Pr. Commissioner Of Income Tax, Delhi v. M/S Religare Enterprises Ltd.through:none

$~8 *IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 751/2016 & CM Nos.40127-28/2016 PR. COMMISSIONER OF INCOME TAX, DELHI..... AppellantThrough:Mr.DileepShivpuri,Mr.SanjayKumar and Mr. Vikrant A.Maheshwari, Advocates. Versus M/S RELIGARE ENTERPRISES LTD.Through:None. ..... Respondent CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE NAJMI WAZIRIO R D E R%13.02.2017 CM No.40127/2016 (for exemptions) 1.Allowed, subject to all just exceptions. 2.The application stands disposed off.ITA 751/2016 & CM No.40128/2016 3.The question of law urged by the Revenue is “whether the IncomeTax Appellate Tribunal (ITAT) fall into error in holding that the amounts ofloss reflected could not be adjusted with the income, in the circumstances ofthe case?’ 4.The facts of the case are that the assessee Trust is a pass throughentity meant for pay outs to the employees as a part of their terms andconditions of service of its sister concern. In the course of its activities, itprimarily manages amounts which the employees would be entitled to at theend of their tenure or in accordance with their conditions of service; theseITA 751/2016Page 1 of 4 include management of funds through investment in securities and otherspecified instruments.Therefore, the only income of the Trust isinterest/dividend from such specified securities.It reported interests’income of `253/- and dividend income of `397,654/- for Assessment Year2009-10. During that year, it sold some of its securities and incurred loss tothe tune of `2.04 crores. A part of the amount that it realised led to losswhich it claimed to be as ‘capital loss’. This was treated by the AssessmentOfficer as income and also by the Commissioner of Income Tax (Appeals),both of whom made disallowance under Section 41(1) of the Income TaxAct, 1961 (hereinafter to be referred as ‘the Act’). The capital loss was notpermitted to be set off on the ground of applicability of Section 74 of theAct. The ITAT, accordingly, relied and reasoned as under:- “6. On a careful consideration of the facts and circumstancesof the case, on perusal of orders of lower authorities, materialon record and case laws cited, we hold as follows. 7.In the audited financial statements the Trustees of theassessee have recognized liabilities written back, dividend andbank interest as income.Loss on sale of investments wasclaimed as expenditure.No doubt entries in the books ofaccounts do not determine the taxability or otherwise of atransaction, but at the same time the entries give a goodindication as to the understanding of the management of thenature of the transactions. 7.1The assessee claims that it is a pass through entity. Thismeans that the parent company, has taken into account theincome, expenditure and losses of the assessee Trust whilecomputing its income. The assessee for the AY 2009-10 has disclosed dividend income of Rs.397654/- as well as interestincome of Rs.253/-. If the arguments of the assessee has to beaccepted, then it has to be seen as to in which entity’s handsthis income has been offered to tax. From the facts on recordthis is not clear. If the loss on sale of investments has beenbooked in the hands of the Holding Company or any of theSubsidiary Companies, on the ground that they are the realowners, then the dividend income has to be taken in theiraccount. This needs verification. 7.2Be it as it may, when the loan taken by the assessee iswritten off, the same cannot be treated as income of theassessee u/s 41(1) as the loan was taken on capital account.The Hon’ble Delhi High Court in the case of Logitronics Pvt.Ltd. Vs. CIT reported in 333 ITR 386 has laid down theprinciple that if a loan was taken for acquiring a capital asset,waiver thereof would not amount to any income exigible to tax. 7.3Similarly the Hon’ble Delhi High Court in the case ofCIT vs. Tosha International Ltd. reported in 331 ITR 440(Delhi) held as follows. 7.2Be it as it may, when the loan taken by the assessee iswritten off, the same cannot be treated as income of theassessee u/s 41(1) as the loan was taken on capital account.The Hon’ble Delhi High Court in the case of Logitronics Pvt.Ltd. Vs. CIT reported in 333 ITR 386 has laid down theprinciple that if a loan was taken for acquiring a capital asset,waiver thereof would not amount to any income exigible to tax. 7.3Similarly the Hon’ble Delhi High Court in the case ofCIT vs. Tosha International Ltd. reported in 331 ITR 440(Delhi) held as follows. “4. We see no reason to interfere with the conclusion of theTribunal as the same have been rendered on a correctappreciation of law. The principles enunciated in Mahindraand Mahindra Ltd. Vs. CIT (2003) 261 ITR 501 (Bom) arefully applicable and we see no reason to take a different view. 5.Consequently, no substantial question of law arises forour consideration. The appeal is dismissed.” 7.4If the propositions laid down in these case laws areapplied to the facts of the case, then the liabilities written offcannot be brought to tax.The assessee is not claiming anydeduction on the loss on sale of investments. The issue now boils down to dividend income and bank interest. As the factsare not clear, we are of the considered opinion that the issueof taxability of dividend and interest should be set aside to thefile of the AO for fresh adjudication after verification.” 5.This Court has carefully considered the submissions. The ITAT, inour opinion, correctly followed the ratio in Logitronics (supra). Besides thetrue nature of amounts received or entries reflected, are to be determined bylaw not by the treatment reflected in the books or the understanding of theparties, as held by the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. Vs.Commissioner of Income Tax [1971] 82 ITR 363. 6.For the above reasons, the Court finds no substantial question of law.The appeal alongwith pending application is, therefore, dismissed. S. RAVINDRA BHAT, J. FEBRUARY 13, 2017 sb NAJMI WAZIRI, J. ITA 751/2016