M/S.india Cements Capital And Finance Limited, Chennai-2 v. The Assistant Commissioner Of Income Tax, Company Circle-Ii(3), Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED:07.12.2017Coram : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Mr.Justice K.RAVICHANDRABAABU Tax Case Appeal No.588 of 2017 M/s.India Cements Capital andFinance Limited, Chennai-2. ...Appellant/RespondentVs The Assistant Commissioner ofIncome Tax, Company Circle-II(3),Chennai. ...Respondent/Appellant APPEAL under Section 260A of the Income Tax Act, 1961against the order dated 11.8.2016 made in ITA.No.1626/Mds/2012on the file of the Income Tax Appellate Tribunal, Madras 'C'Bench for the assessment year 2006-07. For Appellant: Mr.R.Venkatanarayanan forM/s.Subbaraya Aiyar PadmanabhanFor Respondent:Mr.Karthik Ranganathan, SSC Judgment was delivered by T.S.SIVAGNANAM,JHeard both. By consent, the above tax case appeal itself istaken up for final disposal. 2. This appeal is directed against the order passed by theIncome Tax Appellate Tribunal, 'C' Bench, Chennai made inITA.No.1626/Mds/2012 dated 11.8.2016, raising the followingsubstantial questions of law : "i. Whether on the facts andcircumstances of the case, the Tribunal wasright in law in holding that there is aremission of liability to the extent ofRs.43 Crores in favour of assessee companyand has to be taxed under Section 41(1) ofthe Act while the entire assets andliabilities at book value was transferred toa special purpose vehicle M/s.UniqueReceivable Management P. Ltd. and therebeing no waiver or benefit accruing toassessee on account of transfer ? ii. Whether on the facts andcircumstances of the case, the Tribunal wasright in law in holding that there was acategorical finding of cessation/ remissionof liability under Section 41(1) of the Actby the Tribunal in its earlier order dated03.4.2012 in ITA.No.871/Mds/2011 withoutappreciating that the Commissioner of IncomeTax (Appeals) in his order under Section 263of the Act has not finally adjudicated theissues ?iii. Whether on the facts and in thecircumstances of the case, a passing remarkby the Tribunal in its earlier order dated03.4.2012 in ITA. No.871/Mds/2011 confirmingthe revision order under Section 263 can beconstrued as a categorical finding ofcessation/remission of liability underSection 41(1) of the Act ? and iv. Whether on the facts and in thecircumstances of the case, the provisions ofSection 41(1) of the Act are attracted inrespect of waiver of loans, which have notbeen allowed as a deduction earlier ?" 3. The present appeal arose out of an order passed by theIncome Tax Appellate Tribunal, by which, the Revenue's appealwas allowed and the deletion of addition made on account ofcessation of bank liability to the extent of Rs.46.05 Crores, asordered by the Commissioner of Income Tax (Appeals) vide orderdated 25.5.2012, was set aside and the order passed by theAssessing Officer dated 13.12.2011 was affirmed. 4. The short issue, which falls for consideration, is as towhether the Tribunal had independently considered thecorrectness of the order passed by the Commissioner of IncomeTax (Appeals) holding that there was a reduction on theliability in the hands of the assessee and the liability was onthe transferee - the Special Purpose Vehicle (SPV), which isevident from Clause 5 of the agreement entered into between theparties. Thus, on a consideration of the terms and conditionsstipulated in the tripartite agreement, the Commissioner ofIncome Tax (Appeals) held that there was no liability in thehands of the assessee, because the liability had beentransferred to the SPV. 4. The short issue, which falls for consideration, is as towhether the Tribunal had independently considered thecorrectness of the order passed by the Commissioner of IncomeTax (Appeals) holding that there was a reduction on theliability in the hands of the assessee and the liability was onthe transferee - the Special Purpose Vehicle (SPV), which isevident from Clause 5 of the agreement entered into between theparties. Thus, on a consideration of the terms and conditionsstipulated in the tripartite agreement, the Commissioner ofIncome Tax (Appeals) held that there was no liability in thehands of the assessee, because the liability had beentransferred to the SPV. 5. The reason for considering this issue arose on account ofan earlier order passed by the Income Tax Appellate Tribunal inITA.871/Mds/2011 dated 03.4.2012 in the assessee's own case. Thesaid appeal was filed by the assessee relevant to the sameassessment year namely 2006-07 challenging an order passed underSection 263 of the said Act dated 16.3.2011. In the said order,in paragraph 13, the Tribunal made the following observation, which is as hereunder : "Therefore, it is clear that primafacie, there is a remission of liability infavour of the assessee company. Thisparamount issue ought to have been examinedby the Assessing Authority in the assessmentorder." The above observation made by the Tribunal ultimately led to theimpugned order, which has been passed by the Tribunal. 