Commissioner Of Income Taxchennai v. M/S. Ramaniyam Homes P Ltd., (Formerly Known As Rasi Silk Industries Limited)Sruti, Old

IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on: 01.9.2015 & Pronounced on : 22.4.2016 Coram: The Honourable Mr.Justice V.RAMASUBRAMANIANand The Honourable Mr.Justice T.MATHIVANAN Tax Case (Appeal) No.278 of 2014 Commissioner of Income TaxChennai...Appellant Vs. M/s. Ramaniyam Homes P Ltd., (formerly known as Rasi Silk Industries Limited)Sruti, Old No.11, New No.21, 2nd Main Road, Gandhi Nagar, Adyar, Chennai - 600 020... Respondent----- Prayer : Appeal filed under Section 260-A of the Income TaxAct, against the order of the Income Tax Appellate TribunalMadras 'D' Bench, Madras, dated 9.3.2012 in ITA No.1245/Mds/2011. against the order of the Commissioner of Income Tax(Appeals)-V 121, Mahatma Gandhi Road, Chennai-600 034 inITA.No.479/08-09 dated 27/4/11 made in PAN/GIR.No. forthe assessment year(s) 2006-2007 and against the order of the Assistant Commissioner of IncomeTax Company Circle-V(3) Chennai dated 28/12/2008 made inPAN/G.I.No.AABCR5878D for the assessment year 2006-07.----- V.RAMASUBRAMANIAN, J This Tax Case Appeal is filed by the Revenue, under Section260-A of Income Tax Act 1961. On 22.8.2014, the appeal wasadmitted on the following substantial questions of law:- https://hcservices.ecourts.gov.in/hcservices/ "1. Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in holding that theamount representing the principal loan amountwaived by the bank under the one time settlementscheme which the assessee received during thecourse of its business is not exigible to tax? 2. Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal ought to have seen that thewaiver of principal amount would constituteincome falling under Section 28(iv) of the IncomeTax Act being the benefit arising for thebusiness?" 2. Heard Mr.T.Ravikumar, learned Senior Standing Counselappearing for the Revenue and Mrs.Dr.Anita Sumanth, learnedcounsel for the respondent/assessee. 3. The assessee filed a Return of income for the assessmentyear 2006-07 on 22.10.2006, admitting a total loss ofRs.2,42,20,780/-. The case was selected for scrutiny and anotice under Section 143(2) and 142(1) of the Act, was issued. 4. It was found by the Assessing Officer that the assesseewas indebted to the Indian Bank. By a letter dated 15.2.2006,the Indian Bank mooted a proposal for a one time settlement. Thetotal amount payable under the one time settlement scheme wasRs.10.50 Crores and the amount had to be paid on or before30.4.2006. The company paid only a sum of Rs.93,89,000/-. 5. The Assessing Officer was of the view that since theassessee accepted the One Time Settlement Scheme, they shouldhave shown the entire interest waived by the bank as incomeunder Section 41(1) on accrual basis during the relevantassessment year. The Assessing Officer found that the totalamount waived was Rs.10.50 Crores and that as per the assesseesaccounts, the total interest and principal waived worked out toRs.9,29,32,594/-, which left a difference of Rs.1,20,67,406/-.Therefore, this difference was directed to be treated as incomeunder Section 28(iv). 6. The assessee filed an appeal to the Commissioner ofIncome Tax (Appeals). The Appellate Authority found that the OneTime Settlement Scheme was accepted by the appellant in thefinancial year 2005-06. But the assessee paid only Rs.93.89lakhs by 31.3.2006, as against Rs.7.50 Crores required to bepaid. Though the assessee was to have paid the entire amount ofRs.10.50 Crores by 30.4.2006, they paid an amount of Rs.17.21lakhs only. Therefore, the One Time Settlement sanctioned, 6. The assessee filed an appeal to the Commissioner ofIncome Tax (Appeals). The Appellate Authority found that the OneTime Settlement Scheme was accepted by the appellant in thefinancial year 2005-06. But the assessee paid only Rs.93.89lakhs by 31.3.2006, as against Rs.7.50 Crores required to bepaid. Though the assessee was to have paid the entire amount ofRs.10.50 Crores by 30.4.2006, they paid an amount of Rs.17.21lakhs only. Therefore, the One Time Settlement sanctioned, lapsed. However, in the financial year 2006-07 (Assessment Year2007-08), the appellant complied with the terms of One TimeSettlement and obtained a No Due Certificate from the bank.Under such circumstances, the First Appellate Authority heldthat the merer acceptance of the conditional offer of the IndianBank under the One Time Settlement Scheme, without complyingwith the substantive part of the terms and conditions, would notgive a vested right of waiver. Therefore, the first AppellateAuthority held that the interest waived to the extent of Rs.1.68Crores was eligible to tax under Section 41(1) and consequently,he deleted the addition of Rs.1,67,74,868/-. 