M/S.iskraemeco Regent Limited(Originally Seahorse Industries Ltd Andsubsequently Iskraemeco Seahorse Ltd) v. The Commissioner Of Income Tax-I4, Williams Roadcantonmenttrichy � 620 001.Tamil Nadu

?IN THE HIGH COURT OF JUDICATURE AT MADRAS%DATED: 23/11/2010*CORAMHON'BLE MR.JUSTICE F.M.IBRAHIM KALIFULLAANDHON'BLE MR.JUSTICE M.M.SUNDRESH+TC.A.812 OF 2010#Iskraemeco Regent Limited$Commissioner of Income Tax!FOR PETITIONER : N.K.Poddar^FOR RESPONDENT : K.Subramaniam:ORDER IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED 23.11.2010 CORAM THE HONOURABLE MR. JUSTICE F.M.IBRAHIM KALIFULLAANDTHE HONOURABLE MR. JUSTICE M.M.SUNDRESH TAX CASE (APPEAL) NO.812 OF 2010 M/s.Iskraemeco Regent Limited(Originally Seahorse Industries Ltd andSubsequently Iskraemeco Seahorse Ltd)126, K.Sathanoor RoadTrichirapalli � 620 021.Tamil Nadu .. Appellant Versus The Commissioner of Income Tax-I4, Williams RoadCantonmentTrichy � 620 001.Tamil Nadu .. Respondent PRAYER: Tax Case Appeal filed Under Section 260-A of the Income-Tax Act, 1961, against the orderof the Income Tax Appellate Tribunal "B" Bench, Chennai, passed in I.T.A.No.1901/Mds/2009, dated26.03.2010 for the assessment year 2001-02. For Appellant : Shri.N.K.PoddarSenior Counselfor Shri.P.Rajkumar * * * * * J U D G M E N T M.M.SUNDRESH, J This appeal has been preferred by the assessee, challenging the order of the Income Tax AppellateTribunal, "B" Bench, Chennai, dated 26.03.2010, in ITA No.1901/Mds/2009 for the assessment year2001-02, confirming the order passed by the Commissioner of Income Tax (Appeals) which in turnhas confirmed the order of the Assessing Officer by raising the following substantial questions oflaw: "(i)Whether the learned Tribunal misdirected itself in law, and it adopted a wholly erroneousapproach, in interpreting the provisions of Section 28(iv) of the Income Tax Act, 1961, to hold thatthe sum of Rs.5,07,78,410/- representing the principal loan amount, waived by the bank under theOne Time Settlement Scheme (OTS), and credited by the appellant assessee to its Capital ReserveAccount, in its Balance Sheet drawn as at 31st March, 2001, is assessable to tax as a revenue receiptin the assessment for the assessment year 2001-02; and whether the findings of the learned Tribunalto this effect were wholly unreasonable, based on irrelevant considerations, contrary to the facts andevidence on record and/or otherwise perverse? (ii)Whether the decision of the Hon'ble Supreme Court in CIT v. T.V.Sundaram Iyengar & Sons Ltd.[(1996) 222 ITR 344 (SC)], applied by the learned Tribunal in passing its said impugned order dated26th March, 2010, has any application whatsoever, in the facts and circumstances of the instantcase, and particularly in relation to Section 28(iv) of the said Act? (iii)Whether on a correct interpretation of Section 28(iv) of the Income Tax Act, 1961, the Tribunalought to have held that the principal amount of loan waived by the Bank under the OTS, not being atrading liability and also not being a "benefit or perquisite, whether convertible into money or not",the expression used in the said section, did not constitute revenue receipt and/or business income ofthe appellant assessee assessable to tax in its assessment for the assessment year 2001-02? (iv)Whether the disposal of the said appeal by the learned Tribunal, through its said impugned orderdated 26th March, 2010, without recording and dealing with the submissions made on behalf of theappellant assessee with reference to the undisputed facts on records, was wholly unreasonable,improper, irregular and unfair, amounted to denial of justice, and was not in accordance with law? (v)Whether the Tribunal misdirected itself in law in disposing of the said appeal without applying itsjudicial mind properly to the essential matters on record including the submissions made withreference to several case decisions cited on behalf of the appellant assessee, and without givingobjective reasons for its affirmation of the views of the lower tax authorities?" 2.Facts in brief:- (iv)Whether the disposal of the said appeal by the learned Tribunal, through its said impugned orderdated 26th March, 2010, without recording and dealing with the submissions made on behalf of theappellant assessee with reference to the undisputed facts on records, was wholly unreasonable,improper, irregular and unfair, amounted to denial of justice, and was not in accordance with law? (v)Whether the Tribunal misdirected itself in law in disposing of the said appeal without applying itsjudicial mind properly to the essential matters on record including the submissions made withreference to several case decisions cited on behalf of the appellant assessee, and without givingobjective reasons for its affirmation of the views of the lower tax authorities?" 2.Facts in brief:- 2.1.The asessee has been engaged in the business of development, manufacturing and marketing ofElectro-Mechanical and Static Energy Meters. For the purchase of capital assets both by way ofimport as well as in the local market, as also fund based and non-fund based credit facility, throughcash credit account, for import of capital assets as well as for meeting the working capitalrequirements, a term loan was provided by the State Bank of India, Commercial Branch, Trichy. 