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ChandigarhITAT

MembersAnnapurnaGupta

SanjayGarg

Timeline

  

ITATCHANDIGARH 

26Feb2018

Case�led

24May2018

Hearing

16May2019

Judgement

SH.JAIPALGABAvsITO,W-III(2)

 

16.05.2019 ITA244/CHANDI/2018

TextHighlight

Issues&Groundsof

appeal

Arguments Holding&

Outcome

Ludhiana

Thepresentappealhasbeenpreferredbytheassesseeagainst

theorderdated28.12.2017oftheCommissionerofIncomeTax

(Appeals)-1,

Ludhiana[hereinafterreferredtoasCIT(A)].

2.Theassesseeinthisappealhastakenfollowinggroundsof

appeal:-

1.Addition,inrespectofSettlementofLoan,amountingto₹

1,85,44,140.00,undersection28(iv)oftheIncome-tax

Act,1961.

1.1Onthefactsandcircumstancesofthecaseandinlaw,the

Ld.CIT(A)erredincon�rmingtheadditionmadebythe

Assessingo�cer,afterre-computationthereof,forasumof₹

1,85,44,140.00inrespectofwaiverofloanonsettlementwith

thebankbyinvokingtheprovisionsofsection28(iv)oftheAct

andsomeofthejudicialpronouncements.

1.2TheLd.CIT(A)andAssessingo�cerfailedtoappreciatethe

detailssubmissionsmadebytheappellantandtheruleoflaw

laiddowninvariousdecisionsrelieduponbytheappellantin

thisbehalf.

2.Thattheappellantcravestherighttoadd,amendordelete

anygroundsofappealbeforeitis�nallydisposedo�.

3.Thebrieffactsrelatingtotheissuearethattheassessee

presentlyisaProprietorofM/sMackHosiery,whichconcern

wasearlieraPartnership�rmconstitutedintheyear1988and

dissolvedon30.09.2002,whichwastakenoverbytheassessee

ashisproprietorshipconcernalongwithassetsandliabilities

whatsoever.Theloantothe�rmtakenfromM/sPunjab

NationalBank(PNB)wasalsoowedup/takenoverbythe

assesseeinhisproprietorshipconcern.

4.Theassesseeowed₹3,78,93,001/-,splitintotermloanof₹

84,83,001/-andcashcreditlimitof₹

LawReferred

IncomeTaxAct,1961

Section1,Section140,Section143(3),Section2(31),Section251,Section28,Section28(iv),Section41(1),Section56,Section56(2),Section56(2)(vi)

CaseMap

Thiscaserefersto:

CommissionerOfIncomeTaxVsT.V.

SundaramIyengar&SonsLtd

CommissionerOfIncomeTaxVsAries

AdvertisingPvtLtd

Viewmore  

Youmightalsoliketosee:

TheAsstt.CitCir.1VsNathBioGenes

IndiaLtd

D.C.I.T.Circle3(3)VsVibhadeep

InvestmentAndTradingLtd

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2,94,10,000/-ason31.12.2006whichhadbecomenon-

performingassets(NPA).Accumulatedinterestfortheperiod

ofNPAi.e.from1.4.2003to31.12.2006of₹1,93,64,729/-was

neitherbookedbythebankasitsincomenorclaimedbythe

assesseeasitsexpenditure.Apartfromthat,therewerecertain

otherliabilitiessuchaslegalexpenditureandvaluationcharges

fortheNPAperiodamountingto₹1,47,857/-whichwerealso

notclaimedasexpenditurebytheassessee.Thetotalliabilityto

thebankoftheassesseewas₹5,74,05,687/-.ThebankinOne

timesettlementprogrammesettledthewholedebtatof₹

1,40,00,000/-,thus,waivingprincipalamountofloanof₹

2,38,93,001/-andinterestalongwithlegalandvaluation

expensesamountingto₹

1,95,12,686/-,totalwaiverof₹

5.Inthe�rstround,theAssessingo�cerbyinvokingthe

provisionsofsection28(iv),41(1),56(2)oftheIncome-tax

Act,1961(inshort'theAct')addedthewholeamountofwaiver

of₹4,34,05,687/-tothetaxableincomeoftheassesseevide

orderdated29.12.2009u/s143(3)oftheAct.