7. On the issue of interest not paid under Section 43-B, thefirst Appellate Authority held that the assessee placed beforehim the relevant ledger accounts and the confirmation from thebank as on 31.3.2006. Thereafter, the first Appellate Authorityheld that it was wrong on the part of the Assessing Officer toconclude that the payment of Rs.93,89,844/- was just a bookentry. The first Appellate Authority concluded that it wasevident from the records that the appellant actually paidRs.1,20,26,254/- during the financial year 2005-06. 8. On the issue of addition of Rs.4,79,45,628/- underSection 28(iv), the first Appellate Authority followed adecision of this Court in Iskraemeco Regent Limited v. CIT[(2011) 196 TAXMAN 103], and held that Section 28(iv) has noapplication to cases involving waiver of principal amounts ofloans. 9. The Revenue filed a further appeal to the Income TaxAppellate Tribunal raising four issues. But the Tribunal foundthat only two issues specifically required adjudication. Out ofthe two issues one related to the disallowance ofRs.1,20,26,254/-. On this issue, the Tribunal remanded thematter back to the Assessing Officer for a fresh consideration.There is no appeal either by the assessee or by the Revenue, onthe order of remand relating to the said issue. 10. On the only remaining issue namely the deletion of theprincipal portion of the term loan waived by the bank, theTribunal held in para 12 of its order that the term loan hadadmittedly been used by the assessee for acquiring capitalassets. Therefore, the Tribunal followed the decision of thisCourt in Iskraemeco Regent Limited and confirmed the order ofthe first Appellate Authority. Hence, this appeal by therevenue. 11. Before taking up the rival contentions forconsideration, it may be necessary to have a look at thedecision of this Court in Iskraemeco Regent Limited, since thefirst Appellate Authority as well as the Tribunal have merely https://hcservices.ecourts.gov.in/hcservices/ followed the said decision. 10. On the only remaining issue namely the deletion of theprincipal portion of the term loan waived by the bank, theTribunal held in para 12 of its order that the term loan hadadmittedly been used by the assessee for acquiring capitalassets. Therefore, the Tribunal followed the decision of thisCourt in Iskraemeco Regent Limited and confirmed the order ofthe first Appellate Authority. Hence, this appeal by therevenue. 11. Before taking up the rival contentions forconsideration, it may be necessary to have a look at thedecision of this Court in Iskraemeco Regent Limited, since thefirst Appellate Authority as well as the Tribunal have merely https://hcservices.ecourts.gov.in/hcservices/ followed the said decision. 12. In Iskraemeco Regent Limited, the assessee admittedlyavailed a loan from the bank for the purchase of capital assets.When the assessee became a sick industrial undertaking, theyapproached the BIFR. Under a Scheme of Rehabilitation sanctionedby the BIFR, a one time settlement was arrived at between theassessee and the Bank. The assessee credited the waiver ofprincipal amount to the capital reserve account in the balancesheet treating it as capital in nature. But, the AssessingOfficer treated the amount as income under Section 28(iv) readwith Section 2(24). The assessee's appeal was dismissed by theCommissioner, following the judgment of the Supreme Court in CITv. T.V.Sundaram Iyengar & Sons Ltd. [222 ITR 344]. But, the saiddecision was reversed by a Bench of this Court in a Tax CaseAppeal filed by the assessee in Iskraemeco Regent Limited. ThisCourt held that a loan transaction has no application withrespect to Section 28(iv) of the Income Tax Act and that thesame cannot be termed as an income within the purview of Section2(24). In paragraph 29 of the judgment, this Court held thatSection 28(iv) has no application to loan transactions and thattherefore, it cannot be termed as income taxable as a receipt. 13. However, drawing our attention to the definition of theexpressions "income" and "total income" under Sub-sections (24)and (45) of Section 2 and the provisions of the charging Section4 as well as the relevant provisions of Sections 28(iv), 41(1)and 59, it is contended by Mr.T.Ravikumar, learned StandingCounsel for the Department that the principal amount of loanwaived by the Bank under the one time settlement was a taxablereceipt coming within the definition of the expression "income". 14. In support of his above contention, the learned StandingCounsel for the Department also relied upon the followingdecisions: (i) CIT v. T.V.Sundaram Iyengar & Sons Ltd. [222 ITR 344],(ii) Solid Containers Ltd. v. Deputy Commissioner of IncomeTax [308 ITR 417 (Bom.)],(iii) Logitronics P Ltd. v. CIT [333 ITR 386] and(iv) Rollatainers Ltd. v. CIT [339 ITR 54]. 