Modern Syntex (India) Ltd., A v. Assistant Commissioner Of Income Tax, Circle 6, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 147 / 2010 Modern Syntex (india) Ltd., A-4, Vijay Path, Tilak Nagar, Jaipur(Raj) Through Its Senior Vice President Sh R.D. Agarwal S/o ShriDevi Das Agarwal Aged 70 Years. ----Appellant Versus Assistant Commissioner of Income Tax, Circle 6, Jaipur. ----Respondent Connected With D.B. Income Tax Appeal No. 123 / 2016 Pr Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus M/s Modern Threads (I) Ltd., A-4, Vijay Path, Tilak Nagar, Jaipur PAN: AABCM 1850 A ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sanjay Jhanwar with Ms. Archana For Respondent(s) : Mr. R.B. Mathur with Mr. Prateek Kedawat _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 08/08/2017 1.By way of these appeals, the appellants, in one appealassessee and in anothr appeal the department, have challengedthe judgment and order of the tribunal whereby the tribunal haspartly allowed the appeal filed by the assessee and allowed theappeal of the department. 2.This Court while admitting the Appeal No.147/2010 on 12.04.2010 has framed following substantial question of law:- “Whether the remission of principal amount ofloan obtained from financial institutions andbanks, constitutes a benefit or perquisite arisingfrom business and would fall within the ambit ofSection 28(iv) of the Act?” 2.1 While admitting Appeal No.123/2016 on 04.04.2017 hasframed following substantial question of law:- “Whether in the facts and circumstances of thecae and inlaw, the ITAT was justified in deletingthe additions of Rs.29,40,94,000/- made by theAssessing Officer on account of remission ofprincipal amount of loan.” 3.Learned counsel for the appellant submits tht the controversy involved in present appeals stands concluded by thedecision of this Court in the case of Modern Denim Limited Vs.Asstt. Commissioner of IT Jaipur in Tax Appeal No.145/2010decided on 26.04.2017 alongwith other connected appeals. Thiscourt while deciding the appeal in favour of the assessee has heldas under:- 4.Counsel for the appellant contended thatissue is now squarely covered by the decision ofDelhi High Court in Commissioner of Income Taxvs. Jindal Equipments Leasing and ConsultancyServices Ltd. reported in (2010) 325 ITR 87(Delhi) wherein it has been observed as under:- "7. We do not find any merit in thispreliminary submission of the learnedCounsel for the assessee. Theassessing officer had made theaddition in terms of Section 41(1) ofthe Act read with Section 28(i) of theAct, which was upheld by theCommissioner (Appeals). No doubt, the 4.Counsel for the appellant contended thatissue is now squarely covered by the decision ofDelhi High Court in Commissioner of Income Taxvs. Jindal Equipments Leasing and ConsultancyServices Ltd. reported in (2010) 325 ITR 87(Delhi) wherein it has been observed as under:- "7. We do not find any merit in thispreliminary submission of the learnedCounsel for the assessee. Theassessing officer had made theaddition in terms of Section 41(1) ofthe Act read with Section 28(i) of theAct, which was upheld by theCommissioner (Appeals). No doubt, the Tribunal has held that Section 41(1)does not apply to which legal positionis constituted (sic-conceded) by thelearned Counsel for the revenue beforeus, the revenue still wants that theaddition be sustained under provisionsof Clause (iv) of Section 28 of the Act.The revenue is not disputing the factson the basis of which decision of theTribunal is based. Submission is thaton these very facts, provisions ofSection 28(iv) of the Act shall beattracted. It is a pure question of lawand therefore, the amended ground asraised by the revenue can be allowed.The position in MCorp Global (P) Ltd.(supra) was entirely different. In thatcase, the transaction in question wastreated as lease transaction in theearlierassessmentyearsanddepreciation was granted on that basis.However, in the assessment year inquestion, the same very transactionwas treated as financial transactionand depreciation was disallowed. Itwas in this backdrop, the SupremeCourt opined that the depreciationgiven to the assessee could not bewithdrawn, (sic) when the finding offact that the transaction in questionwas leased and not financialtransaction had become final and hadnot been challenged. 8. With this, we proceed to examine this aspecton its own merit, viz., whether provisions ofSection 28(iv) of the Act are attracted in thegiven case. Thus, what is to be seen is that as towhether the written off amount of Rs.1,46,53,065 in its books of accounts by JSPLamounts to the value of any benefit or perquisitewhether convertible into money or not can betreated as "profits and gains from business". Theprerequisites for attracting the said provisionsare: (i) Benefit or perquisite arising in the course ofbusiness is of the nature, other than cash ormoney. It is for this reason expression "whetherconvertible into money or not" is mentioned inClause (iv). Bombay High Court has interpretedthis very Clause in the case of Mahindra &Mahindra Ltd. v. CIT MANU/MH/0199/2003: (2003) 261 ITR 501 (Bom) in the followingmanner: The-income which can be taxed under Section28(iv) must not only be referable to a benefit orperquisite, but it must be arising from business. Secondly, Section 28(iv) does not apply tobenefits in cash or money see CIT v. Alchemic (P)Ltd.MANU/GJ/0053/1980: (1981) 130 ITR 168(Guj).” 