High Court held that loan which was taken was capital investment and always treated in the capital account as liability and if it is so, it will naturally go as wiping out the capital liability.
Income which could be taxed under section 28(iv) must not only be referable to a benefit or perquisite, but it must be arising from business and section 28(iv) does not apply to benefits in cash or money.
FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:
By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the department confirming the order of Commissioner (Appeals).
2. Counsel for the appellant has framed the following substantial questions of law :–
“(i) Whether in the facts and circumstances of the case, the Tribunal was justified in deleting the additions of Rs. 39195608 made by the assessing officer on account of remission of Principal amount of loan.
(ii) Whether in the facts of the present case remission of Principal amount of loan obtained from financial institution and banks constitutes a benefit or perquisite arising from business and would fall within the ambit of section 28(iv) of the Act.
(iii) Whether in the facts and circumstances of the case and in law, the ITAT was justified in deleting the additions of Rs. 9,90,079 made under section 145A on account of excise duty leviable on closing stock.
(iv) Whether in the facts and circumstances of the case and in law the ITAT was justified in holding that employees’ contribution to PF and ESI governed by the provision of section 43B and not by section 36(1)(va) read with section 2(24)(x) of the Income Tax Act.”
3. However, in view of the decision of this Court in the case of assessee in Tax Appeal No. 147/2010, decided on 8-8-2017 wherein considering the identical issue, this court has observed as under :–
“Learned counsel for the appellant submits that the controversy involved in present appeals stands concluded by the decision of this Court in the case of Modern Denim Limited v. Asstt. CIT in Tax Appeal No. 145/2010, decided on 26-4-2017 alongwith other connected appeals. This court while deciding the appeal in favour of the assessee has held as under :–
4. Counsel for the appellant contended that issue is now squarely covered by the decision of Delhi High Court in CIT v. Jindal Equipments Leasing and Consultancy Services Ltd. (2010) 325 ITR 87 (Delhi) wherein it has been observed as under :–
“7. We do not find any merit in this preliminary submission of the learned Counsel for the assessee. The assessing officer had made the addition in terms of section 41(1) of the Act read with section 28(i) of the Act, which was upheld by the Commissioner (Appeals). No doubt, the Tribunal has held that section 41(1) does not apply to which legal position is constituted (sic conceded) by the learned Counsel for the revenue before us, the revenue still wants that the addition be sustained under provisions of clause (iv) of section 28 of the Act. The revenue is not disputing the facts on the basis of which decision of the Tribunal is based. Submission is that on these very facts, provisions of section 28(iv) of the Act shall be attracted. It is a pure question of law and therefore, the amended ground as raised by the revenue can be allowed. The position in MCorp Global (P) Ltd. (supra) was entirely different. In that case, the transaction in question was treated as lease transaction in the earlier assessment years and depreciation was granted on that basis. However, in the assessment year in question, the same very transaction was treated as financial transaction and depreciation was disallowed. It was in this backdrop, the Supreme Court opined that the depreciation given to the assessee could not be withdrawn, (sic) when the finding of fact that the transaction in question was leased and not financial transaction had become final and had not been challenged.
8. With this, we proceed to examine this aspect on its own merit, viz., whether provisions of section 28(iv) of the Act are attracted in the given case. Thus, what is to be seen is that as to whether the written off amount of Rs. 1,46,53,065 in its books of accounts by JSPL amounts to the value of any benefit or perquisite whether convertible into money or not can be treated as “profits and gains from business”. The prerequisites for attracting the said provisions are :–
(i) Benefit or perquisite arising in the course of business is of the nature, other than cash or money. It is for this reason expression “whether convertible into money or not” is mentioned in clause (iv). Bombay High Court has interpreted this very clause in the case of Mahindra & Mahindra Ltd. v. CIT (2003) 261 ITR 501 (Bom) in the following manner:
The income which can be taxed under section 28(iv) must not only be referable to a benefit or perquisite, but it must be arising from business. Secondly, section 28(iv) does not apply to benefits in cash or money see CIT v. Alchemic (P) Ltd. (1981) 130 ITR 168 (Guj).”