15. In so far as the decision of this Court in IskraemecoRegent Limited, on the basis of which the Commissioner (Appeals)as well as the Tribunal decided the dispute in favour of theassessee is concerned, it is submitted by Mr.T.Ravikumar,learned Standing Counsel for the Department that the SupremeCourt has already granted leave to the Department and thedecision of this Court is the subject matter of Civil AppealNo.5751 of 2011 on the file of the Supreme Court. Therefore, thelearned Standing Counsel submitted that this Court is entitled https://hcservices.ecourts.gov.in/hcservices/ to consider the issue independently. 16. We have carefully considered the above submissions. 17. For the purpose of convenience, we shall divide thediscussion into two parts, the first dealing with the statutoryprovisions and the second dealing with the decisions of variousHigh Courts and the Supreme Court. STATUTORY PROVISIONS 18. The expression "income" is defined in Section 2(24) ofthe Act to include several things, some of which that may be ofrelevance for the case on hand, are as follows: https://hcservices.ecourts.gov.in/hcservices/ to consider the issue independently. 16. We have carefully considered the above submissions. 17. For the purpose of convenience, we shall divide thediscussion into two parts, the first dealing with the statutoryprovisions and the second dealing with the decisions of variousHigh Courts and the Supreme Court. STATUTORY PROVISIONS 18. The expression "income" is defined in Section 2(24) ofthe Act to include several things, some of which that may be ofrelevance for the case on hand, are as follows: (a) any sum chargeable to income tax under Clauses (ii) and(iii) of Section 28 or Section 41 or Section 59; (b) any sum chargeable to income tax under Clause (iiia) ofSection 28;(c) any sum chargeable to income tax under Clause (iiib) ofSection 28;(d) any sum chargeable to income tax under Clause (iiic) ofSection 28; and(e) any sum chargeable to income tax under Clause (iv) ofSection 28.19. The expression "total income" is defined in Section 2(45) to mean the total amount of income referred to in Section5, computed in the manner laid down in the Act. Under Section 5(1), the total income of any previous year, of a person who is aresident, includes all income from whatever source derived,which (i) is received or deemed to be received in India in suchyear by or on behalf of such person, or (ii) accrues or arisesor deemed to accrue or arise in India during such year, or (iii)accrues or arises outside India during such year. 20. Under Section 4(1), income tax shall be charged inrespect of the total income of the previous year of everyperson. It must be noted at this stage that while the expression"total income" is defined in Section 2(45) to mean what isreferred to in Section 5, the expression "income" is defined inSection 2(24) to include the list of things provided in variousclauses. In other words, the definition of the expression"income" is inclusive. 21. Keeping the above in mind, if we go to Section 28,Clause (iv) of Section 28 makes "the value of any benefit orperquisite, whether convertible into money or not, arising frombusiness or the exercise of a profession" as income chargeableto income tax under the head "profits and gains of business orprofession". 22. Section 41 which deals with profits chargeable to tax,speaks about the receipt of a benefit in respect of a tradingliability, by way of remission or cessation of the liability. https://hcservices.ecourts.gov.in/hcservices/ Section 41(1) requires to be extracted and hence, it isextracted as follows:"Section 41: (1) Where an allowance or deduction has beenmade in the assessment for any year in respect ofloss, expenditure or trading liability incurredby the assessee (hereinafter referred to as thefirst-mentioned person) and subsequently duringany previous year – (a) the first-mentioned person has obtained,whether in cash or in any other mannerwhatsoever, any amount in respect of such loss orexpenditure or some benefit in respect of suchtrading liability by way of remission orcessation thereof, the amount obtained by suchperson or the value of benefit accruing to himshall be deemed to be profits and gains ofbusiness or profession and accordingly chargeableto income-tax as the income of that previousyear, whether the business or profession inrespect of which the allowance or deduction hasbeen made is in existence in that year or not; or (a) the first-mentioned person has obtained,whether in cash or in any other mannerwhatsoever, any amount in respect of such loss orexpenditure or some benefit in respect of suchtrading liability by way of remission orcessation thereof, the amount obtained by suchperson or the value of benefit accruing to himshall be deemed to be profits and gains ofbusiness or profession and accordingly chargeableto income-tax as the income of that previousyear, whether the business or profession inrespect of which the allowance or deduction hasbeen made is in existence in that year or not; or (b) the successor in business has obtained,whether in cash or in any other mannerwhatsoever, any amount in respect of which lossor expenditure was incurred by the first-mentioned person or some benefit in respect ofthe trading liability referred to in clause (a)by way of remission or cessation thereof, theamount obtained by the successor in business orthe value of benefit accruing to the successor inbusiness shall be deemed to be profits and gainsof the business or profession, and accordinglychargeable to income-tax as the income of thatprevious year. Explanation 1. - For the purposes of this sub-section, the expression "loss or expenditure orsome benefit in respect of any such tradingliability by way of remission or cessationthereof" shall include the remission or cessationof any liability by a unilateral act by the firstmentioned person under clause (a) or thesuccessor in business under clause (b) of thatsub-section by way of writing off such liabilityin his accounts. Explanation 2. - For the purposes of this sub-section, "successor in business" means – (i) where there has been an amalgamation of acompany with another company, the amalgamatedcompany; (ii) where the first-mentioned person issucceeded by any other person in that business orprofession, the other person;(iii) where a firm carrying on a business orprofession is succeeded by another firm, theother firm; (iv) where there has been a demerger, theresulting company." 23. Keeping in mind the statutory provisions, we shall nowturn to the decisions made upon by the learned Standing Counselfor the Department. 24. In T.V.Sundaram Iyengar & Sons, the assessee transferredcertain amounts to the profit and loss account for twoassessment years, claiming that those accounts were creditbalances standing in favour of the customers of the assessee andthat since the customers did not claim these amounts, they weretransferred to the profit and loss account. The Income TaxOfficer took the view that these amounts represented surplusthat had arisen as a result of trade transactions and thattherefore, the amounts had the character of income. Therefore,the Assessing Officer added these amounts as the income of theassessee for the purpose of assessment. The Commissioner(Appeals) deleted these additions and the same was upheld by theTribunal. On an application under Section 256(2) to the HighCourt, the High Court held that the issue was already covered bythe decision of the High Court in C.I.T. Vs A.V.M.Limited [146ITR 355]. When the matter was taken to the Supreme Court, theSupreme Court found that there was a conflict of decisions amongvarious High Courts. Some High Courts had taken the view that ifdeposits taken by the company in the course of its tradingoperations were not refunded, partly or in full, the amountsretained by the assessee would constitute its income. Some otherHigh Courts had taken the view that if the deposits wereoriginally of a capital nature, their character will not changemerely by lapse of time and even when the amount was taken tothe profit and loss account of the assessee. The reasoningbehind the second view was that the origin of the amount may bethe business activity of the assessee, but every receipt neednot be an income. 25. The question that was actually taken up forconsideration by the Supreme Court in T.V.Sundaram Iyengar &Sons was as to whether the deposits, which were of capitalnature, at the point of receipt by the assessee, have theircharacter changed by efflux of time. Before answering the said https://hcservices.ecourts.gov.in/hcservices/ question, the Supreme Court took note of the test laid down byLord Greene in Morley [H.M.Inspector of Taxes] Vs. Tattersall[1939 (7) ITR 316 (CA)] to the effect that the taxability of areceipt was fixed with reference to its character at the momentit was received and that merely because the recipient treated itsubsequently in his income account as his own, it would notalter that character. The Supreme Court noted that this testlaid down by Lord Greene formed the basis of several judgmentsdelivered by our courts. 26. After taking note of the principle of law laid down byLord Greene, the Supreme Court considered a few decisions ofdifferent High Courts as well as the Supreme Court, where theCourts distinguished the decision in Morley. Thereafter, theSupreme Court pointed out that the amounts in question were notin the nature of security deposits held by the assessee for theperformance of contract by its constituents. The Supreme Courtalso held that the unclaimed surplus retained by the assesseewill be its trade receipt and the assessee itself treated thesame as trade receipt by bringing it to the profit and lossaccount. 