4.1 The same view taken by the Madras HighCourt in The Commissioner of Income Tax vs.M/s Innvol Medical India Ltd. (2013) 219Taxman 123 (Mad); Iskraemeco Regent Limited(Originally Seahorse Industries Ltd. andsubsequently in Iskraemeco Seahorse Ltd.) vs.The Commissioner of Income Tax (2011) 331ITR 317 (Mad); Mahindra and Mahindra Ltd. vs.Commissioner of Income Tax and Commissionerof Income Tax vs. Mahindra and Mahindra Ltd.(2003) 261 ITR 501 (Bom) and other judgmentof Bombay High Court in CIT vs. Xylon Holdings(P) Ltd. in ITA No.3704/2010 decided on13.9.2012 and decision of Gujarat High Court inCommissioner of Income Tax-I vs. Gujarat StateFertilizers and Chemicals Ltd. (2013) 217Taxman 343 (Guj.). 5.Counsel for the department Mr. Mathur hassupported the judgment of the Tribunal andcontended that in view of the observations madeby the Supreme Court in Polyflex (India) Pvt. Ltd.vs. Commissioner of Income Tax (2001) 251 ITR527 wherein it has observed as under:- 5.Counsel for the department Mr. Mathur hassupported the judgment of the Tribunal andcontended that in view of the observations madeby the Supreme Court in Polyflex (India) Pvt. Ltd.vs. Commissioner of Income Tax (2001) 251 ITR527 wherein it has observed as under:- “We are inclined to think that in a casewhere a statutory levy in respect of goodsdealt in by the assessee is discharged andsubsequently the amount paid is refunded,it is the first clause that more appropriatelyapplies. U will not be a case of benefitaccruing to him on account of cessation orremission of trading liability. U will be acase which squarely falls under the earlierclause, namely, "obtained any amount inrespect of such expenditure". In otherwords, where expenditure is actuallyincurred by reason of payment of duty ongoods and the deduction or allowance hadbeen given in the assessment for earlierperiod, the assessee is liable to disgorgethat benefit as and when he obtains refund of the amount so paid. The considerationwhether there is a possibility of the refundbeing set at naught on a future date will notbe a relevant consideration. Once theassessee gets back the amount which wasclaimed and allowed as businessexpenditure during the earlier year, thedeeming provision in Section 41(1) of theAct comes into play and it is not necessarythat the Revenue should await the verdictof higher Court or Tribunal. If the Court orTribunal upholds the levy at a later date,the assessee will not be without remedy toget back the relief.” 5.1 He also relied upon the decision ofSupreme Court in CIT vs. T.V. SundaramIyengar and Sons Ltd. (1996) 222 ITR 344wherein it has been held as under:- “The principle appears to be that if anamount is received in course of tradingtransaction, even though it is not taxablein the year of receipt as being of revenuecharacter, the amount changes itscharacter when the amount becomes theassessee's own money because oflimitation or by any other statutory orcontractual right. When such a thinghappens, commonsense demands thatthe amount should be treated as incomeof the assessee. The assessee hadreceived deposits in course of its businesswhich were originally treated as capitalreceipts. Some of the deposits wereneither claimed by nor returned to thedepositors. There is no dispute that thedeposits were received in course of thecarrying on of the business of theassessee. Although it was treated asdeposit and was of capital nature at thepoint of time it was received, by influx oftime the money has become theassessee's own money. What remainsafter adjustment of the deposits has notbeen claimed by the customers. Theclaims of the customers have becomebarred by limitation. The assessee itselfhas treated the money as its own moneyand taken the amount to its profit andloss account. There is no explanationfrom the assessee why the surplus moneywas taken to its profit and loss account even if it was somebody else's money. Infact, as Atkinson, J. pointed out that whatthe assessee did was the commonsenseway of dealing with the amounts.Therefore, the amount was taxable astrade receipt in the hands of theassessee.” 6.We have heard counsel for the parties.7.In view of the above, even otherwise theloan which was taken was capital investmentand always treated in the capital account asliability and if it is so, it will naturally go aswiping out the capital liability. 8.In that view of the matter, the contentiontaken by the appellant is required to beaccepted. The view taken by the CIT(A) isrequired to be restored and that of the tribunalis required to be reversed. 9.In view of the above, the issue is answeredin favour of the assessee and against thedepartment. 4.In that view of the matter, issues in both the appeals areanswered in favour of the assessee and against the department. 6.We have heard counsel for the parties.7.In view of the above, even otherwise theloan which was taken was capital investmentand always treated in the capital account asliability and if it is so, it will naturally go aswiping out the capital liability. 8.In that view of the matter, the contentiontaken by the appellant is required to beaccepted. The view taken by the CIT(A) isrequired to be restored and that of the tribunalis required to be reversed. 9.In view of the above, the issue is answeredin favour of the assessee and against thedepartment. 4.In that view of the matter, issues in both the appeals areanswered in favour of the assessee and against the department. 5.The appeal of the assessee is allowed and that of thedepartment is dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. JyotiItem No.97-98