2.2.In view of the loss suffered, the assessee went before the Board for Industrial and FinancialReconstruction (BIFR). In case No.77 of 1992, the BIFR has held that the assessee was a sickIndustrial Company. The BIFR in pursuant to the said conclusion, sanctioned a scheme for revival /rehabilitation. The State Bank of India has waived the outstanding due of principle amount of Rs.5crores and the interest outstanding for another sum of Rs.2 crores. The assessee did not pay theinterest for the preceded three years to the assessment year and has paid a sum of Rs.5 crores fromthe date of receipt of the loan. 2.3.Therefore under the one time settlement scheme with the State Bank of India entered intobetween the assessee and the State Bank of India there was a full settlement between the parties byaccepting the adhoc payment of Rs.5 crores made by the assessee, with the waiver of another sum ofRs.5,07,78,410/- as the remaining principle amount and a sum of Rs.2,02,60,247/- as the outstandinginterest amount. The assessee credited the waiver of principle amount to the "Capital ReserveAccount" in the balance sheet treating it as capital in nature and the waiver of interest ofRs.2,02,60,247/- was credited in its "Profit and Loss Account" for the financial year ending31.03.2001 corresponding to the assessment year 2001-02. The assessee filed its return declaring itstotal income assessable at Rs.45,160/- after setting off the carried forward business losses andunabsorbed depreciation. 2.4.The return was processed under section 143(1) of the Income Tax Act and by subsequent orderunder section 154 of the said Act, total income was rectified. Again for the purpose of giving effectto the order of the Commissioner of Income Tax (Appeals) for the assessment year 1995-96, theassessment made for the assessment year 2001-02 was revised and the total income was quantifiedat Rs.82,23,530/-. 2.5.A notice under section 148 of the Income Tax Act was issued by the Assessing Officer on theground that the assessee has wrongly credited a sum of Rs.5,07,78,410/- in the Capital Reserveaccount in its balance sheet for the assessment year 2001-02. Therefore, the said account is soughtto be assessed in as much as it being a waiver of principle loan amount, the same is assessableunder Section 28(iv) of the Income Tax Act. Accordingly, after hearing the objections of theassessee, an order was passed under section 147 of the Income Tax Act holding that the said amountshould be construed as income assessable to tax. 2.5.A notice under section 148 of the Income Tax Act was issued by the Assessing Officer on theground that the assessee has wrongly credited a sum of Rs.5,07,78,410/- in the Capital Reserveaccount in its balance sheet for the assessment year 2001-02. Therefore, the said account is soughtto be assessed in as much as it being a waiver of principle loan amount, the same is assessableunder Section 28(iv) of the Income Tax Act. Accordingly, after hearing the objections of theassessee, an order was passed under section 147 of the Income Tax Act holding that the said amountshould be construed as income assessable to tax. 2.6.The appeals filed by the assessee before the Commissioner of Income Tax (Appeals) and theTribunal were dismissed by holding that the said issue is no longer res integra in as much as thesame has already been concluded by the judgment of the Honourable Supreme Court inCOMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. [[1996] 222ITR 344]. Assailing the said orders passed by the authorities, the assessee has preferred this appealby raising the above mentioned substantial questions of law. 3.Heard Shri.N.K.Poddar, learned Senior Counsel for Shri.P.Rajkumar appearing for the appellant /assesee and Shri.K.Subramaniam, learned Senior Standing Counsel appearing for the respondent /revenue. 4.Submissions of the Assessee:- 4.1.Shri.N.K.Poddar, learned senior counsel appearing for the assessee submitted that it is not indispute that the assessee had obtained loan from the State Bank of India for the purchase of fixedassets. The assets purchased by the assessee both within the country and outside the country areadmittedly capital assets. The term loan amount is completely utilised towards the purchase ofcapital assets. Therefore the transaction between the assessee and the Bank is a pure loantransaction and the same can never be termed as a trading transaction. 4.2.Further, in as much as the loan was obtained for the purchase of capital assets, the same would only amount to a capital receipt and not revenue receipt. The assessee has been doing the businessin manufacturing and marketing of Electro-Mechanical and Static Energy Meters and it is notinvolved in any business involving the transaction of money lending. A loan given to buy a capitalassets cannot be a trading transaction leading to a trading liability. 4.3.The learned senior counsel submitted that in as much as the Assessing Officer has not gonebehind the loan arrangement and the loan arrangement in its entirety was not obliterated by thewaiver, considering the fact that the assessee has paid a sum of Rs.5 crores and the waiver was onlyin respect of the remaining principle amount of term loan and also the outstanding interest, Section43(B) of the Income Tax Act has no application, since it would apply only to a business transaction. 