IT : Amount waived off in furtherance of one time settlement of assessee's due, would not be added to assessee's income under section 41(1) as revenue receipt
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[2013] 38 taxmann.com 434 (Madras)
HIGH COURT OF MADRAS
Commissioner of Income-tax, Chennai
v.
Innvol Medical India Ltd.*
MRS. CHITRA VENKATARAMAN AND T.S. SIVAGNANAM, JJ.
TAX CASE (APPEAL) NO. 504 OF 2013†
SEPTEMBER 3, 2013
Section 41(1), read with section 28(iv), of the Income-tax Act, 1961 - Remission or cessation of trading liability [One time settlement] - Assessment year 2006-07 - Assessee-company was engaged in manufacture of medical devices - Operations of assessee were suspended during May, 2002 and its factory was taken over by IFCI for unpaid dues - Thereafter assessee opted for one time settlement in furtherance to which Rs. 4.93 crore was waived off - Tribunal held that amount stood waived off resulted in cessation of liability and it could not be treated as revenue receipt under section 41(1) - Whether in view of Iskraemeco Regent Ltd. v. CIT [2011] 331 ITR 317/196 Taxman 103/[2010] 8 taxmann.com 119 (Mad.), it was to be held that neither did waiver amount to a benefit arising out of business nor was it a remission of liability, which could attract section 41(1) and, hence, revenue's appeal was to be dismissed – Held, yes [Para 4] [In favour of assessee]
FACTS
| ■ | The assessee-company was engaged in the manufacture of medical devices. In the return of income for the assessment year 2006-07, it disclosed the income as nil. The operations of the assessee were suspended during May, 2002 and the factory was taken over by IFCI for unpaid dues. Thereafter the assessee opted for one time settlement and wrote back an amount of Rs. 9.93 crores in the books of account under the head 'debtors and creditors, loan balances and others'. It had also adjusted the amount of Rs. 4.93 crores against current year expenditure'. It explained that the provisions of sections 28(iv) and 41(1) were not attracted to the amount of Rs. 4.93 crores. | |
| ■ | The Assessing Officer rejected the claim of the assessee and made addition of amount of Rs. 4.93 crores in its income under section 41(1), read with section 28(iv). | |
| ■ | On appeal, the Commissioner (Appeals) deleted the impugned addition made by the Assessing Officer. | |
| ■ | On second appeal, the Tribunal held that the amount of Rs. 4.93 crores stood waived off in furtherance to one time settlement resulting in cessation of liability could not be treated as revenue receipt under section 41(1). In the absence of any factual dispute, the Tribunal took note of decision of the Madras High Court rendered in the case of Iskraemeco Regent Ltd. v. CIT [2011] 331 ITR 317/196 Taxman 103/[2010] 8 taxmann.com 119, wherein it was held that the assessee had taken loan for purchase of capital asset and later on the loan was waived off by the bank, it does not amount to a benefit arising out of business and it is also not even remission of the liability, which could attract section 41(1). | |
| ■ | On appeal to High Court: |
HELD
| ■ | The issue involved is squarely covered by the decision in the case of Iskraemeco Regent Ltd. v. CIT [2011] 331 ITR 317/196 Taxman 103/[2010] 8 taxmann.com 119 (Mad.) Therefore, no question of law arising in the instant appeal. Accordingly, the appeal preferred by the revenue was liable to be dismissed. [Para 4] |
CASE REVIEW
Iskraemeco Regent Ltd. v. CIT [2011] 331 ITR 317/196 Taxman 103/[2010] 8 taxmann.com 119 (Mad.) (para 4) followed.
CASES REFERRED TO
Iskraemeco Regent Ltd. v. CIT [2011] 331 ITR 317/196 Taxman 103/[2010] 8 taxmann.com 119 (Mad.) (para 3).
Arun Kurian Joseph for the Appellant.
JUDGMENT
T.S. Sivagnanam, J. - This Tax Case (Appeal) filed by the Revenue seeking admission is directed against the order of the Income Tax Appellate Tribunal dated 14.02.2013 relating to the assessment year 2006-07 raising the following questions of law :—
| "1. | Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the addition made on account of cessation of liability u/s.41(1) of the I.T Act is not proper ? | |
| 2. | Whether on the facts and in the circumstances of the case the Tribunal was right in upholding the order of CIT(A) who held that cessation of liability on account of one time settlement with IFCI and other creditors amounting to Rs.4.93 crores cannot be subjected to tax under Section 28(iv) or under Section 41(1) of the I.T. Act ?" |
2. The respondent/assessee is engaged in the manufacture of medical devices. On 02.02.2007, the assessee filed its return of income disclosing its income as 'Nil'. Thereafter, summary assessment followed by scrutiny assessment was finalized on 19.12.2008 under Section 143(3) of the Income Tax Act, 1961 (hereinafter called as the "Act"). On 15.03.2011, the Commissioner of Income Tax-I directed the Assessing Officer to decide about the taxability of Rs.4,93,97,793/- in the light of Section 41(1) read with Section 28(iv) of the Act. The Assessing Officer noticed from the assessee's annual report that the company operations were suspended during May 2002 and the factory was taken over by IFCI for unpaid dues; who sold its equity shares of Rs.61,20,478/-, which were pledged by the share holders; thereafter, the assessee opted for one time settlement and settled for Rs.185 lakhs against outstanding balance of Rs.564.29 lakhs. Thereafter, the assessee wrote back an amount of Rs.9,93,97,793/- in its notes on account under the head 'debtors and creditors, loan balances and others'. The assessee had also adjusted the amount of Rs.4.93 crores against current year expenditure. The assessee explained to the Assessing Officer that the provisions of Section 28(iv) and Section 41(1) of the Act are not attracted. The contention raised by the assessee was rejected by the Assessing Officer and therefore, he made addition of the above said amount in assessee's total income. Aggrieved by the same, the assessee filed appeal before the Commissioner of Income Tax (Appeals), who deleted the addition.
3. Challenging the same, the Revenue preferred appeal before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal, after considering the entire facts as well as the grounds raised before it, in paragraph 8, held that Rs.4.93 crores stand waived off in furtherance to One Time Settlement resulting in cessation of liability could not be treated as revenue receipt under Section 41(1) of the Act; in the absence of any factual dispute and noting that the assessee not disputed regarding the factual position, the Income Tax Appellate Tribunal took note of decision of this Court in the case ofIskraemeco Regent Ltd. v. CIT [2011] 331 ITR 317/196 Taxman 103/[2010] 8 taxmann.com 119 (Mad.), wherein, it was held that the assessee had taken loan for purchase of capital asset and later on the loan was waived off by the Bank, it does not amount to a benefit arising out of business and it is also not even remission of the liability, which could attract Section 41(1) of the Act.
4. In the light of the above finding, we find that the issue involved herein is squarely covered by the decision in the case of Iskraemeco Regent Ltd.(supra) and we find no question of law arising in this Tax Case (Appeal). Accordingly, the Tax Case (Appeal) stands dismissed. No costs.
Regards
Prarthana Jalan
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