ITAT DELHI BENCH ‘D’
Luxor Writing Instruments (P.) Ltd.
versus
Deputy Commissioner of Income-tax,Circle 4(1), New Delhi
IT Appeal Nos. 1108 & 2386 (Delhi.) OF 2007
[ASSESSMENT YEAR 2002-03]
SEPTEMBER 21, 2012
ORDER
I.C. Sudhir, Judicial Member
The revenue in their grounds to the appeal has raised following issues:
1. “Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in allowing the relief of Rs. 108,49,67,917/- remitted by Gillette USA for repayment of its debts pursuant to sales of its entire shareholding in the assessee company to Newell as capital receipt without appreciating the fact that Gillette was neither its shareholder nor it increased the shareholding of Gillette USA or its subsidiaries in the assessee company.
2. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in restricting the addition on account of sum remitted by M/s Gillette Co. USA to the assessee company for payment of its debts at Rs. 118,09,00,129/- to Rs. 9,59,32,212/- crores whereas the component of remittance to bank account of the assessee company has been treated as revenue receipt and the component remitted directly to Bank of America for the same purpose has been treated as capital receipt.”
2. The assessee has questioned first appellate order on the following grounds:-
1. “That the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in upholding the addition of sum of Rs. 9,59,32,212.66 representing the amount remitted by M/s. Gillette, USA for repayment of loans of the assessee company.
1.1 That mere fact that the aforesaid sum had been credited to the bank account of the appellant company could not in law or fact be held to be a valid basis for concluding that such sum represents income of the appellant company, particularly when it is undisputed that the aforesaid sum had been utilized for repayment of debts by the appellant company.
1.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that, sums remitted were voluntary payments and, were not received by the assessee for any services rendered to M/s. Gillette, USA, which could not be taxed as income of the appellant company. In fact, the learned Assessing Officer has admitted that sum was remitted without any quid pro quo and, therefore could not be held as income under the Act.
2. That the learned Commissioner of Income Tax (Appeals) has further erred both in law and, on facts in confirming the addition of sum of Rs. 3,34,85,700/- representing the amount of loan waived by M/s. Gillette, USA.
2.1 That the learned Commissioner of Income Tax (Appeals) has confirmed the aforesaid addition by erroneously and, arbitrarily concluding that, “it was although originally a capital receipt in the shape of loan, however since the appellant does not have to repay the sum received, it changes the character of receipt to revenue receipt.”
2.2 That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that, the judgment of Hon’ble Delhi High Court in the case of CIT v. Phool Chand Jiwan Ram reported in 131 ITR 37 was fully applicable to the facts of the case of the appellant and, therefore, there was no valid justification or basis to sustain the aforesaid addition.
3. That the various adverse findings recorded by the learned CIT(Appeal) are totally and wholly arbitrary in as much as he has filed to appreciate the submissions and evidence filed by the appellant during the course of appellate proceedings.
4. That the learned Commissioner of Income Tax (Appeals) has further erred in confirming the levy of interest u/s 234B and 234C of the Act.”
3. The relevant facts are that on 19.3.1996 a joint venture agreement was drawn between (1) Gillette India (P) Ltd. (GIPL), and (2) Jain group comprising of members of one Mr. D.K. Jain’s family (Jain Family) and JHPL Holdings (P) Ltd. (JHPL). The joint venture was formed to carry on the business of manufacture and marketing of writing instruments and the stationery products in India through an existing company, namely the assessee company, which was incorporated on 8.3.95, whose promoter/shareholders were Jain group. By a letter dated 19.3.1996, M/s Gillette Company USA, holding company of GIPL gave an undertaking inter alia that, assessee company will be the exclusive vehicle through which Gillette will undertake in India the business in the field of writing instruments and stationery products including introduction of new products and / or new brand in that field, and the Gillette will not undertake directly or indirectly any activities in competition with the assessee company in India.
4. As a result of the above arrangement, the assessee company has been engaged in the business of manufacture and distribution of writing instruments and stationery products. The equity share capital of the assessee company was held equally by Jain Group and GIPL and its affiliates.
5. The funds required by the assessee company for its business were financed out of interest bearing loans raised from Gillette Diversified Operations (P) Ltd. and affiliate of ‘GIPL’.
6. The assessee company raised a loan of Rs. 66 crores from Bank of America in Financial year 2000 – 2001, which was primarily utilized to repay the loans/debts of the company as per details given below.
