Case Law Details
SHRM Food & Allied Services (P) Ltd. v. ITO (ITAT Mumbai)
We have considered rival contentions and found that Banque Nationale De Paris (herein after referred to as Bank) had extended overdraft facilities to the assessee company in the earlier years. These facilities were secured by way of hypothecations of all movable assets including book debts and stocks. Further, these facilities were guaranteed by Group SHRM–France, one of the shareholders of the assessee company. Since the assessee company was not able to repay the overdrafts availed and interest due thereon, the corporate guarantee given by Group SHRM–France was invoked by the Bank for recovery of the amount payable by the assessee company to the Bank. The amount payable by the assessee company to the Bank as at 31-3-2000 stood at Rs. 1,94,44,420.14 which included principal amount of Rs. 1,50,00,000 and interest component of Rs. 44,44,420.14. During the year ended 31-3-2001 relevant to assessment year 2001-02, Group SHRM–France, the shareholder of the assessee company paid a sum of Rs. 60,00,000 directly to the Bank towards the overdraft facilities extended by the Bank to the assessee company. In terms of the compromise settlement offer accepted by the Bank the balance amount was waived by the Bank. Consequently, the assessee company had credited a sum of Rs. 1,50,00,000 representing the principal component to its capital reserve account and a sum of Rs. 44,44,420 representing the interest component was credited to the Profit and Loss Account under the head “Other Income–Provision no longer required written back” and duly offered the same to tax.
It is clear from the records placed before us that the total dues payable by the Bank consisted of principal component and interest component. The principal Component being a loan in respect of which no deduction, benefit or loss was either claimed or allowed, was transferred to Capital Reserve Account and interest component was duly credited to the Profit and Loss Account and also offered to tax as income within the meaning of section 41(1) of the Act. The loan received is a capital receipt and it does not lose its capital nature even when it is renounced or waived by the lender.
We do not find any merit for treating the waiver of loan as taxable under section 41(1) of the Income Tax Act.
RELEVANT EXTRACT OF ITAT JUDGMENT
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