6.BeingaggrievedbytheaboveorderoftheAssessingo�cer,

theassessee�ledanappealbeforetheCIT(A),Ludhiana.The

Ld.CIT(A)videhisorderdated10.12.2010con�rmedthe

additionw.r.t.waiverof

Principalamountof₹

2,83,93,001/-byrelyinguponthejudgementoftheHon'ble

BombayHighCourtin‘SolidContainersLimitedVs.DCIT’308

ITR417(Bom.)and‘T.V.SundramIyengar&SonsLimited’222

ITR344(SC)’andbasedhisdecisiononthesec(s),28(iv),41

(1),56(2)(vi)oftheI.T.Act.Further,w.r.t.additiononaccount

ofwaiverofinterestandlegal/valuationchargesof₹

1,95,12,686/-,theLd.CIT(A)directedtheAssessing

o�certoverifywhethersuchinterestandotherexpenses

wereclaimedbytheassesseeinearlieryearsornot,andif

itwouldbefoundthatnointerestwasclaimedasexpense

inrespectofaforesaidamountofinterestwaivedbythe

bank,provisionsofsection41(1)oftheActwouldnotbe

applicableandadditionwouldstanddeleted.However,if

itisfoundthatassesseehasclaimedtheexpenditure,

additionwouldbesustained.Therelevantpartofthe

orderoftheCIT(A)dated10.12.2010isreproducedas

under:-

“thattheprincipalamountofloanof₹istaxableu/s28aswell

asu/s41(1)oftheAct.Withoutprejudicetotheabove,aforesaid

amountisalsotaxableu/s56(2)(vi)accordingtowhichwhere

anyamountofmoneyaggregatevalueofwhichexceeds₹

50,000/-isreceived,withoutconsideration,byan

individualorHUF,inanypreviousyearfromanyperson

orpersonsonorafterthe�rstdayofApril,2006,the

wholeofaggregatevalueofsuchsumshallbechargeable

toincometaxunderthehead‘incomefromother

sources’.

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Theassesseehasreceivedamountof₹

2,39,93,001/-onaccountofwaiverofloanbyPNBandthe

sameisalsotaxableundersection56(2)(vi)oftheAct.Inview

ofthediscussionabove,additionof₹

2,38,93,001/-isupheld.”

8.Beingaggrievedbythecon�rmationofadditionof₹bythe

CIT(A),theassessee�ledappealbeforethisTribunal.

Simultaneously,departmentalso�ledanappealbeforethis

TribunalcontendingthattheCIT(A)Ludhianahadcrossedhis

jurisdictionwhiledirectingAOtoverifywhetherinearlieryears

theassesseehadclaimedtheexpenditureoninterestonloan

thatwaswaivedbyBank.ThattheCIT(A)hasnojurisdictionto

restoreorsetasideanissuetoAssessingo�ceraspersub

section1ofsection251oftheAct.

9.Disposingoftheappealsi.e.AppealNo.ITANo.154/Chd/2011

(assessee’sappeal)andappealNo.ITANo.291/Chd/2011

(Department’sappeal),theTribunaldirectedasunder:-

“Therefore,wesetasidetheorderofCIT(A)andrestore

themattertothe�lewithadirectiontorecorda�nding

andiffactsarenotcomingoutoftheassessmentorder,

hemaycallforremandreport,butthe�ndinghastobe

recordedbyhim.Therefore,issuemaybeadjudicated

after�ndingoutwhetherinterestwasclaimedas

expenditureornot,asfarascapitalwaiveradditionis

concerned,thisissueshouldalsogobacktothe�leofthe

CIT(A)becauseithasnotbeenclearlydetermined

whetherloanwastakenastermloanorascashcredit

loan.Therefore,Ld.CIT(A)shouldre-examinetheissue

anddecidethesameinthelightofthedecisionofthe

Hon'bleKarnatakaHighCourtinthecaseofCompaq

ElectricLtd(supra)andHon'bleBombayHighCourtin

thecaseofSoldContainers((supra).”

10.IncomplianceoftheorderoftheTribunaldated10.12.2010,

theLd.CIT(A)adjudicatedboththeissues.Sofarastheissue

whethertheamountofinterestandcertainotherlegal

expensesandvaluationchargeswereclaimedasexpenditureor

notinearlieryears,theLd.CIT(A)veri�edandfoundthatsuch

interestamountof₹

1,95,12,686/-wasneverclaimedasexpenditurebythe

assessee.Sohedeletedtheadditiononthisaccount.

Regardingtheissuerelatingtotheprincipalloan,theLd.