6. The Commissioner of Income Tax (Appeals) was satisfiedwith the assessee's contention and had allowed the appeal. Thus,it is to be seen as to whether the finding rendered by theCommissioner of Income Tax (Appeals) was just and proper.Paragraph 7 of the impugned order has dealt with the said issuein the following lines : "In our opinion, since there is acategorical finding of the Tribunal thatthere was a cessation/ remission ofliability under Section 41(1) of the Act onearlier occasion confirming the order of thelearned Commissioner of Income Tax passedunder Section 263 of the Act, wherein thelearned Commissioner of Income Tax directedthe Assessing Officer to verify from theassessmentrecordswhetherinterest/depreciation/hire charges or anyother expenditure related to bank liabilityhas been claimed and allowed by theAssessing Officer in the earlier years andif 'yes', the taxability of the remission ofbank liability should be examined by theAssessing Officer under relevant provisionsof the Act. The learned Assessing Officer,consequent to this, examined the issue andobserved that there is remission of bankliability accrued to the assessee atRs.46.05 Crores. Contrary to this, learnedCommissioner of Income Tax (Appeals)observed that there was no cessation ofliability in the hands of the assessee andit was only in the hands of URMP (SPV) andif any cessation is to be considered in thehands of URMP, we are not in a position touphold the argument of the learnedauthorized representative as held by theTribunal on earlier occasion. There is aremission of liability in favour of assesseecompany and the liability payable to thebank has been reduced to Rs.43 Crores and ithas to be brought to tax in the hands of assessee only under Section 41(1) of theAct. Accordingly, the ground raised by the Revenue is allowed." assessee only under Section 41(1) of theAct. Accordingly, the ground raised by the Revenue is allowed." 7. From the above extracted paragraph, it is evident thatthe Tribunal, after noting the finding rendered by the AssessingOfficer, observed that the Commissioner of Income Tax (Appeals)held that there was no cessation of liability in the hands ofthe assessee and it was only in the hands of the SPV and that ifany cessation is to be considered, it has to be in the hands ofthe SPV. However, the Tribunal, while holding that the saidfinding of the Commissioner of Income Tax (Appeals) is notproper, did not render an independent finding, but was ratherguided by the finding rendered by it in its earlier order dated03.4.2012 referred above. 8. On a reading of paragraph 13 of the earlier order, whichwe have extracted above, we find that the Tribunal did notrender a final finding, but it was of the prima facie view thatthere is a remission of liability in favour of the assesseecompany and that this is the paramount issue, which theAssessing Officer has to examine. Thus, the Assessing Officer,having examined and held against the assessee, which decisionwas reversed by the Commissioner of Income Tax (Appeals), theTribunal should consider as to whether the Commissioner ofIncome Tax (Appeals) was justified in rendering a finding to theeffect that there was reduction on the liability in the hands ofthe assessee. However, the Tribunal did not do so, but wassolely guided by the observations made by it in the earlierorder. We are of the considered view that as the earlier orderwas of the prima facie view, the Tribunal is required toconsider independently as to whether the finding rendered by theCommissioner of Income Tax (Appeals) is proper or not and thatthe matter should be remanded to the Tribunal for a freshconsideration. 9. Accordingly, the above tax case appeal is allowed, theimpugned order is set aside and the matter is remanded to theTribunal for a fresh consideration uninfluenced by theobservations made in paragraph 13 of the earlier order passed bythe Tribunal dated 03.4.2012. Since we have remanded the matterfor a fresh consideration, it is open to both parties to raiseall factual and legal contentions before the Tribunal. No costs.Sd/- Assistant Registrar(CS IV) //True Copy// Sub Assistant Registrar To 1 The Income Tax Appellate Tribunal, Madras 'C' Bench. 2 The Commissioner Income Tax Appeals III, 121, Mahatma Gandhi Road, Chennai-34. Income Tax Appeals III, 121, Mahatma Gandhi Road, Chennai-34. 3 The Assistant Commissioner of Income Tax, Company Circle-II(3), Chennai. Income Tax, Company Circle-II(3), Chennai. +2cc to Mr.Karthik Ranganathan, Advocate SR.No.87811 & 87465 +1cc to Mr.Subbaraya Aiyar, Advocate SR.No.87050 TCA.No.588 of 2017NMI(CO)sm:27.12.2017