27. Finally, in T.V.Sundaram Iyengar & Sons, the SupremeCourt took note of the opinion expressed by Atkinson,J in Jay's-The Jewellers Limited Vs. I.R.C. [1947 (29) TC 274 (KB)],wherein the Bench distinguished the decision in Morley. On thebasis of the said opinion, the Supreme Court held that theassessee became richer, by the amount, which it transferred toits profit and loss account and that those monies had arisen outof ordinary trading transactions. The Supreme Court observedthat although the amounts received originally were not of incomenature, the amounts remained with the assessee for a long periodunclaimed by the trade parties and that by lapse of time, theclaim became time barred and attained a different quality. Inthe third last paragraph of its judgment, the Supreme Courtsummarised the principle as follows : "In other words, the principle appearsto be that if an amount is received in thecourse of trading transaction, even thoughit is not taxable in the year of receipt asbeing of revenue character, the amountchanges its character when the amountbecomes the assessee's own money because oflimitation or by any other statutory orcontractual right. When such a thinghappens, commonsense demands that the amountshould be treated as income of the assessee."28. In Solid Containers Limited Vs. D.C.I.T. [308 ITR 417],a Bench of the Bombay High Court was concerned with a case, inwhich, a loan obtained by the assessee during the previous year https://hcservices.ecourts.gov.in/hcservices/ for business purposes was written back as a result of theconsent terms between the parties. The assessee claimed that theloan was the capital receipt and was not claimed as deductionfrom the taxable income as expenses and hence, it did not comeunder Section 41(1). The Assessing Officer held that the creditbalances written back was the income of the assessee that aroseout of the business activity and hence, liable to tax underSection 28. The Tribunal relied upon the decision inT.V.Sundaram Iyengar & Sons and upheld the contention of theRevenue. Before the High Court, the assessee relied upon ajudgment of the Bombay High Court in Mahindra & Mahindra LimitedVs. C.I.T. [261 I.T.R. 501] to the effect that in relation tosuch transactions, Section 28(iv) was not attracted. But, theBombay High Court followed the decision in T.V.Sundaram Iyengar& Sons and rejected the claim of the assessee. 29. In Logitronics, the Delhi High Court was concerned withthe very same questions that we are called upon to deal with inthis case. In the case before the Delhi High Court, the assesseeavailed a loan from the State Bank of India, but failed todischarge its liability. The loan was categorized as a nonperforming asset and proceedings for recovery have beeninitiated. During the pendency of those proceedings, a One TimeSettlement was arrived at and a portion of the loan as well asinterest were waived. In the return filed by the assessee, theyshowed the interest waived as income, but not the amount of loanwaived. The principal amount written off was directly taken tothe balance sheet under the head 'capital reserve' and it wasnot offered for taxation. The Assessing Officer looked at theexpanded meaning of the expression 'income' under Section 2(24)and held that the principal amount of loan written off wasnothing but gain/income in the hands of the assessee by relyingupon Section 28(iv) and 41(1). The assessee's first appeal wasallowed by the Commissioner, but his order was reversed by theIncome Tax Appellate Tribunal, forcing the assessee to file atax case appeal before the High Court of Delhi. 30. In Logitronics, two substantial questions of law weretaken up for consideration by the Delhi High Court and they areas follows : "(1) Whether the Tribunal was right inlaw in holding that taxability of waiver ofloan would be governed by the purpose forwhich the loan was taken, in as much as,though waiver of loan taken/ utilized foracquiring capital asset does not constituteincome, however, waiver of loan taken forthe purpose of business/trading activitygives rise to income taxable under the Act ?and (2) Whether waiver of loan, asubsequent event has the effect of changingthe nature and character of loan, a capitalreceipt into a trading receipt andtherefore, the ratio of the judgment of theHonourable Supreme Court in CIT Vs. T.V.Sundaram Iyengar & Sons Limited [(1996) 222ITR 344], wherein unclaimed depositsreceived in the course of tradingtransaction were held to be taxable isapplicable to waiver of loan?" 31. Before proceeding with the discussion on thesubstantial questions of law, the Delhi High Court took note ofthe broad scheme of the Act and posed a question to itself as towhat would be the character of waiver of part of the loan at thehands of the assessee, though such waiver definitely brings somebenefit to the assessee. If the waiver of the part of the loanbrings a capital receipt, then only the capital gains tax wouldbe chargeable under Section 45 and if not, the question waswhether remission of loan was no income at all. 32. The Delhi High Court started with the decision of theSupreme Court in T.V.Sundaram Iyengar & Sons and after analysingthe same in great detail, the Delhi High Court took note of thedecision of this Court in Iskraemeco Regent Limited, on which,heavy reliance is placed in this case by the assessee. 