CIT(A),intheabsenceofanyspeci�callocationofthe

waivedamountbythebank,consideringthesuggestionof

theAssessingo�cerintheremandreportbifurcatedon

pro-ratabasisthetotalwaiveramountofloanof₹

1,40,00,000/-between‘termloan’and‘cashcreditloan’.The

Ld.CIT(A)accordinglycalculatedthewaiveroftermloanat₹

53,48,860/-andwaiverofcashcreditloanat₹

1,85,44,140/-.TheLd.CIT(A)furtherheldthatthewaiverof

termloancalculatedonpro-ratabasisamountingto₹

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53,48,860/-sincetakenforacquiringacapitalassetwouldnot

resultinincomeexigibletotax.However,theamountofwaiver

ofcashcreditloanamountingto₹

1,85,44,140/-sincewasinrespectofworkingcapitalloan

utilizedfortradingpurposes,hence,aspertheprovisions

ofsection28(iv)oftheAct,thesamewasinthenatureof

Revenuereceipt.He,therefore,relyinguponthedecision

oftheHon'bleBombayHighCourtinthecaseofSolid

ContainersLtd(supra)treatedthesameastaxable

incomeoftheassessee.TheLd.CIT(A)heldthatthe

aforesaidworkingcapitalloanof₹

1,85,44,140/-resultedinabene�ttotheassesseeintheshape

ofremissionofaliability,therefore,directedtheAssessing

o�certorestricttheadditionto₹1,85,44,140/-asagainstthe

totaladditionof₹

2,38,93,001/-madebytheAssessingo�cer.

11.AggrievedbytheaboveorderoftheCIT(A),theassesseehas

comeinappealbeforeus.

12.Wehaveheardtherivalcontentionsandhavegonethrough

therecord.Attheoutset,Ld.Counselfortheassesseehas

submittedthatneithertheprovisionsofsection28(iv)and

41(1)norofsection56(2)(vi)oftheIncomeTaxActwere

applicabletothefactsofthepresentcase.Hehastherefore,

submittedthattheAssessingo�ceraswellastheLd.CIT(A)

havenotcorrectlyappreciatedthepropositionoflawlaiddown

bytheHon'bleSupremeCourtinthecaseofT.V.Sundram

Iyengar&SonsLimited’(supra)andHon'bleMadrasHigh

CourtinthecaseofCITVs.

AriesAdvertising(P)Ltd

.255ITR510(Mad.)andbytheHon'ble

BombayHighCourtinthecaseofSolidContainersLtd.,

(supra).Hehasfurthersubmittedthatthedecisionofthe

Hon'bleKarnatakaHighCourtinthecaseof‘CITVs.Compaq

ElectricLtd.’(66DTR38)canbeappliedtothefactsofthe

presentcase.

TheLd.DR,ontheotherhand,hasrelieduponthe�ndingsof

theCIT(A).

13.Toproperadjudicatetheissue,wewillconsiderthe

applicabilityofsections28(iv,41(1)and56(2)(vi)oftheAct

separately.Therelevantpartoftheprovisionsofsection28(iv)

isreproducedasunder:-

Section28(iv)anditsapplicabilityintheinstantcase:

“Prof

itsandgainsofbusinessorprofession

28.Thefollowingincomeshallbechargeabletoincome-tax

underthehead"Pro�tsandgainsofbusinessorprofession,

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(iv)thevalueofanybene�torperquisite,whetherconvertible

intomoneyornot,arisingfrombusinessortheexerciseofa

profession”

14.TheLd.Counselfortheassesseehassubmittedthatthe

languageofthesectionisverymuchclearwhichprescribes

thatsuchvalueofanybene�torperquisitemustarisefrom

businessorprofession.Thattakingofloansisnotregular

businessoftheassessee.Thatexceptinmoneylending

business,suchwaiverofloancannotbetreatedasincome

arisingfrombusiness.

WhereastheLd.DRhasreliedonthe�ndingsoftheLd.CIT(A)

tostatethatitconstitutesabene�ttotheassesseeandthatthe

assesseehasbecomericherbythesaidamountand,hence,the

saidamountsquarelyfallswithinthepurviewofsection28(iv)

oftheAct.

15.Wehaveconsideredtherivalsubmissions.Thevery

languageofthesectionspeaksaboutthevalueofanybene�tor

perquisitearisingfrombusinessorexerciseofaprofession.