4.4.The learned senior counsel strenuously contended that all the authorities have committed a grave error in mechanically applying the judgment rendered by the Honourable Apex Court inCOMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. [(1996) 222ITR 344] that without appreciating the factual scenario that the loan has been obtained towards thepurchase of capital assets and not for a business transaction. The learned senior counsel furthersubmitted that the loan has not been received in the course of trading transaction as in the case ofthe judgment referred supra and therefore, the same has got no application. It is his furthersubmission that admittedly the facts involved in the judgment referred above would disclose that thetransaction therein was a trading transaction as against the facts involved herein. grave error in mechanically applying the judgment rendered by the Honourable Apex Court inCOMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. [(1996) 222ITR 344] that without appreciating the factual scenario that the loan has been obtained towards thepurchase of capital assets and not for a business transaction. The learned senior counsel furthersubmitted that the loan has not been received in the course of trading transaction as in the case ofthe judgment referred supra and therefore, the same has got no application. It is his furthersubmission that admittedly the facts involved in the judgment referred above would disclose that thetransaction therein was a trading transaction as against the facts involved herein. 4.5.The learned senior counsel placed reliance upon the judgment of the Honourable Division Benchof the Bombay High Court in MAHINDRA AND MAHINDRA LTD. v. COMMISSIONER OF INCOMETAX [(2003) 261 ITR 501] wherein, the reliance has been made to the Honourable Division Bench ofthe Gujarat High Court in COMMISSIONER OF INCOME TAX v. ALCHEMIC PVT. LTD. [(1981) 130ITR 168]. It is also submitted that the judgment of the Division Bench of the Gujarat High Court hasalso been approved by the Honourable Apex Court in COMMISSIONER OF INCOME TAX v.MAFATLAL GANGABHAI AND CO. (P.) LTD. [(1996) 219 ITR 644]. 4.6.The learned senior counsel placed reliance upon the subsequent Division Bench of the BombayHigh Court in SOLID CONTAINERS LTD. v. DEPUTY COMMISSIONER OF INCOME TAX [(2009)308 ITR 417] and submitted that, in a case where a transaction involves a purchase related to capitalassets namely towards the plant and machinery, a waiver made for the said amount would notconstitute a business. Therefore, based upon the above said judgment, the learned senior counselsubmitted that in view of the admitted position that there is no dispute regarding the genuineness ofthe transaction between the assessee and the State Bank of India being a transaction of loan for thepurpose of capital assets, the waiver made for the part of the said sum cannot be made exigible totax. 4.7.The further submission of the learned senior counsel of the petitioner is to the effect that thereasoning of the authorities that, Section 28(iv) of the Income Tax Act would be applicable to amoney transaction is totally misconceived and contrary to the provision itself. The learned seniorcounsel submitted that Section 28(iv) provides for chargeablity of profits and gains of business orprofession with relation to the value of any benefit or perquisite arising out of business or theexercise of profession and therefore the same would not include the money transaction. It is thespecific case of the learned senior counsel that a reading of Section 28(iv) of the Income Tax Actwould make it clear that it would cover only transactions other than money transactions. Since in thepresent case on hand, the transaction involved being a loan transaction, and therefore being atransaction of money, Section 28(iv) of the Income Tax Act has no application. 4.8.The learned senior counsel also submitted that Section 41(1) of the Income Tax Act also does notapply in as much as it mandates that there has to be an actual allowance or deduction made for thepurpose of computing under the said section. In as much as there is no allowance or deductionalready in the present case on hand, the question of application of Section 41(1) also does not arise for consideration. The learned senior counsel further contended that, that is the reason why theAssessing Officer has rightly taken the view that Section 41(1) has got no application to the presentcase on hand. 4.9.In support of his contention, the learned senior counsel placed reliance upon the following 4.8.The learned senior counsel also submitted that Section 41(1) of the Income Tax Act also does notapply in as much as it mandates that there has to be an actual allowance or deduction made for thepurpose of computing under the said section. In as much as there is no allowance or deductionalready in the present case on hand, the question of application of Section 41(1) also does not arise for consideration. The learned senior counsel further contended that, that is the reason why theAssessing Officer has rightly taken the view that Section 41(1) has got no application to the presentcase on hand. 4.9.In support of his contention, the learned senior counsel placed reliance upon the following judgments, COMMISSIONER OF INCOME TAX v. GANESA CHETTIAR (P.) [(1982) 133 ITR 103],COMMISSIONER OF INCOME TAX v. A.V.M. LTD. [(1984) 146 ITR 355], COMMISSIONER OFINCOME TAX v. ALCHEMIC PVT. LTD. [(1981) 130 ITR 168], COMMISSIONER OF INCOME TAX v.MAFATLAL GANGABHAI AND CO. (P.) LTD. [(1996) 219 ITR 644], and DEPUTY COMMISSIONEROF INCOME TAX (ASSESSMENT) v. GARDEN SILK MILLS LTD. [(2010) 320 ITR 720] andsubmitted that Section 28(iv) has no application to a money transaction and therefore, the orderspassed by the authorities cannot be sustained. In so far as the scope of Section 41(1) of the IncomeTax Act is concerned, the learned senior counsel has made reliance upon the judgments inPOLYFLEX (INDIA) PVT. LTD. v. COMMISSIONER OF INCOME TAX [(2002) 257 ITR 343] andTIRUNELVELI MOTOR BUS SERVICE CO. P. LTD. v. COMMISSIONER OF INCOME TAX [(1970) 78ITR 55]. 