REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOs. 6949-6950 OF 2004 Commissioner ..Appellant(s) Versus Mahindra and Mahindra Ltd. thrg. M.D. ..Respondent(s) WITH CIVIL APPEAL No. 5320 OF 2012 CIVIL APPEAL No. 5319 OF 2012 CIVIL APPEAL No. 4435 OF 2018 (Arising out of Special Leave Petition (C) No. 20625 OF 2012) CIVIL APPEAL No. 890 OF 2012 CIVIL APPEAL No. 10169 OF 2010 CIVIL APPEAL No. 10168 OF 2010 CIVIL APPEAL No. 3624 OF 2012 CIVIL APPEAL No. 5751 OF 2011 CIVIL APPEAL No. 1214 OF 2012 CIVIL APPEAL No. 780 OF 2012 CIVIL APPEAL No. 2164 OF 2012 CIVIL APPEAL No. 4434 OF 2018 (Arising out of Special Leave Petition (C) No. 20144 OF 2012) Signature Not Verified Digitally signed by ASHA SUNDRIYAL Date: 2018.05.01 17:52:47 IST CIVIL APPEAL No. 7951 OF 2012 Reason: 1 CIVIL APPEAL No. 4442 OF 2018 (Arising out of Special Leave Petition (C) No. 4008 OF 2014) CIVIL APPEAL No. 4441 OF 2018 (Arising out of Special Leave Petition (C) No. 5782 OF 2014) CIVIL APPEAL No. 4345 OF 2014 CIVIL APPEAL No. 4609 OF 2018 (Arising out of Special Leave Petition (C) No. 18964 OF 2014) CIVIL APPEAL No. 4436 OF 2018 (Arising out of Special Leave Petition (C) No. 24752 OF 2014) CIVIL APPEAL No. 4545 OF 2018 (Arising out of Special Leave Petition (C) No. 4977 OF 2015) CIVIL APPEAL No. 6942 OF 2015 CIVIL APPEAL No. 4539 OF 2018 (Arising out of Special Leave Petition (C) No. 6648 OF 2016) CIVIL APPEAL No. 4546 OF 2018 (Arising out of Special Leave Petition (C) No. 29776 OF 2016) 2 JUDGMENT R.K. Agrawal, J. Civil Appeal Nos. 6949-6950 OF 2004 1) Leave granted. 2) These appeals have been filed against impugned judgment and order dated 29.01.2003 passed by High Court of Judicature at Bombay in R.A.No.1561 (Bom)/1982 and R.A.No.5161/B/80 whereby Division Bench of High Court while giving answers to Reference Applications filed by Respondent as well as Revenue, confirmed certain findings passed by Income Tax Appellate Tribunal (in short Tribunal ) dated 16.08.1982 in favour of Respondent. Along with this, there are certain other connected appeals also. Since question of law is same in all these appeals, all appeals would stand disposed off with this common judgment. 3) Brief facts:- (a) For proper appreciation of issue in case at hand, we deem it apposite to mention gist of facts. 3 appellant herein is Department of Income Tax (for brevity Revenue), on other hand, respondent herein is Mahindra & Mahindra Ltd. (for brevity Respondent ) - company registered under Companies Act, 1956. (b) Respondent, way back, decided to expand its jeep product line by including FC-150 and FC-170 models. For this purpose, on 18.06.1964, it entered into agreement with Kaiser Jeep Corporation (for short KJC ) based in America wherein KJC agreed to sell dies, welding equipments and die models to assessee. final price of tooling and other equipments was agreed at $6,50,000/- including cost, insurance and freight (CIF). Meanwhile, Respondent took all requisite approvals from concerned Government Departments. said toolings and other equipments were supplied by Kaiser Jeep Corporation through its subsidiary Kaiser Jeep International Corporation (KJIC). (c) However, for procurement of said toolings and other equipments, KJC agreed to provide loan to Respondent at rate of 6% interest repayable after 10 years 4 in installments. For this purpose, Respondent addressed letter dated 07.06.1965 to Reserve Bank of India (RBI) for approval of said loan agreement. RBI and concerned Ministry approved said loan agreement. (d) Later on, it was informed to Respondent that American Motor Corporation (AMC) had taken over KJC and also agreed to waive principal amount of loan advanced by KJC to Respondent and to cancel promissory notes as and when they got matured. same was communicated to Respondent vide letter dated 17.02.1976. (e) On 30.06.1976 Respondent filed its return and shown Rs. 57,74,064/- as cessation of its liability towards American Motor Corporation. After perusal of return, Income Tax Officer (ITO) concluded that with waiver of loan amount, credit represented income and not liability. Accordingly, ITO, vide order dated 03.09.1979, held that sum of Rs 57,74,064/- was taxable under Section 28 of Income Tax Act, 1961 (for brevity IT Act ). 