Nowconsideringthefactsandcircumstancesofthecase,

though,theloanwastakenforthepurposeofbusinessbutthe

samewasnevertakeninthecourseofbusinessortosaythat

theloansourcedwasnotlinkedtothetradingreceiptsorthe

like.Similarlythewaiveroftheloanamountwasnotinthe

courseofbusinessorinexerciseofaprofession.Apartofthe

amountwaswaivedbythebankinaone-timesettlement

becausetherewerelittlechancesofrecoveryoftheentire

amount.Thisone-timesettlementwasnotdoneaspartofthe

businessactivityoftheassessee,rather,thetransactionofthe

loanandwaiverwasaseparatetransaction.Underthe

circumstances,thewaiverofpartoftheloanamountcannotbe

saidtobeabene�torperquisitearisingfrombusinessor

professiontotheassessee.

“Section41(1)anditsapplicabilityintheinstantcase:

Propertieschargeabletotax-

“41.(1)Whereanallowanceordeductionhasbeenmadeinthe

assessmentforanyyearinrespectofloss,expenditureor

tradingliabilityincurredbytheassessee(hereinafterreferred

toasthe�rst-mentionedperson)andsubsequentlyduringany

previousyear,

(a)the�rst-mentionedpersonhasobtained,whetherin

cashorinanyothermannerwhatsoever,anyamountin

respectofsuchlossorexpenditureorsomebene�tin

respectofsuchtradingliabilitybywayofremissionor

cessationthereof,theamountobtainedbysuchpersonor

thevalueofbene�taccruingtohimshallbedeemedtobe

pro�tsandgainsofbusinessorprofessionand

accordinglychargeabletoincome-taxastheincomeof

thatpreviousyear,whetherthebusinessorprofessionin

respectofwhichtheallowanceordeductionhasbeen

madeisinexistenceinthatyearornot;or

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(b)thesuccessorinbusinesshasobtained,whetherincashor

inanyothermannerwhatsoever,anyamountinrespectof

whichlossorexpenditurewasincurredbythe�rst-mentioned

personorsomebene�tinrespectofthetradingliability

referredtoinclause(a)bywayofremissionorcessation

thereof,theamountobtainedbythesuccessorinbusinessor

thevalueofbene�taccruingtothesuccessorinbusinessshall

bedeemedtobepro�tsandgainsofthebusinessorprofession,

andaccordinglychargeabletoincome-taxastheincomeof

thatpreviousyear.

Explanation1.Forthepurposesofthissub-section,the

expression"lossorexpenditureorsomebene�tinrespectof

anysuchtradingliabilitybywayofremissionorcessation

thereof"shallincludetheremissionorcessationofanyliability

byaunilateralactbythe�rst-mentionedpersonunderclause

(a)orthesuccessorinbusinessunderclause(b)ofthatsub-

sectionbywayofwritingo�suchliabilityinhisaccounts.

Explanation2.Forthepurposesofthissub-section,"successor

inbusiness"means,

(i)wheretherehasbeenanamalgamationofacompany

withanothercompany,theamalgamatedcompany;

(ii)wherethe�rst-mentionedpersonissucceededbyany

otherpersoninthatbusinessorprofession,theotherperson;

(iii)wherea�rmcarryingonabusinessorprofessionis

succeededbyanother�rm,theother�rm;

(iv)wheretherehasbeenademerger,theresultingcompany.

16.TheLd.counselfortheassesseehassubmittedthatnotonly

fromreadingofaboveprovisionbutalsoassettledbylawby

Courts,Section41(1)oftheActcomesintooperationonthe

followingconditions:-

1)Theassesseehadincurredatradingliabilityand;

2)Thistradingliabilityhasbeenallowedasdeductioninan

earlieryear(s)and;

3)Lateron,suchliabilityhaseitherbeenremittedorhas

ceasedtoexist.

17.TheLd.Counselfortheassesseehassubmittedthatinthe

instantcase,nosuchtradingliabilityhadbeenremittedor

ceasedtoexist,hence,theprovisionsofsection41(1)donot

haveanyapplication.

18.TheLd.DR,ontheotherhand,hasreliedonthe�ndingsof

theCIT(A)andhassubmittedthattheaforesaidwaiverofthe

workingcapitalloanisaremissionofliabilityand,hence,the

samewastaxableundertheprovisionsofsection41(1)ofthe

Act.