4.10.The learned senior counsel submitted that a combined reading of Section 41(1) of the IncomeTax Act read with Section 28(iv) would show that the words "whether no cash or any other manneras mentioned in Section 41(1) has not been incorporated under section 28(iv) which is indicative ofthe fact that section 28(iv) does not cover a cash transaction. The learned senior counsel also madesubstantial reliance on the judgments rendered by the various Tribunals/High Courts on theidentical issues and submitted that, even though the orders passed by the Tribunals/High Courts arenot binding on this Court, the same may be taken as part of his arguments in support of hiscontentions. The learned senior counsel submitted that in as much as the Tribunals/High Courts inthe various parts of the country have taken the similar view, the same view will have to be adoptedin the present case on hand as well. 4.11.Finally, the learned senior counsel submitted that the authorities committed an error by holding against the assessee by making reliance upon the judgment of the Honourable Apex Court inCOMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. [(1996) 222ITR 344] without applying their mind to the facts of the case as well as the facts involved therein.The said orders passed by the authorities would amount to non-application of mind and therefore,they are arbitrary in nature. The learned senior counsel made reliance upon the judgment of theHonourable Apex Court rendered in COMMISSIONER OF CENTRAL EXCISE, BANGALORE v.SRIKUMAR AGENCIES AND OTHERS [(2009) 1 SCC 469] and submitted that a judgment cannot beread as a statute and has to be made applicable to the facts and consideration of each case and theratio laid down therein will have to be applied to the facts and circumstances of each case.Therefore, the learned senior counsel submitted that the orders passed by the authorities will haveto be set aside and the appeal will have to be allowed. 5.Submissions of the Revenue:- 5.Submissions of the Revenue:- 5.1.Shri.K.Subramaniam, learned Senior Standing Counsel appearing for the revenue submitted thatthe appeal filed by the assessee has been rejected by the Commissioner of Income Tax (Appeals) noton the ground of applicability under Section 28(iv) of the Income Tax Act, 1961. Similarly, theTribunal has not considered the applicability of the said section, therefore in as much as Section28(iv) of the Income Tax, 1961 having no applicability to the case on hand, the relevant provisionthat is applicable is Section 28(i) of the said Act. In the judgment of the Honourable Apex Court inCOMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. [(1996) 222ITR 344], the applicability of Section 28(iv) has not been considered. As found by the authorities,Section 41(1) of the Income Tax Act is also not applicable and therefore, the findings rendered bythe authorities below will have to be seen in the context of the provisions contained in Section 28(i)of the Income Tax Act, 1961. 5.2.The learned Senior Standing Counsel further submitted that the ratio laid down by theHonourable Apex Court in COMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) ANDSONS LTD. [[1996] 222 ITR 344]. still holds good. The judgment of the Honourable Apex Court hasbeen followed subsequently in COMMISSIONER OF INCOME TAX v. RAJASTHAN GOLDENTRANSPORT CO. (P.) LTD. [(2001) 249 ITR 723] and also by a Division Bench of this Court inCOMMISSIONER OF INCOME TAX v. SUNDARAM INDUSTRIES LTD. [(2002) 253 ITR 396] as wellas in COMMISSIONER OF INCOME TAX v. ARIES ADVERTISING PVT. LTD. [(2002) 255 ITR 510].Therefore, when the ratio laid down by the Honourable Apex Court in COMMISSIONER OF INCOMETAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. [[1996] 222 ITR 344] having not beenoverruled and the same still covers the field, the authorities below have rightly applied the same inrejecting the case of the assessee. 5.3.The learned Senior Standing Counsel also submitted that, it is not in dispute that the amount hasbeen borrowed by the assessee for the purpose of his business. When the said amount is used forbusiness, the question as to whether it has been used for the purchase of capital assets or revenuereceipts is immaterial. The assessee having become richer by the settlement, the said transactionwould par take the character of the income assessable to tax. Even assuming an amount is utilisedtowards the capital assets, it would take the character of a revenue receipt, subsequently. Thelearned senior standing counsel has also made reliance upon Section 36(1)(iii) of the Income Tax Actdealing with the deduction for interest of the borrowal. According to the learned senior standingcounsel, the borrowal and waiver are in the course of business during which the benefit accrues tothe assessee is taxable. If the amount received in pursuant to a business or a contractual liability,then it is taxable as income. 5.4.The learned Senior Standing Counsel made reliance upon the judgment of the Division Bench ofthe Delhi High Court in JAY ENGINEERING WORKS LTD. v. COMMISSIONER OF INCOME-TAX[(2009) 311 ITR 299]. The learned senior standing counsel sought to distinguish the judgment reliedupon on behalf of the assessee by submitting that the facts involved in those cases are different andthat some of the judgments have been rendered prior to the ratio laid down by the Honourable ApexCourt in COMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD.[[1996] 222 ITR 344]. Further, the orders passed by various Tribunals are not binding on this Court.Therefore, the learned senior standing counsel submitted that the appeal will have to be dismissed. 5.4.The learned Senior Standing Counsel made reliance upon the judgment of the Division Bench ofthe Delhi High Court in JAY ENGINEERING WORKS LTD. v. COMMISSIONER OF INCOME-TAX[(2009) 311 ITR 299]. The learned senior standing counsel sought to distinguish the judgment reliedupon on behalf of the assessee by submitting that the facts involved in those cases are different andthat some of the judgments have been rendered prior to the ratio laid down by the Honourable ApexCourt in COMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD.[[1996] 222 ITR 344]. Further, the orders passed by various Tribunals are not binding on this Court.Therefore, the learned senior standing counsel submitted that the appeal will have to be dismissed. 6.The facts involved in this case are not in dispute. The assessee entered into a loan transaction withthe State Bank of India. The loan has been obtained for the purpose of acquiring capital assets whichfact also is not in dispute. The assessee has paid part of the principle and interest amount for theearlier years. There was a settlement under the One Time Settlement Scheme (OTS) by which asettlement has been arrived at between the Bank and the assessee by accepting the adhoc paymentof 5 crores made by the assessee already with the waiver of another sum of Rs.5,07,78,410/- as theoutstanding principle amount. Further, a sum of Rs.2,02,60,247/- as the interest amountrespectively. 7.The loan transaction between the assessee and the Bank and the subsequent settlement by way ofrehabilitation process through the BIFR is also not in dispute. It is not the case of the revenue thatthe above said transactions are not genuine and colourable. The authorities have also not gonebehind the transactions but proceeded on the footing that the transactions are true and genuine. Theassessee has credited the waiver of principle amount to the "Capital Reserve Account" in the balancesheet treating it as capital in nature and the waiver in its "Profit and Loss Account". 8.The Assessing Officer has applied the provisions contained in Section 28(iv) and held that theamount waived in the "Capital Reserve Account" represents the value of benefit. Accordingly, he treated the said amount as income coming under the purview of Section 28(iv) read with Section2(24) of the Income Tax Act. In so far as the applicability of Section 41(1) of the Income Tax isconcerned, it was held that the said issue is irrelevant to the facts of the case. 9.Challenging the order passed by the Assessing Officer, the assessee filed an appeal before theCommissioner of Income Tax (Appeals) contending that Section 28(iv) of the Income Tax Act, 1961,does not have any application in as much as the assessee is not involved in the business of moneytransaction and the amount borrowed has been utilised towards the purchase of the capital assets.The assessee has relied upon the various judgments of this Honourable High Court, Supreme Courtand High Court of Bombay, Gujarat and Delhi apart from the orders passed by the various Tribunalsand contended that the ratio laid down by COMMISSIONER OF INCOME TAX v. SUNDARAMIYENGAR (T.V.) AND SONS LTD. [[1996] 222 ITR 344] does not apply to the facts of the case as heldin those judgments. A detailed written submissions have also been made along with the grounds ofthe appeal. A similar exercise has also been done by the assessee before the Tribunal. However, boththe Commissioner of Income Tax (Appeals) and the Tribunal have rejected the appeals filed by theassessee by merely following the judgment of the Honourable Apex Court in COMMISSIONER OFINCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. [[1996] 222 ITR 344] referred supra.Therefore, with these admitted facts, the substantial questions of law raised in this appeal will haveto be considered. 10.A perusal of the definition of Section 2(24) of the Income Tax Act, which defines "income" wouldinclude the value of any benefit or perquisite, whether convertible into money or not, that wouldarise from the business. In order to appreciate the issue involved, it is relevant to extract thenecessary provisions of the Income Tax Act, 1961. "2(24)"income" includes- (i)profits and gains; (vd)the value of any benefit or perquisite taxable under clause (iv) of section 28;" 11.Section 28(iv) of the Income Tax Act, 1961 comes under the heading "Profit and Gains of businessor profession" and the same is extracted herein: "28(iv)the value of any benefit or perquisite, whether convertible into money or not, arising frombusiness or the exercise of a profession." 12.Similarly, Section 41(1) of the Income Tax Act, 1961 deals with "profits chargeable to tax" andthe same is extracted herein: "41(1).Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a)the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, anyamount in respect of such loss or expenditure or some benefit in respect of such trading liability byway of remission or cessation thereof, the amount obtained by such person or the value of benefitaccruing to him shall be deemed to be profits and gains of business or profession and accordinglychargeable to income-tax as the income of that previous year, whether the business or profession inrespect of which the allowance or deduction has been made is in existence in that year or not; or(b)the successor in business has obtained, whether in case or in any other manner whatsoever, anyamount in respect of which loss or expenditure was incurred by the first-mentioned person or somebenefit in respect of the trading liability referred to in clause (a) by way of remission or cessationthereof, the amount obtained by the successor in business or the value of benefit accruing to thesuccessor in business shall be deemed to be profits and gains of the business or profession, andaccordingly chargeable to income-tax as the income of that previous year. [Explanation 1.