33. On the basis its analysis of the decision of this Courtin Iskraemeco Regent Limited, the Delhi High Court came to theconclusion in paragraph 23 of the report that 'in the context ofwaiver of loan amount, what follows from the reading of theaforesaid judgment would be that the answer would depend uponthe purpose for which the loan was taken.' If the loan had beentaken for acquiring the capital asset, waiver thereof would notamount to any income exigible to tax. But, if the loan was fortrading purpose and was treated as such from the beginning inthe books of account, the waiver thereof may result in theincome more so when it was transferred to the profit and lossaccount. 33. On the basis its analysis of the decision of this Courtin Iskraemeco Regent Limited, the Delhi High Court came to theconclusion in paragraph 23 of the report that 'in the context ofwaiver of loan amount, what follows from the reading of theaforesaid judgment would be that the answer would depend uponthe purpose for which the loan was taken.' If the loan had beentaken for acquiring the capital asset, waiver thereof would notamount to any income exigible to tax. But, if the loan was fortrading purpose and was treated as such from the beginning inthe books of account, the waiver thereof may result in theincome more so when it was transferred to the profit and lossaccount. 34. In Rollatainers, the Delhi High Court was againconcerned with a case where in terms of a corporate debtrestructuring package worked out between the assessee and thebank, a portion of the principal and interest were waived. TheIncome Tax Appellate Tribunal held that the waiver of theworking capital loan utilised towards the day-to-day businessoperations resulted in manifest in the revenue field and hence,was taxable in the year of waiver. 35. Finding on facts that the term loans in question weretaken for the purchase of capital assets from time to time andthese amounts did not come into the possession of the assesseeon account of any trading transactions, the Delhi High Courtreiterated the opinion rendered in Logitronics. 36. Therefore, the law as expounded by the Delhi High Courtappears to be that if a loan had been taken for acquiring acapital asset, waiver thereof would not amount to any incomeexigible to tax. If the loan is taken for trading purposes andwas also treated as such from the beginning in the books ofaccount, the waiver thereof may result in the income, more sowhen it is transferred to the profit and loss account. 37. But, the Delhi High Court, both in Logitronics as wellas in Rollatainers, did not take note of one fallacy in thereasoning given in paragraph 27.1 of the decision of this Courtin Iskraemeco Regent Limited. In paragraph 27.1 of the decisionin Iskraemeco Regent Limited, this Court held that Section 28(iv) speaks only about a benefit or perquisite received in kindand that therefore, it would have no application to anytransaction involving money. This observation was actually basedupon the decision of the Bombay High Court in Mahindra &Mahindra, which, in turn, had relied upon the decision of theDelhi High Court in Ravinder Singh Vs. C.I.T.[205 I.T.R. 353]. 38. With great respect, the above reasoning does not appearto be correct in the light of the express language of Section 28(iv). What is treated as income chargeable to income tax underthe head 'profits and gains of business or profession' underSection 28(iv), is "the value of any benefit or perquisite,whether convertible into money or not, arising from business orthe exercise of a profession." 38. With great respect, the above reasoning does not appearto be correct in the light of the express language of Section 28(iv). What is treated as income chargeable to income tax underthe head 'profits and gains of business or profession' underSection 28(iv), is "the value of any benefit or perquisite,whether convertible into money or not, arising from business orthe exercise of a profession." 