Case Law Details
RELEVANT PARAGRAPH
19. First we will marshal the facts of the present case. The assessee had availed terms loans from three banks, viz. ICICI Bank Ltd., Standard Chartered Bank Ltd. and Sumitomo Mitsui Banking Corporation (SMBC), Hong Kong. These terms loans were availed by the assessee company for the purpose of acquiring capital assets necessarily to be deployed in the manufacturing system of the assessee company. The assessee company became de-faulter in making the repayments of the installments of term loans along with interest mainly due to its bad financial position. At that point of time, may be for the reasons of recession in business and industry, such defaulted amounts were increasing with various banks. These sticky accounts were necessarily be held by the banks as Non-performing assets (NPA). The Reserve Bank of India was little anxious to watch the high increase in the amount of NPA held by various banks from time to time. Therefore, the RBI formulated a scheme to wipe out the NPA from the balance sheets of the banks through a scheme known as “One Time Settlement Scheme” (OTS). Under this scheme, bank and its constituents could enter into an agreement to settle the loan account in terms of the guidelines of the RBI so that some relief is given to the borrowers by way of waiver in the loan amount.
20. The assessee opted for OTS with the concurrence of the banks and settled the loans for ever in the previous year relevant to the assessment year under appeal. The total loans that remained payable to the banks amounted to Rs. 3486.03 lakhs. The loans were settled for ever on payment of Rs. 2450 lakhs and thereby the assessee company obtained the benefit of waiver of term loans amounting to Rs. 10,36,02,957/ -. This waiver benefit obtained by the assessee bank was transferred to its general reserve account.
21. It is trite law that the nomenclature given by an assessee to a particular account in its books of accounts is not the sole test to decide the real character of that account. The Court of appeals in the case of Grafton Hotel Ltd. – 1942 (1) All ER 675-682 has observed that accountancy is a matter of taste. One assessee may be conservative because of outlook and may well decide the debt payments of Revenue account that they are in their nature proper to be debited to capital account. The Supreme Court in the case of Hoshiarpur Electric Supply Co. vs. CIT -41 ITR 608 – has observed that the assessee may credit to revenue account what should otherwise have been credited, correctly to capital account. Again the Supreme Court in the case of Punjab Distilling Industries Ltd. v. CIT -35 ITR 519 has observed that an assessee may credit an amount to capital account what should have otherwise been credited to revenue account. Therefore, it is to be seen that the treatment given to a transaction by an assessee in his books of accounts or his Profit and Loss Account is not decisive of the true nature of the transactions as held by the Supreme Court in the case of Delhi Stock Exchange Association Ltd. vs. CIT – 41 ITR 495. The Supreme Court has held in the case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT – 82 ITR 363 – that bad accounting effects neither in favour of the assessee nor against the Revenue. Therefore, the fact that the assessee has credited loan waiver amount in its general reserve does not influence the process of determining the exact nature of the issue.
31. There is no doubt that the term loan availed by the assessee from three banks were not in the nature of trading liability but were in the nature of capital liability. There, the waiver of loan liability was not the waiver of any trading liability. The waiver of capital liability would not become income u/s 41(1) on the ground of remission of cessation thereof.
35. In the facts and circumstances of the case, we find that the waiver amount of term loan availed by the assessee does not partake the character of assessable income either u/s 28(iv) or u/s41(1). The decision of the Apex Court in the case of T. V. Sundaram Iyengar and Sons Ltd. -222 ITR 344 – relied on by the lower authorities is distinguishable on facts. The decision relied on by the Addl. Commissioner in the case of Solid containers Ltd. vs. DCIT -308 ITR 417 – is also not applicable to the present case for the reason that the said decision does not differ from the ratio laid down in the decision of the Bombay High Court in the case of Mahindra and Manindra vs. CIT -261 ITR 501.
Is the waiver of Cash Credit or other short term loans assessable income of the assesee ?