of National Cement Mines Industries Ltd. v. CIT [1961] 42 ITR 69 after having observed that, in order to decide whether receipt is capital income, receipt has to be examined from commercial point of view and character of receipt in hands of receiver. 4. Aggrieved assessee has preferred this appeal before Tribunal with submissions that assessee has issued non-convertible debentures in order to raise its capital and whatever amount was received it was credited to capital account as loan or advance. No doubt call money was required to be paid by subscriber and in case subscriber fails to make payment, amount so paid as advance money against non-convertible debentures would be forfeited by assessee. Since assessee has received advance money on account of issuance of NCDs in order to raise its capital character of receipt is also of capital nature. In case subscribers paid call money entire amount goes to capital account of assessee. On their default for nonpayment of call money advance money paid by subscribers is forfeited by assessee but nature remains same as capital receipt. learned counsel of assessee further argued charging sections of Income-tax Act, 1961, are sections 4 and 5 and under these sections only those income can be charged to tax which falls under any head of income. If it does not fall under any prescribed head of income that receipt cannot be subjected to tax. With regard to applicability of provisions of section 41(1) of Act, learned counsel for assessee has invited our attention to provisions of section 41(1) of Act with submissions that only that liability can only be ceased if it has been debited to profit and loss account in earlier years as loss or expenditure or trading liabilities. Unless and until that liability debited to profit and loss account in earlier years it cannot become income of assessee on its cessation in view of provisions of section 41(1) of Act. He has also invited our attention to provisions of section 28 of Act which deal with various types of receipts which can formed part of 'profits and gains of business or profession' with submission that this type of receipt does not fall in any category of receipts given under section 28 of Act. Since there is no specific head with regard to chargeability of receipt on account of forfeiture of non-convertible debentures for default in making payment of call money, forfeited amount cannot assume character of taxable income. In support of this contention, assessee has placed reliance on various judgments which are as under: (i) Comfund Financial Services (I) Ltd. v. Dy. CIT [1998] 67 ITD 304 (Bang.) (ii)CIT v. Chetan Chemicals (P.) Ltd. [2004] 267 ITR 770 (Guj.) (iii)Mahindra and Mahindra Ltd. v. CIT [2003] 261 ITR 501 (Bom.) (iv)CIT v. Hukumchand Mohanlal [1971] 82 ITR 624 (SC) (v)Mehboob Productions (P.) Ltd. v. CIT [1977] 106 ITR 758 (Bom.). 5. Learned DR, on other hand, besides placing heavy reliance upon order of CIT(A) has invited our attention to fact that whatever NCDs were issued it was issued during course of business activities, as such amount received on issuance of NCDs assumes character of business receipt and so long it does not forfeited, it may be loan liability upon assessee but once it is forfeited it becomes business receipt of assessee which is liable to be taxed. In support of this plea learned DR relied upon judgment of Hon'ble Supreme Court in case of CIT v. Lakshmi Vilas Bank Ltd. [1996] 220 ITR 305, judgment of Hon'ble Punjab and Haryana High Court in case of Atlas Cycle Industries Ltd. v. CIT [1981] 128 ITR 60, judgment in case of CIT v. Haryana Co-op. Sugar Mills Ltd. [1985] 154 ITR 751 (Punj. & Har.) and decision of Madras High Court in case of CIT v. Aries Advertising (P.) Ltd. [2002] 255 ITR 510. 6. Having given thoughtful consideration to rival submissions and from perusal of record, we find that assessee has issued 38,00,000 N C D s of Rs. 150 each out of which 62,250 NCDs were forfeited due to nonpayment of call money though these forfeited debentures can be reissued but it can only be done at option of assessee. It is also made clear that once this initial payment is forfeited on account of nonpayment of call money subscriber has lost every right to retrieve amount so paid by it. forfeited amount of Rs. 14.19 lakhs was credited to Debentures Account and was adjusted against expenditure of Rs. 6,482.59 lakhs. It is also admitted fact that commercial production was not commenced during previous year relevant to impugned assessment year in question and money was borrowed through NCDs to raise capital of assessee. Now, issue before us is with regard to character of borrowed fund through issuance of NCDs whether it was of capital nature or revenue receipt? Once it is held that borrowed funds were received through issue of NCDs to raise capital, it is of capital nature and its character cannot be changed even if it is forfeited by assessee on account of default of nonpayment of call money. It is also to be examined as to what would be character of entire amount received on account of issuance of NCDs if call money is paid in time, whether it would be capital or revenue receipt? Before dwelling upon issue, we have to examine various judgments referred to by parties during course of hearing. 