-For the purposes of this sub-section, the expression "loss or expenditure or somebenefit in respect of any such trading liability by way of remission or cessation thereof" shall includethe remission or cessation of any liability by a unilateral act by the first mentioned person underclause (a) or the successor in business under clause (b) of that sub-section by way of writing off suchliability in his accounts.] [Explanation 2].- For the purposes of this sub-section, "successor in business" means,- (i)where there has been an amalgamation of a company with another company, the amalgamated company; (ii)where the first-mentioned person is succeeded by any other person in that business or profession, the other person; (iii)where a firm carrying on a business or profession is succeeded by another firm, the other firm; (iv)where there has been a demerger, the resulting company." 13.Necessity for a reasoned order: 13.1.Shri.N.K.Poddar, learned senior counsel appearing for the assessee submitted that when theassessee has pleaded specifically in the grounds of appeal as well as through the writtensubmissions that the ratio laid down in COMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. [[1996] 222 ITR 344] is not applicable to the facts on hand, the authoritiesbelow have committed an error in merely following the said judgment without considering the issuesraised. 13.2.A perusal of the order passed by the Commissioner of Income Tax (Appeals) as confirmed by the other person; (iii)where a firm carrying on a business or profession is succeeded by another firm, the other firm; (iv)where there has been a demerger, the resulting company." 13.Necessity for a reasoned order: 13.1.Shri.N.K.Poddar, learned senior counsel appearing for the assessee submitted that when theassessee has pleaded specifically in the grounds of appeal as well as through the writtensubmissions that the ratio laid down in COMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. [[1996] 222 ITR 344] is not applicable to the facts on hand, the authoritiesbelow have committed an error in merely following the said judgment without considering the issuesraised. 13.2.A perusal of the order passed by the Commissioner of Income Tax (Appeals) as confirmed by the Tribunal would show that none of the grounds raised by the assessee has been considered. Theassessee has raised very many substantial grounds supported by the decisions of various HighCourts and Tribunals across the country apart from the Supreme Court decisions which have notbeen considered by the authorities below. It was blindly held that the issue involved is covered bythe ratio laid down in COMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) ANDSONS LTD. [[1996] 222 ITR 344]. Such an approach by the authorities which are creation of thestatute is wholly wrong, unwarranted and against the basic principles of law. A right to a reasonedorder is a basic and constitutional right and the said order is fundamental to the justice deliverysystem. A judicial order must be supported by sufficient reasons for coming to the conclusion. Anauthority which is vested with the quasi judicial power is bound to record his reasons for itsconclusions. What weighed in the mind of the authority for its conclusion will have to be expressedin its order. When a power is exercised, the same has to be exercised in accordance with law. Thefailure to record reason would violate the principles of natural justice and against the basic conceptof fairness and transparency. A reasoned order is the soul of an order of an adjudicating authority. 13.3.The above said well established principle of law has been reiterated by the Honourable ApexCourt in VICTORIA MEMORIAL HALL v. HOWRAH GANATANTRIK NAGRIK SAMITY [(2010) 3 SCC732] wherein it has been held as follows: "40.It is a settled legal proposition that not only an administrative but also a judicial order must besupported by reasons, recorded in it. Thus, while deciding an issue, the court is bound to givereasons for its conclusion. It is the duty and obligation on the part of the court to record reasonswhile disposing of the case. The hallmark of an order and exercise of judicial power by a judicialforum is to disclose its reasons by itself and giving of reasons has always been insisted upon as oneof the fundamentals of sound administration of justice-delivery system, to make known that therehad been proper and due application of mind to the issue before the court and also as an essentialrequisite of the principles of nature justice. "The giving of reasons for a decision is an essentialattribute of judicial and judicious disposal of a matter before courts, and which is the only indicationto know about the manner and quality of exercise undertaken, as also the fact that the courtconcerned had really applied its mind." (Vide State of Orissa v. Dhaniram Luhar and State of Rajasthan v. Sohan Lal) Rajasthan v. Sohan Lal) 41.Reason is the heartbeat of every conclusion. It introduces clarity in an order and without thesame, it becomes lifeless. Reasons substitute subjectively by objectivity. Absence of reasons rendersthe order indefensible/unsustainable particularly when the order is subject to further challengebefore a higher forum. (Vide Raj Kishore Jha v. State of Bihar, SCC p.527, para 19, (2003) 11 SCC519; Vishnu Dev Sharma v. State of U.P. (2008) 3 SCC 172, SAIL v. STO (2008) 9 SCC 407, State ofUttaranchal v. Sunil Kumar Singh Negi (2008) 11 SCC 205, U.P.SRTC v. Jagdish Prasad Gupta(2009) 12 SCC 609, Ram Phal v. State of Haryana (2009) 3 SCC 258, Mohd.Yusuf v. Faij Mohammad(2009) 3 SCC 513 and State of H.P. v. Sada Ram. (2009) 4 SCC 422. 