Case Law Details
Cable Corporation of India Limited Vs DCIT (ITAT Mumbai)
Conclusion: Surplus resulting from assignment of loan at present value of future liability was not cessation or extinguishment of liability as loan was to be repaid by the third party and therefore could not be brought to tax in the hands of the assessee under section 41(1).
Held: Assessee was in the line of manufacturing of cable and trading thereof and not in the purchase and sale of shares and securities. It had borrowed a sum of Rs. 12.00 crores from M/s MPPL to be repaid over a period of 100 years and the amount was utilized for the purchase of shares. The liability of loan of Rs. 12 crores to be discharged over a period of 100 years was assigned to the third parties M/s CPPL by making a payment of Rs. 0.36 crores in terms of present value of the future liability and the surplus resulting from assignment of loan liability was credited to the Profit & Loss Account under the head income from other sources but while computing the total income, the said income was reduced from the income on the ground that the surplus of Rs. 11.64 crores represented the capital receipt and therefore not taxable. AO held the surplus Rs. 11.64 Cr resulting from the assignment of loan to M/S CPPL under tripartite agreement between assessee , M/S MPPL and M/S CPPL as a revenue receipt liable to tax. It was held the loan was utilized for purchasing shares which was capital asset in the business of the assessee and the surplus resulting from assignment of loan was a capital receipt not liable to be taxed either u/s 28(iv) or u/s 4 1(1). More so, the surplus resulting from assignment of loan at present value of future liability was not cessation or extinguishment of liability as the loan was to be repaid by the third party and therefore could not be brought to tax in the hands of the assessee.
FULL TEXT OF THE ITAT JUDGEMENT
1. The present appeals filed by the assessee are arising out of order of the Ld. Commissioner of Income-Tax (Appeals)-4 [hereinafter referred to as CIT(A)], Mumbai, in Appeal No.CIT(A)- 4/DC.2(1)/IT-1/03-04 dated 17/08/2010 and order dated 03/09/2012 respectively.
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