7. In case of T.V. Sundaram Iyengar & Sons Ltd. (supra) which has been heavily relied upon by Assessing Officer while treating forfeited been heavily relied upon by Assessing Officer while treating forfeited amount as revenue receipt and we found from fact of case that assessee became richer by amount which is transferred to its profit and loss account as money had arisen out of ordinary trading transactions. amount originally received were not of income nature, but it remained with assessee for long period unclaimed by credit parties. By lapse of time claim of deposit became timebarred and amount attained totally different quality. It became definite trade surplus and assessee itself has treated this money as its own money and taken amount to its profit and loss account. In light of these facts Hon'ble Apex Court has held that if amount is received in course of trading transaction, even though it is not taxable in year of receipt as being of revenue character, amount changes its character when amount becomes assessee's own money because of limitation or by any other statutory or contractual right. When such thing happens, common sense demands that amount should be treated as income of assessee. 8. In case of Lakshmi Vilas Bank Ltd. (supra), similar type of issue was raised and Their Lordships have held that when bank forfeited margin money deposited by customers with it, bank was doing something which was in course of its usual banking business. If deposits made by constituents were forfeited by bank, forfeited amount became bank's money and there is no reason why this amount should not be treated as income of bank earned in course of carrying on its business. bank undertook t o buy securities on behalf of its constituents. Before purchasing securities, bank took from its constituents 'margin money deposits'. These deposits served two purposes. In events of constituent paying balance amount, deposits were to be treated as part payment of price of securities. But in interval between deposit and due date of payment of balance amount, deposits were to be treated as earnest money liable to be forfeited. In this case bank bought securities on behalf o f its constituents in course of its business and for purpose of making profits. If contract was duly executed, bank would have been entitled to charge brokerage. entire transaction was profit making process of bank. This is not case of predeposit of money for acquisition of licence or business contract which had to be kept deposited with principal for entire duration of period. 9. With regard to cessation of liability, we have examined judgment of Hon'ble Gujarat High Court in case of Chetan Chemicals (P.) Ltd. (supra) in which Their Lordships have held that on reading of section 41(1) of Income-tax Act, 1961, it is apparent that before section can be invoked, allowance or deduction has been granted during course of assessment for any year in respect of loss, expenditure or trading liability which is incurred by assessee, and subsequently during any previous year assessee obtains, whether in cash or in any other manner, any amount in respect of such trading liability by way of remission or cessation of such liability. In that case, either amount obtained by assessee or value of benefit accruing to assessee can be deemed to be profits and gains of business or profession and can be brought to tax as income of previous year in which such amount or benefit is obtained. 10. In case of Mahindra and Mahindra Ltd. (supra), Their Lordships of Hon'ble High Court has also examined scope of section 41(1) of Income- tax Act, 1961 and has observed that in order to apply section 41(1), assessee should obtain deduction in assessment for any year in respect of loss, expenditure or trading liability incurred by assessee. In this case, assessee has not obtained such allowance or deduction in respect of expenditure or trading liability. assessee had paid interest at 6 per cent over period of ten years to KJC on Rs. 57,74,064. In respect of that interest, assessee never got deduction under section 36(1)(iii) or section 37. In circumstances, section 41(1) of Act was not applicable. Their Lordships have further held that even assuming that assessee has got deduction on allowance even then section 41(1) was not applicable because such deduction was not in respect of loss, expenditure or trading liability. 