42.Thus, it is evident that the recording of reasons is a principle of natural justice and every judicialorder must be supported by reasons recorded in writing. It ensures transparency and fairness indecision making. The person who is adversely affected may know, as to why his application has beenrejected." 13.4.Therefore, we are of the opinion that the orders passed by the Commissioner of Income Tax(Appeals) and the Tribunal suffer from the violations of principles of natural justice and they cannotbe sustained. 14.Interpretation of a Judgment: 14.1.In a multi-court system having its own hierarchy, a judgment rendered by a higher forum hasits binding effect on the subordinate Courts. The judicial discipline would require that a judgmentrendered by a higher forum will have to be followed by a lower forum in all respects. Further, ajudgment of the Honourable Apex Court is binding on all Courts in the whole of the country underArticle 141 of the Constitution of India. A binding precedent brings about a stability, uniformity andfinality to an issue raised. 14.2.However, a judgment cannot be read like a statute. Courts should not place reliance on decisionwithout discussing factual situation involved in the said decision and how it would apply to the factsinvolved in the subsequent case. A ratio laid down by a higher forum shall not be taken out of thecontext and construed like a statute. 15.LORD DENNING while dealing with the law of precedent has observed as follows:"Each case depends on its own facts and a close similarity between one case and another is notenough because even a single significant detail may alter the entire aspect, in deciding such cases,one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of onecase against the colour of another. To decide therefore, on which side of the line a case falls, thebroad resemblance to another case is not at all decisive." 16.The Honourable Apex Court in COMMISSIONER OF CENTRAL EXCISE, BANGALORE v.SRIKUMAR AGENCIES AND OTHERS [(2009) 1 SCC 469] has held as follows:"4.Courts should not place reliance on decisions without discussing as to how the factual situationfits in with the fact situation of the decision on which reliance is placed. Observations of Courts areneither to be read as Euclid's theorems nor as provisions of the statute and that too taken out oftheir context. These observations must be read in the context in which they appear to have beenstated. Judgments of Courts are not to be construed as statutes. To interpret words, phrases andprovisions of a statute, it may become necessary for judges to embark into lengthy discussions butthe discussion is meant to explain and not to define. Judges interpret statutes, they do not interpretjudgments. They interpret words of statutes; their words are not to be interpreted as statutes." 17.Therefore, applying the above said ratio laid down therein, we are of the firm view that theauthorities below have committed an error in merely lying upon the judgment rendered inCOMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. [[1996] 222ITR 344] without applying the facts involved therein, vis-a-vis the facts involved in the presentappeal. 17.Therefore, applying the above said ratio laid down therein, we are of the firm view that theauthorities below have committed an error in merely lying upon the judgment rendered inCOMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. [[1996] 222ITR 344] without applying the facts involved therein, vis-a-vis the facts involved in the presentappeal. 18.Applicability of the ratio laid down by the SUNDARAM IYENGAR (T.V.) AND SONS LTD.:- 18.1.In as much as both the Commissioner of the Income Tax (Appeals) and the Tribunal havedismissed the appeals filed by the assessee, placing reliance only upon the judgment rendered inCOMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. [[1996] 222ITR 344], we deem it fit to consider the ratio laid down therein and its applicability to the factsinvolved in the present case on hand. 19.In the said judgment as submitted by the learned Senior Counsel appearing for both sides, theapplicability of Section 28(iv) of the Income Tax Act, 1961 was not considered. The assesseereceived money during the course of carrying on his business by accepting deposits from tradeparties. The said parties did not make any claim for repayment of balance. The amounts deposited bythe assessee were not in the nature of security deposits and they have been deposited by adjustmentmade from time to time. The said amount represented the credit balances in the name of the tradeparties. The deposit having been taken in the course of trade, the customers did not claim theremaining amount back after adjustment. 20.The claim of the customers have become barred by limitation and the assessee has treated thesaid amount as its own money. Therefore, a new asset came into being by the automatic operation oflaw through the trade transaction the said amount has been entered into "Profit and Loss Account".Therefore, in as much as the deposited amount had its character changed, when it becomes themoney of the assessee due to the operation of the law of limitation, such an amount would becomean income exigible to tax at the hands of the assessee. The ratio laid down by the Honourbale ApexCourt is extracted herein: "In the present case, the money was received by the assessee in the course of carrying on hisbusiness. Although it was treated as deposit and was of capital nature at the point of time it wasreceived, by efflux of time the money has become the assessee's own money. What remains afteradjustment of the deposits has not been claimed by the customers. The claims of the customers havebecome barred by limitation. The assessee itself has treated the money as its own money and takenthe amount to its profit and loss account. There is no explanation from the assessee why the surplusmoney was taken to its profit and loss account even if it was somebody else's money. In fact, asAtkinson J. pointed out that what the assessee did was the commonsense way of dealing with theamounts." 