5 (f) Being dissatisfied, Respondent preferred appeal before Commissioner of Income Tax (Appeals) being No. CIT(A) V/CCIV/IT/261/79-80. After perusal of matter, learned CIT (Appeals), vide order dated 23.03.1981, dismissed appeal and upheld order of ITO with certain modifications. (g) Being aggrieved, Respondent as well as Revenue preferred appeals being Nos. 2007 (Bomb.) of 1981 and 2132 of 1981 respectively before Tribunal. Tribunal, vide order dated 16.08.1982, set aside order passed by learned CIT (Appeals) and decided case in favour of Respondent. (h) Being aggrieved, Revenue filed Reference before High Court at Bombay. In that Reference, three applications were filed, one by assessee and rest two by Revenue. Vide impugned common judgment and order dated 29.01.2003, High Court confirmed certain findings of Tribunal in favour of Respondent. 6 (i) Hence, these instant appeals have been filed by Revenue. 4) Heard learned senior counsel for parties and perused factual matrix of case. Point(s) for consideration:- 5) short point for consideration before this Court is whether in present facts and circumstances of case sum of Rs. 57,74,064/- due by Respondent to Kaiser Jeep Corporation which later on waived off by lender constitute taxable income of Respondent or not? Rival contentions:- 6) At onset, learned senior counsel for Revenue submitted that Respondent had received amount of Rs. 57,47,064/- from American Motor Corporation as loan waiver, which it had initially borrowed from Kaiser Jeep Corporation as loan in order to enable it to purchase dies, tools etc. for manufacture of jeeps. waiver of loan was done by American Motor Corporation, who took over Kaiser Jeep Corporation, as measure of compensation for 7 certain losses including goodwill, benefit of association, and also for sudden change to American Motor Corporation as share holder which was credited by Respondent to its account but was claimed as exemption from taxation being capital receipt. 7) Before concluding, it was contended that since amount is waived off, for which Respondent is claiming exemption, it actually amounts to income at hands of Respondent in sense that amount which ought to be paid by it is now not required to be paid. As result, case of Revenue falls within ambit of Section 28(iv) and, alternatively within Section 41 of IT Act. Hence, decision of High Court is liable to be set aside. 8) Conversely, learned senior counsel for Respondent submitted that Kaiser Jeep International Corporation (KJIC) supplied toolings and loan was given by Kaiser Jeep Corporation (KJC), hence, these transactions were independent transactions. only relationship, which survived after supply of toolings, was that of lender and 8 borrower. purchase of toolings was not transaction for purchase of goods on credit in ordinary course of business nor could it be equated to unpaid purchase consideration to be liquidated over period of time. 9) Further, it was also submitted that it is very clear that amount of $650,000 provided by KJC was in fact loan on which interest was being paid regularly from time to time. It is also pointed out that in books of account of Respondent, this loan has been shown in Balance Sheet under heading Loans-unsecured . Hence, it is submitted that said sum could not be brought to tax as it represents waiver of loan liability which was on capital amount and is not in nature of income. Accordingly, High Court rightly upheld order of Tribunal and, hence, these appeals deserve to be dismissed. Discussion:- 10) term loan generally refers to borrowing something, especially sum of cash that is to be paid back along with interest decided mutually by parties. In other terms, 9 debtor is under liability to pay back principal amount along with agreed rate of interest within stipulated time. 11) It is well-settled principle that creditor or his successor may exercise their Right of Waiver unilaterally to absolve debtor from his liability to repay. After such exercise, debtor is deemed to be absolved from liability of repayment of loan subject to conditions of waiver. waiver may be partly waiver i.e., waiver of part of principal or interest repayable, or complete waiver of both loan as well as interest amounts. Hence, waiver of loan by creditor results in debtor having extra cash in his hand. It is receipt in hands of debtor/assessee. short but cogent issue in instant case arises whether waiver of loan by creditor is taxable as perquisite under Section 28 (iv) of IT Act or taxable as remission of liability under Section 41 (1) of IT Act. 12) first issue is applicability of Section 28 (iv) of IT Act in present case. Before moving further, we deem it apposite to reproduce relevant provision herein below:- 10 28. Profits and gains of business or profession. following income shall be chargeable to income-tax under head Profits and gains of business profession ,-- xxx (iv) value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of profession; x x x 13) On plain reading of Section 28 (iv) of IT Act, prima facie, it appears that for applicability of said provision, income which can be taxed shall arise from business or profession. Also, in order to invoke provision of Section 28 (iv) of IT Act, benefit which is received has to be in some other form rather than in shape of money. In present case, it is matter of record that amount of Rs. 57,74,064/- is having received as cash receipt due to waiver of loan. Therefore, very first condition of Section 28 (iv) of IT Act which says any benefit or perquisite arising from business shall be in form of benefit or perquisite other than in shape of money, is not satisfied in present case. Hence, in our view, in no circumstances, it can be said that amount of Rs 57,74,064/- can be taxed under provisions of Section 28 (iv) of IT Act. 11 14) Another important issue which arises is applicability of Section 41 (1) of IT Act. said provision is re-produced as under: 41. Profits chargeable to tax.- (1) Where allowance or deduction has been made in assessment for any year in respect of loss, expenditure or trading liability incurred by assessee (hereinafter referred to as first-mentioned person) and subsequently during any previous year,- (a) first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, amount obtained by such person or value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as income of that previous year, whether business or profession in respect of which allowance or deduction has been made is in existence in that year or not; or x x x 15) On perusal of said provision, it is evident that it is sine qua non that there should be allowance or deduction claimed by assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by assessee. Then, subsequently, during any previous year, if creditor remits or waives any such liability, then assessee is liable to pay tax under Section 41 of IT Act. objective behind this Section is simple. It is made to ensure 12 that assessee does not get away with double benefit once by way of deduction and another by not being taxed on benefit received by him in later year with reference to deduction allowed earlier in case of remission of such liability. It is undisputed fact that Respondent had been paying interest at 6 % per annum to KJC as per contract but assessee never claimed deduction for payment of interest under Section 36 (1) (iii) of IT Act. In case at hand, learned CIT (A) relied upon Section 41 (1) of IT Act and held that Respondent had received amortization benefit. Amortization is accounting term that refers to process of allocating cost of asset over period of time, hence, it is nothing else than depreciation. Depreciation is reduction in value of asset over time, in particular, to wear and tear. Therefore, deduction claimed by Respondent in previous assessment years was due to deprecation of machine and not on interest paid by it. 16) Moreover, purchase effected from Kaiser Jeep Corporation is in respect of plant, machinery and tooling 13 equipments which are capital assets of Respondent. It is important to note that said purchase amount had not been debited to trading account or to profit or loss account in any of assessment years. Here, we deem it proper to mention that there is difference between trading liability and other liability . Section 41 (1) of IT Act particularly deals with remission of trading liability. Whereas in instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, we find no force in argument of Revenue that case of Respondent would fall under Section 41 (1) of IT Act. 17) To sum up, we are not inclined to interfere with judgment and order passed by High court in view of following reasons: (a) Section 28(iv) of IT Act does not apply on present case since receipts of Rs 57,74,064/- are in nature of cash or money. (b) Section 41(1) of IT Act does not apply since waiver of loan does not amount to cessation of trading liability. It 14 is matter of record that Respondent has not claimed any deduction under Section 36 (1) (iii) of IT Act qua payment of interest in any previous year. 18) In view of above discussion, we are of considered view that these appeals are devoid of merits and deserve to be dismissed. Accordingly, appeals are dismissed. All other connected appeals are disposed off accordingly, leaving parties to bear their own cost. ..... J. (R.K. AGRAWAL) . . J. (ABHAY MANOHAR SAPRE) NEW DELHI; APRIL 24, 2018. 15 Commissioner v. Mahindra and Mahindra Ltd