No addition can be made u/s 41(1)(a) for the interest liability converted into the share capital as there is no cessation of liability

Tamil Nadu State Transport Corporation (Kum Div I) Limited Vs JCIT (ITAT Chennai) – With regard to deemed profits and gains u/s 41(1)(a), it was argued that the accumulated interest payable to Government which was converted as share capital during the year was treated as deemed profit u/s 41(1)(a). In fact, it was interest accrued from 1995-96 to 31.10.2000. The ld. CIT(A) has confirmed this addition on the ground that it is a clear case of cessation of liability. But it was fairly conceded by both sides that this issue stands covered in favour of the assessee by the decision of this Bench in the case of Metropolitan Corporation (Chennai) Ltd in I.T.A.No. 2012/Mds/2006, order dated 16.11.2007 for assessment year 2001- 02.

In that case, under identical facts, the Tribunal has deleted the addition made by the Assessing Officer. While doing so, the Tribunal has relied on the G.O.No.18, Transport(Tl)Department, dated 7.3.2001 of Government of Tamil Nadu. Since the G.O is common to all the State Transport Undertakings and covers Kumbakonam Division- I also vide Sl. No. 14 of the said G.O. We have gone through the Tribunal order. The Tribunal has held that the assessee-company has discharged its interest liability and instead of making payment in cash it has issued share capital to the Government as per the G.O. in question. Hence, the provisions of section 41(1)(a) of the Act are not attracted at all. Therefore, the conversion of the payment in the share capital has to be treated as proper discharge of interest payments. This decision is applicable to the facts of this case mutatis mutandis. In view of the above decision, we are of the considered opinion that this issue stands allowed in favour of the assessees in all these appeals.

Whether there is no requirement to obtain permission from committee on disputes for pursuing litigation between PSUs and the Government –– Whether the assessee is entitled to carry forward and set off of brought forward business loss and unabsorbed depreciation u/s 72A in the scheme of an amalgamation though the assessee is not an industrial undertaking. – Assessee’s appeal partly allowed.

IN THE INCOME TAX APPELLATE TRIBUNAL

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