21.Therefore, the Honourable Apex Court in the above said judgment has clearly held that when inthe course of a trading transaction, the assessee becomes entitled to the money such an amountwould become a taxable income at the hands of the assessee. 22.In the present case on hand, admittedly the assessee was not trading in money transactions. Agrant of loan by a Bank cannot be termed as a trading transaction and it cannot also be construed inthe course of business. Indisputably, the assessee obtained the loan for the purpose of investing inits capital assets. A part of this loan amount along with this interest was waived by way of anagreement between the parties. Therefore, the facts involved in the present case are totally differentin the facts involved in COMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) ANDSONS LTD. [[1996] 222 ITR 344]. In the said case, admittedly there was a trading transactionwhereas, in the present case it is not so. What has been done in the present case is a mere waiver of 22.In the present case on hand, admittedly the assessee was not trading in money transactions. Agrant of loan by a Bank cannot be termed as a trading transaction and it cannot also be construed inthe course of business. Indisputably, the assessee obtained the loan for the purpose of investing inits capital assets. A part of this loan amount along with this interest was waived by way of anagreement between the parties. Therefore, the facts involved in the present case are totally differentin the facts involved in COMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) ANDSONS LTD. [[1996] 222 ITR 344]. In the said case, admittedly there was a trading transactionwhereas, in the present case it is not so. What has been done in the present case is a mere waiver of loan. It is only a mere waiver which has been effected by the bank in favour of the assesee. There isno change of character with regard to the original receipt which was capital in nature into that of atrading transaction. It is further seen that there is a marked difference between a loan and asecurity deposit. 23.In COMMISSIONER OF INCOME TAX v. GANESA CHETTIAR (P.) [(1982) 133 ITR 103], thisCourt has held that a debt forgiven cannot be treated as income. The relevant portion is extractedherein: "It is settled law that a debt forgiven cannot be treated as income. The question as to whether aremission of debt would constitute income was considered in British Mexican Petroleum Co. Ltd. v.Jackson [1932] 16TC 570 (HL). The assessee in that case entered into a contract with an oilproducing company for the purchase of petroleum over a period of years. The unpaid price of the oilsupplied was debited in the accounts. In view of the adverse effect of a business slump on theassessee-company, the petroleum producing company accepted payment of a part of the debt andreleased the assessee-company from its liability to pay the balance which was due. The House ofLords held that the amount remitted could not be included as a revenue receipt. Lord Macmillanobserved (p.593): "I cannot see how the extent to which the debt is forgiven can become a credit item in the tradingaccount for the period within which the concession is made." 24.It is a well established principle of law that, every deposit of money would not constitute atrading receipt. Broadly speaking even though a receipt may be in connection with the business, itcannot be said that every such receipt is a trading receipt. Therefore, the amount referable to theloans obtained by the assessee towards the purchase of its capital asset would not constitute atrading receipt. The said issue has been fortified by the judgment of this Court in COMMISSIONEROF INCOME TAX v. A.V.M. LTD. [(1984) 146 ITR 355]. 25.The very same contention has been raised on behalf of the revenue before the Division Bench ofthe Bombay High Court in SOLID CONTAINERS LTD. v. DEPUTY COMMISSIONER OF INCOMETAX [(2009) 308 ITR 417], by relying upon the judgment of the Honourbale Apex Court rendered inCOMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. [[1996] 222ITR 344]. However, in the said case, a finding was given that the money was received by theassessee in the courts of carrying on in his business. Agreement was completely obliterated. Theloan in its entirety was completely waived. The loan itself was taken for a trading activity and onwaiving it was retained in business by the assessee. In the said judgment, the Division Bench of theBombay High Court has distinguished the earlier judgment of the said High Court rendered inMAHINDRA AND MAHINDRA LTD. v. COMMISSIONER OF INCOME TAX [(2003) 261 ITR 501]. Thesaid judgment rendered in [(2003) 261 ITR 501] which is similar to the present case on hand wasdistinguished by the Bombay High Court in view of the finding that there is a trading transaction andthe money received was used towards a business transaction and accordingly the ratio laid down inCOMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. [[1996] 222ITR 344] was followed. 26.Therefore, the above said facts would indicate that the ratio laid down in COMMISSIONER OFINCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. [[1996] 222 ITR 344] has noapplication at all to the facts and circumstances of the present case on hand. Hence, we are of theview that the authorities below have wrongly