4.1 The same view taken by the Madras High Court in The Commissioner of Income Tax v. M/s. Innvol Medical India Ltd. (2013) 219 Taxman 123 (Mad); Iskraemeco Regent Limited (Originally Seahorse Industries Ltd. and subsequently in Iskraemeco Seahorse Ltd.) v. CIT (2011) 331 ITR 317 (Mad); Mahindra and Mahindra Ltd. v. CIT (2003) 261 ITR 501 (Bom) and other judgment of Bombay High Court in CIT v. Xylon Holdings (P) Ltd. in ITA No. 3704/2010, decided on 13-9-2012 and decision of Gujarat High Court in CIT v. Gujarat State Fertilizers and Chemicals Ltd. (2013) 358 ITR 323 (Guj).
5. Counsel for the department Mr. Mathur has supported the judgment of the Tribunal and contended that in view of the observations made by the Supreme Court in Polyflex (India) Pvt. Ltd. v. CIT (2001) 251 ITR 527 (SC) wherein it has observed as under :–
“We are inclined to think that in a case where a statutory levy in respect of goods dealt in by the assessee is discharged and subsequently the amount paid is refunded, it is the first clause that more appropriately applies. U will not be a case of benefit accruing to him on account of cessation or remission of trading liability. U will be a case which squarely falls under the earlier clause, namely, “obtained any amount in respect of such expenditure”. In other words, where expenditure is actually incurred by reason of payment of duty on goods and the deduction or allowance had been given in the assessment for earlier period, the assessee is liable to disgorge that benefit as and when he obtains refund of the amount so paid. The consideration whether there is a possibility of the refund being set at naught on a future date will not be a relevant consideration. Once the assessee gets back the amount which was claimed and allowed as business expenditure during the earlier year, the deeming provision in section 41(1) of the Act comes into play and it is not necessary that the Revenue should await the verdict of higher Court or Tribunal. If the Court or Tribunal upholds the levy at a later date, the assessee will not be without remedy to get back the relief.”
5.1 He also relied upon the decision of Supreme Court in CIT v. T.V. Sundaram Iyengar and Sons Ltd. (1996) 222 ITR 344 (SC)wherein it has been held as under :–
“The principle appears to be that if an amount is received in course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee’s own money because of limitation or by any other statutory or contractual right. When such a thing happens, commonsense demands that the amount should be treated as income of the assessee. The assessee had received deposits in course of its business which were originally treated as capital receipts. Some of the deposits were neither claimed by nor returned to the depositors. There is no dispute that the deposits were received in course of the carrying on of the business of the assessee. Although it was treated as deposit and was of capital nature at the point of time it was received, by influx of time the money has become the assessee’s own money. What remains after adjustment of the deposits has not been claimed by the customers. The claims of the customers have become barred by limitation. The assessee itself has treated the money as its own money and taken the amount to its profit and loss account. There is no explanation from the assessee why the surplus money was taken to its profit and loss account even if it was somebody else’s money. In fact, as Atkinson, J. pointed out that what the assessee did was the commonsense way of dealing with the amounts. Therefore, the amount was taxable as trade receipt in the hands of the assessee.”
6. We have heard counsel for the parties.
7. In view of the above, even otherwise the loan which was taken was capital investment and always treated in the capital account as liability and if it is so, it will naturally go as wiping out the capital liability.
8. In that view of the matter, the contention taken by the appellant is required to be accepted. The view taken by the Commissioner (Appeals) is required to be restored and that of the tribunal is required to be reversed.
9. In view of the above, the issue is answered in favour of the assessee and against the department.
4. In that view of the matter, issues in both the appeals are answered in favour of the assessee and against the department.”
In view of the above, issue no. 1 to 3 are answered in favour of the assessee and against the department. However, the fourth issue regarding PF & ESI shall be governed by the decision of Supreme Court.
The appeal stands accordingly disposed of.