11. In case of Comfund Financial Services (I) Ltd. (supra), Tribunal has held that waiver of initial interest liability towards loan taken by assessee does not constitute revenue income in hands of assessee. facts of this case are similar to facts of case in hand. We therefore extract relevant portion of order of Tribunal as under: 'Facts assessee-finance company dealt with share and securities in very large manner. DB acted as managerbanker. Major portion of transactions entered into by assessee-company, whether purchase or sale, were routed through DB only. assessee-company incurred expenses towards purchase price of shares and securities brought from other parties and made payments out of its O/D account with DB. On account of huge loss suffered by assessee- company DB wrote off principal of Rs. 44.7 crores and interest of Rs. 2.6 crores. assessee treated interest as interest income for current year but claimed that Rs. 44.7 crores could not be considered as income of assessee under section 41(1) inasmuch as no deduction had been claimed in respect of this amount in computation of income in any assessment year. However, Assessing Officer held that all its security transactions entered into with DB which were towards purchases made and purchase of securities were claimed as expenditure. Therefore, he treated entire amount of Rs. 44.7 crores remitted by DB towards principal as assessee's income under section 41(1). On appeal, Commissioner (A) affirmed order of Assessing Officer. On second appeal: Held facts of case clearly indicted that assessee had incurred expenses in past or even in this year towards purchase price of shares and securities brought from other parties and than payments in that regard were made by assessee out of us overdraft account with DB. When DB remitted or wanted principal amount of such loan, it could not be said that any portion of purchase price was waived by recipients of such prices. expenses towards purchases had already been incurred and there was no remission from side of said sellers of securities, etc., in favour of assessee out of such purchase prices. transactions between assessee and DB (apart from those relating to direct purchases and sales of shares and securities between two parties) were mostly of nature of loan, transactions. These transactions were, therefore, in capital account. waiver or remission of liability towards loan incurred by assessee could not, therefore, be considered to constitute revenue income in hands of assessee. departmental contention that entire transactions with DB represented trading liabilities of assessee could not be accepted. There was clearcut distinction between trading transactions entered into by assessee with third parties and payments or receipts of money from such transactions finding place in bank account of assessee. departmental contention that in all those transactions with third parties. DB merely attend as agent of assessee, could not be accepted. role of DB as agent was limited merely to making payment of or collection of dues by or to assessee. Even if DB be considered as agent in making purchase and sales of shares and securities, transactions between assessee and DB would be of nature of banking transactions only. Unless it could be shown that, on other hand, DB acted as agents of third parties with whom assessee had transitions in shares, etc., accounts of assessee with DB could not at all be considered to represent any trading transactions. This was certainly not case of Department that DB merely represented agent of third parties. Different Courts has held that liability of assessee towards purchase of assets is completely different from liability incurred by it on raising loan for purpose of same purchases. Thus, it has been held repeatedly by different courts that liability towards interest payments incurred on loan specifically utilized for acquiring capital assets would also form revenue expense in hands of assessee. Thus, loans from credits stand completely on different footing from transactions in which assessee indulged by utilizing such loans. In instant case, therefore, trading transactions of assessee could neither be equated nor could directly be connected with liability of assessee towards loan incurred by it from its bank, viz., DB. Therefore, so far as remission of principal amount was concerned, provisions of section 41(1) would not at all be applicable. main reason why provisions of section 28(iv) would not be applicable to instant case was that benefit did not arise to assessee applicable to instant case was that benefit did not arise to assessee on its revenue account. Even according to general commercial principles and various decisions of different courts, it cannot be said that waiver of loan as such constitutes income in hands of debtor. Such waiver clearly affect that capital accounts of assessee and hence, in ordinary sense, such waiver cannot constitute income of assessee. For purpose of applicability of section 28(iv) benefit or perquisite must relate to revenue account of assessee. Hence, remission of liability towards principal amount could not constitute income in assessee's hands either under section 41(1) or under section 28(iv). Now taking into consideration different facets of transitions between assessee and DB even apart from DB acting as banker of assessee total expenses on interest on overdraft, guarantee, commission, bank charges, etc. came to Rs. 6,89,28,002 out of which only Rs. 1,85,60,598 constituted interest on overdraft account. It was not understood as to what happened to other expenses aggregating Rs. 5,03,67,404 also incurred by assessee and remained payable to DB. Since these expenses were clearly of nature of revenue expenses already incurred and also claimed by assessee in its accounts remission of any portion of those expenses would clearly constitute income in assessee's hands either by way of direct deduction from expenses incurred or under section 41(1). Assessing Officer should therefore, examine this limited matter and come to clear cut conclusion so that amount or any portion thereby if remitted by bank, could be treated as assessee's income.' 