19.Afterconsideringtherivalsubmissions,we�ndforceinthe

submissionsoftheLd.Counselfortheassessee.Aspersection

41(1)oftheAct,theassesseemusthavetakenanallowanceor

deductioninearlierassessmentyearinrespectofloss,

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expenditureortradingliabilitywhichhasbeenremittedor

ceasedtoexistintherelevantyeartoconstitutethesameas

taxableincomeoftheassessee.Theloaninquestionthough

wastakenbytheassesseeforthepurposeofbusiness/trading

activity,however,inourview,thesamewasnotoutofthe

tradingactivityoftheassessee.Theliabilityofloanwasnot

createdorincurredinthecourseofbusiness,rather,itwasan

independentloantransactionoftheassesseewiththebankand

theassesseewasnotinvolvedinanybusinessactivitywiththe

bank.AssubmittedbytheLd.Counselfortheassessee,the

assesseewasnotinabusinessoftaking/lendingoftheloan

and,hence,theamountofloanreceivedbytheassesseeforthe

businessofhosierywasnotpartofthetradingactivityofthe

assessee.Though,grantofloanoninterestmaybethepartof

bankingbusinessoftheLenderBank,buttotakeloanisnotthe

businessactivityoftheassessee.Sofarastheassesseeis

concerned,theloaninquestionwasnotthetradingliabilityof

theassesseeand,hence,thebankhasnotwaivedanyloss/

expenditureoftradingliabilityoftheassessee.Whathasbeen

waivedisapartoftheloanamountinone-timesettlementas

theloanassethasbeendeclaredasNPAandtherewerelittle

chancesoftherecoveryoftheloan.Moreover,theassesseedid

nottakeanybene�tintheshapeofallowanceordeductionin

earlieryearsofsuchprincipalloanamountwhichhasbeen

waived.Underthecircumstances,theprovisionsofSection

41(1)oftheActarenotapplicabletothefactsandcircumstances

ofthecase.

Section56(2)(vi)ofAct1anditsapplicabilityintheinstant

case.

Incomefromothersources:

“56(2)Inparticular,andwithoutprejudicetothegeneralityof

theprovisionsofsub-section(1),thefollowingincomes,shall

bechargeabletoincome-taxunderthehead"Incomefrom

othersources",namely:

(vi)whereanysumofmoney,theaggregatevalueofwhich

exceeds�ftythousandrupees,isreceivedwithout

consideration,byanindividualoraHinduundividedfamily,in

anypreviousyearfromanypersonorpersonsonorafterthe

1stdayofApril,2006butbeforethe1stdayofOctober,2009,

thewholeoftheaggregatevalueofsuchsum”

20.TheLd.Counselfortheassesseeinthisrespecthas

submittedthattheinvokingofprovisionsofsection56(2)(vi)is

wrongsincethesubstanceoftheprovisionsinsertedby

TaxationLaws(Amendment)Act,2006w.e.f01.04.2007,isfor

thegovernanceofgifttransactionswithoutconsiderationwith

alimitof₹

50,000/-.Inspiteoftheapplicabilityoftheprovisionsof

sec.68,section56(2)(vi)wasintroducedwiththe

objectivetocurbthemal-practicebeingfollowedbythe

assesseestobringtheirownundisclosedincometothe

economicsystemthroughotherpersonswithoutpaying

duetaxesthereon.Thatinitially,in2004,section56(2)

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(v)wasbroughtasameasuretoplugrevenueleakages.

Thatincaseinhand,wherethereiswaiverofloanfrom

Bank,itcannotbesaidthatpurposeforwhichsuch

provisionwasbroughttostatutebookisbeingattainedby

taxingthissum.Eventhatsection56(2)(vi)isapplicable

onlyonIndividualsandHUFsandnotapplicableonother

personsasde�nedinsec.2(31)ofIncomeTaxAct1961.

Thatinthecaseinhand,theassesseeissoleproprietor,

whereas,insomeothercasesassesseemaybepartnership

�rm,bodycorporateorsomeotherperson.Byvirtueof

provisionsofthissection,theassesseewhoisaperson

otherthanIndividualandHUFcannotbebroughttotax

net.ThatthisdiscriminatorytreatmenttotaxIndividuals

andHUFsforwaiverofloanisnotcorrectinterpretation

oftheprovisionscontainedintheStatute.

21.TheLd.DR,ontheotherhand,hassubmittedthatthe

assesseeisanindividual,hencetheassesseeclearlyfallsunder

theprovisionsofsection56(2)(vi)oftheAct.Thattheassessee

wasunderloanliabilitytothebankandthatthewaiverof

remissionoftheliabilityofthepartoftheloanamount

constitutesreceiptinthehandsoftheassessee,whichasper

theprovisionsofsection56(2)(vi)isliabletothetaxedas

‘incomefromothersources’.