39. Therefore, it is not the actual receipt of money, butthe receipt of a benefit or perquisite, which has a monetaryvalue, whether such benefit or perquisite is convertible intomoney or not, which is what is covered by Section 28(iv). Sayfor instance, a gift voucher is issued, enabling the holder ofthe voucher to have dinner in a restaurant, it is a benefit ofperquisite, which has a monetary value. If the holder of thevoucher is entitled to transfer it to someone else for amonetary consideration, it becomes a perquisite convertible intomoney. But, irrespective of whether it is convertible into moneyor not, it should have a monetary value so as to attract Section28(iv). A monetary transaction, in the true sense of the term,can also have a value. Any number of instances where a monetarytransaction confers a benefit or perquisite that would have avalue, can be conceived of. There may be cases where anincentive is granted by the supplier, waiving a portion of thesale price or granting a rebate or discount of a portion of theprice to be paid, when the payments scheduled over a period of https://hcservices.ecourts.gov.in/hcservices/ time, are made promptly. It is needless to point out that insuch cases, the prompt payment of money itself brings forth abenefit in the form of an incentive or a rebate or a discount inthe price of the product. We do not know why it should nothappen in the case of waiver of a part of the loan. Therefore,the finding recorded in paragraph 27.1 of the decision inIskraemeco Regent Limited that Section 28(iv) has no applicationto any transaction, which involves money, is a sweepingstatement and may not stand in the light of the express languageof Section 28(iv). In our considered view, the waiver of aportion of the loan would certainly tantamount to the value of abenefit. This benefit may not arise from "the business" of theassessee. But, it certainly arises from "business". The absenceof the prefix "the" to the word "business"makes a world ofdifference. 40. We shall now turn our attention to the distinctionsought to be made between the waiver of a portion of the loantaken for the purpose of acquiring capital assets on the onehand and the the waiver of a portion of the loan taken for thepurpose of trading activities on the other hand. 41. It appears that in so far as accounting practices areconcerned, no such distinction exists. Irrespective of thepurpose for which, a loan is availed by an assessee, the amountof loan is always treated as a liability and it gets reflectedin the balance sheet as such. When a repayment is made inmonthly, quarterly, half yearly or yearly instalments, theinstalment is divided into two components, one relating tointerest and another relating to a portion of the principal. Tothe extent of the principal repaid, the liability as reflectedin the balance sheet gets reduced. The interest paid on theprincipal amount of loan, will be allowed as deduction, incomputing the income under the head "profits and gains ofbusiness or profession", as per the provisions of the Act. 42. But, Section 36(1)(iii) makes a distinction. The amountof interest paid in respect of capital borrowed for the purposeof business or profession is allowed as deduction under Section36(1)(iii), in computing the income referred to in Section 28.But, the proviso thereunder states that any amount of interestpaid in respect of capital borrowed for acquisition of an assetfor extension of existing business or profession, whethercapitalised in the books of account or not for any periodbeginning from the date on which the capital was borrowed forthe acquisition of the asset, till the date on which such assetwas put to use, shall not be allowed as deduction. 43. Therefore, it is clear that the moment the asset is putto use, then the interest paid in respect of the capitalborrowed for acquiring the asset, could be allowed as deduction. https://hcservices.ecourts.gov.in/hcservices/ When the loan amount borrowed for acquiring an asset gets wipedoff by repayment, two entries are made in the books of account,one in the profit and loss account where payments are enteredand another in the balance sheet where the amount of unrepaidloan is reflected on the side of the liability. But, when aportion of the loan is reduced, not by repayment, but by thelender writing it off (either under a one time settlement schemeor otherwise), only one entry gets into the books, as a naturalentry. A double entry system of accounting will not permit ofone entry. Therefore, when a portion of the loan is waived, thetotal amount of loan shown on the liabilities side of thebalance sheet is reduced and the amount shown as CapitalReserves, is increased to the extent of waiver. Alternatively,the amount representing the waived portion of the loan is shownas a capital receipt in the profit and loss account itself.These aspects have not been taken note of in Iskraemeco RegentLtd. 44. In view of the above, the questions of law are liable tobe answered in favour of the Revenue/appellant. Accordingly,they are answered in favour of the appellant/Revenue and theappeal filed by the Revenue is allowed. No costs. -s/d-Assistant RegistrarTrue CopySub-Assistant RegistrarTo 1.The Commissioner of Income tax(Appeals)-V121, Mahatma gandhi road chennai-34 2.The Assistant Commissioner of Income Tax,Company Cirlce-VChennai +1 cc to Mr.T.Ravikumar Advocate sr.24877+1 cc to M/s.Dr.Anitha Sumanth Advocate sr.24857 TCA No.278 of 2014. aa22/04/2016