12. In case of Kerala Estate Mooriad Chalapuram (supra) their Lordships of Apex Court have held that remission cannot be considered as amounting to receipt of agricultural income. What was allowed to be deducted from total agricultural income of assessee was interest pursuant to section 5. It was deduction made permissible by Act. To be regarded as taxable in hands of assessee, amount which was subject of remission must be capable of being described as agricultural income, therefore, High Court has correctly observed 'what was returned to assessee has nothing to do with activities of assessee, it does not arise from business nor does it arise from agricultural operations when assessee is agriculturist'. 13. We have also carefully examined judgment of Madras High Court in case of Aries Advertising (P.) Ltd. (supra) but ratio laid down in this case cannot be applied here as facts altogether are different to present case. In that case, assessee has not treated amount as liability and more particularly continuing liability. On other hand, assessee has transferred this amount to General Reserve. Their Lordships have held that it is Trite Law that amount transferred to general reserve would be out of profits alone. Once assessee transferred this amount to general reserve it treated same as profit. amount represents various credits and deposits during trading with firm. They remained for long time to be recovered (even before limitation period) and thus remained unclaimed. amounts were then transferred by assessee-company to general reserve obviously treating them to be profits. In that view amount has to be treated as income of assessee chargeable to income-tax. 14. In light of ratio laid down by Hon'ble Apex Court and various High Courts in above mentioned cases, we are of view that for invoking provisions of section 41(1) of Act allowance or deduction must have been granted during course of assessment for any year in respect of loss, expenditure or trading liability incurred by assessee and subsequently during any previous year, assessee obtains, whether in cash or in any other manner whatsoever or any amount in respect of such trading liability by way of remission or cessation of such liability. Unless and until liability which has been ceased or remitted during impugned assessment year, has been debited and claimed to profit and loss account and allowed in earlier years, it cannot be treated to be income under section 41(1) of Act. If that liability was not allowed or its deduction was not granted in earlier years it would not assume character of income chargeable to tax in this year by virtue of section 41(1) of Act. facts of instant case are examined in light of proposition of law laid down in aforesaid cases and we would find that NCDs were issued to raise capital of assessee before commencement of business and whatever earnest money or advance was received on account business and whatever earnest money or advance was received on account of issuance of NCDs, was kept in separate account and was shown as loan liability upon assessee and this liability was never debited to profit and loss account nor was its deduction claimed in relevant assessment year. Since, NCDs were issued in order to borrow funds to raise capital, amount received in lieu thereof has assumed character of capital receipt if at all not treated to be loan liability, inasmuch as issuance of NCDs was not business of assessee. 15. Thus, earnest money or advance amount received on account issuance of NCDs, if forfeited on account of non payment of call money, loan liability would only convert into capital receipt. It would not assume character of revenue receipt or business receipt because NCDs were not issued in course of regular business of assessee as evident from facts of case. Assessee's main business is of cement and it was in process of set up of cement manufacturing plant at Satna during impugned assessment year. In these circumstances, we are constrained to hold that amount received by assessee in lieu of issuance of NCDs which were forfeited later on account of non-payment of call money assumes character of capital receipt which earlier was shown as loan liability in books of account of assessee. If we consider this receipt to be business receipts even then it would not be taxable to tax under provisions of section 41(1) of Act, inasmuch as there was no allowance or deduction of this liability in earlier years. We also do not find any provision in this Act according to which this type of receipts are chargeable to tax. We, therefore, are of considered view that revenue was not justified in treating this receipt as revenue receipt. We therefore, set aside order of CIT(A) and delete addition. In result, appeal of assessee is allowed. This order is announced in open court on this 23rd day of March, 2006. *** PRISM CEMENT LIMITED v. JOINT COMMISSIONER OF INCOME TAX, SPECIAL RANGE-50