22. os itxa 1692-17.doc R.M. AMBERKAR (Private Secretary) IN HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. INCOME TAX APPEAL NO. 1692 OF 2017 Pr. Commissioner of Income Tax-3, Mumbai .. Appellant Versus M/s. SICOM Ltd .. Respondent ................... Mr. Sham Walve a/w Mr. Pritesh Chatterjee for Appellant Mr. Nishant Thakkar a/w Mr. Hiten Chande i/by PDS Legal for Respondent ................... CORAM : UJJAL BHUYAN & MILIND N. JADHAV, JJ. DATE : JANUARY 21, 2020. P.C.: 1. Heard learned counsel for parties. 2. This appeal under Section 260A of Income Tax Act, 1961 ("the Act" for short) has been preferred by revenue against order dated 6.12.2016 passed by Income Tax Appellate Tribunal, "E" Bench, Mumbai ("the Tribunal" for short) in Income Tax Appeal No. 1685/Mum/2009 for assessment year 2003-04. 1 of 10 22. os itxa 1692-17.doc 3. appeal has been preferred on following questions which are projected as substantial questions of law:- (A) Whether on facts and circumstances of case and in law, Tribunal was justified in holding that CIT(A) was correct in deleting Rs. 114.98 crores on account of remission of loan by Govt. of Maharashtra relying upon decision in case of M/s. Mahindra & Mahindra Ltd Vs. CIT 261 ITR 501 whereas fact of present case is entirely on different footing than case of M/s. Mahindra & Mahindra Ltd? (B) Whether on facts and circumstances of case and in law, Tribunal was justified in holding that CIT(A) was correct in deleting Rs. 114.98 crores on account of remission of loan by Government of Maharashtra u/S. 41(1)/28(iv) without considering that waiver of liability u/S. 41(1)/28(iv) is in character of stock-in-trade and certainly trading liability? (C) Whether on facts and circumstances of case and in law, Tribunal was justified in holding that CIT(A) was correct in deleting Rs. 114.98 crores on account of remission of loan by Government of Maharashtra in view of decision of Madras High Court in case of CIT, Chennai Vs. M/s. Ramaniyam Homes Pvt Ltd in Tax Case (Appeal) No. 278 of 2014 dated 22.4.2016 wherein it is held that waiver of principal of amount would constitute income falling u/S. 28(iv) of Act , being benefit arising for business? 2 of 10 22. os itxa 1692-17.doc 4. In assessment proceedings, Assessing Officer considered issue of waiver of loan by Government of Maharashtra. Assessing Officer vide assessment order dated 12.12.2005 held that amount of Rs. 114.98 crores covered by loan given by Government of Maharashtra is taxable under Sections 28(iv) and 41(1) of Act. Accordingly, said amount was treated as income of assessee for year under consideration and added back to total income of assessee. 5. This was challenged by assessee before first appellate authority i.e Commissioner of Income Tax (Appeals)-XXXII, Mumbai. first appellate authority by order dated 25.9.2008 relied upon Government resolution dated 30.9.2002 and took view that only amount of Rs. 46 crores remained interest bearing debt while residual debt of Rs. 184 crore continued to be interest free debt from Government of Maharashtra. Following decision of this Court in Mahindra & Mahindra Ltd Vs. Commissioner of Income Tax1, first appellate authority accepted contention of assessee that 1 [2003] 261 ITR 501 3 of 10 22. os itxa 1692-17.doc onus of establishing that receipts were chargeable to tax was on Assessing Officer and held that aforesaid decision in Mahindra and Mahindra Ltd (supra) squarely applies to facts of present case; entire sum of Rs. 114.98 crores represented principal amount payable to Government of Maharashtra and no part thereof comprised of waiver of any interest liability. Accordingly, first appellate authority held that sum in question i.e Rs. 114.98 crore was not chargeable to tax either under Section 41(1) of Act or under Section 28(iv) of Act. 6. In further appeal before Tribunal, Tribunal by its impugned order dated 6.12.2016 extensively referred to decision of first appellate authority and confirmed same by taking view that there was no reason to interfere with order of first appellate authority. Relevant portion of order passed by Tribunal is as under:- "12. We have gone through orders of authorities below and found that after considering various judicial pronouncements including Bombay High Court and also considering decision relied on by AO, CIT(A) has reached to conclusion that neither provisions of Section 41(1) is applicable nor assessee s 4 of 10 22. os itxa 1692-17.doc income was liable to tax u/s.28(iv) of IT Act. CIT(A) has also called remand report and after considering same and applying various proposition of law, reached to conclusion that remission of loan would not be chargeable to tax either u/s.41(1) or u/s.28(iv) of IT Act. detailed finding so recorded by CIT(A) has not been controverted by DR by bringing any positive material on record. Accordingly, we do not find any reason to interfere in order of CIT(A) deleting addition made on account of remission of loan." 7. Submissions made by learned counsel for parties have been considered. 8. first appellate authority had followed decision of this Court in Mahindra & Mahindra Ltd (supra) in deleting addition made by Assessing Officer on account of remission of loan. decision of this Court in Mahindra and Mahindra (supra) was contested by revenue before Supreme Court in Commissioner Vs. Mahindra And Mahindra Ltd2. issue before Supreme Court was whether waiver of loan by creditor is taxable as perquisite under Section 28(iv) of Act or taxable as remission of liability under Section 41(1) of Act. Supreme Court held as under:- "10. term loan generally refers to borrowing something, 2 [2018] 404 ITR 1 5 of 10 22. os itxa 1692-17.doc especially sum of cash that is to be paid back along with interest decided mutually by parties. In other terms, 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:- 28. Profits and gains of business or profession. following income shall be chargeable to income-tax under head Profits and gains of business profession - (iv) value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of profession; 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, 6 of 10 22. os itxa 1692-17.doc 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. 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 " 15. On perusal of said provision, it is evident that it is sine qua non that there should be allowance or deduction claimed by 7 of 10 22. os itxa 1692-17.doc 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 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 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 8 of 10 22. os itxa 1692-17.doc Section 41(1) of IT Act." 8.1. Finally Supreme Court summed up decision in following manner :- "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 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." 9. On careful examination of matter, we are of considered opinion that decision of Supreme Court as extracted above, is squarely applicable to facts of present case. 9 of 10 22. os itxa 1692-17.doc 10. Consequently, we do not find any merit in appeal to warrant admission. Appeal is accordingly dismissed but without any order as to cost. [ MILIND N. JADHAV, J. ] [ UJJAL BHUYAN, J. ] Digitally signed by Ravindra Ravindra M. Amberkar M. Date: Amberkar 2020.01.27 11:49:10 +0530 10 of 10 Pr. Commissioner of Income-tax-3, Mumbai v. SICOM Ltd