22.Wehaveconsideredtherivalsubmissions.Theargumentof

theLd.counselisthattheassesseecannotbediscriminatedas

anindividualvis-à-vispartnership�rmoracompany,asthe

provisionsofsection56(2)(vi)areapplicableonlyonindividual

andHUFandthatinthefactsandcircumstancesofthecasethe

loanwasoriginallytakenby�rmandhadtheassesseenot

takenoverthe�rmandtheloanliabilityassuch,theprovisions

ofsection56(2)(vi)wouldnothavebeenapplicableonthe�rm.

WearenotconvincedwiththeaboveargumentoftheLd.

Counselfortheassessee.Theprovisionsofthe�scalStatueare

tobestrictlyinterpreted.Ifaparticularprovisionhasbeen

madeapplicabletoaparticularclassofpeopleorassesseesthat

hastobeappliedaccordingly.

SofarastheargumentoftheLd.Counselfortheassesseethat

waiverofloandoesnotconstituteareceipt,weareagainnotin

agreementwiththeLd.Counselfortheassesseeregardingthis

contentionalso.Simplytosaythatthewaiveroftheloan

amountdoesnotconstituteareceipt,inourview,willnotbe

appropriateasitmayleadtoabsurd,confusingandunintended

interpretation.Inourview,ifthedonorgivestoadoneecertain

amountdirectlyorindirectlyitdoesnotmakeadi�erence.To

elaboratefurther,ifthedonor�rstly,givesomeamountasa

loanandthenwaiveoforrelinquishtherighttorecoverthe

saidamount,then,inourview,onthedateofsuchremissionor

relinquishment,thenatureofsuchloanchangesfromloanto

receipt/gift.Anyotherinterpretationgiveninthisrespectmay

beexploitedtocomeoutofanddefeatthepurposeofsection

56(2)(vi)oftheAct.

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23.However,themootpointwhichremainsunder

considerationisthatiftheloanwaiverreceivedbytheassessee

wasnotabene�torperquisiteundertheprovisionsofsection

28(iv)oftheActandneitherthesamewasremissionor

cessationofbusinessortradingliabilityu/s41(1)oftheAct,can

thesamebetermedasareceiptandtaxedas‘incomefrom

othersources’undertheprovisionsofsection56(2)(vi)ofthe

Act.Aperusaloftheabovereproducedprovisionsofsection56

(2)(vi)oftheActrevealsthattheamountreceivedbythe

individualorHUFshouldbe‘withoutconsideration’

Now,wehavetoseewhetherthepartoftheloanamount

waivedwas‘withoutconsideration’ornot.Admittedly,the

loanwasadvancedbythebankerforaconsiderationofinterest.

Advancementofloancannotbesaidtobewithout

consideration.However,lateronduetolosses,theloanbecome

NPA.Thebank,afterconsideringtheremotepossibilityof

recoveryofthesaidloan,thoughtitprudenttogoforonetime

settlementwiththeloanee.Thereafter,thetermsand

conditionsweresettledandasperthetermsandconditions,in

theeventoftheloaneepayinganamountof₹140lacs

immediately,outofwhich₹

125lacstobedepositedinthirdpartyaccount,which

wouldbeacceptableontheapprovaloftheone-time

settlementandexecutionof‘compromiseagreement’at

thecostoftheloanee,theremainingoftheloanwas

agreedtobewaived/sacri�cedbythebank.Itwasnota

simplecaseofwaiverwithoutconsideration,rather,the

considerationofthewaiverwastheconditionof

depositingimmediatelytheremainingpartoftheloani.e.

₹

140lacsandperformanceofcertainotherformalitiesas

pertheagreement.Itisnotjustacasewherethebankhas

simplywaivedorremittedtheloanamount,ratherthe

banktosecurepaymentof₹

140lacs,whichotherwisethebankwasfeelingdi�cultto

recover,wastheconsiderationforsettlementoftheloan

account.Hence,theamountreceivedbytheassesseeaswaiver

orremissionofloanamountcannotbesaidtobewithout

consideration.

Hence,inourview,theprovisionsofsection56(2)(vi)arenot

applicabletothecaseinhand.

24.Inviewoftheabovediscussion,neithertheremissionofthe

aforesaidamountinthefactsandcircumstancesofthecaseis

taxableas‘businessincome’oras‘incomefromothersources’.

Moreover,itisnotacasewhereotherparty/bankeroutofhis

freewillhaddecidedtogivesomebene�ttotheassessee,

rather,thesettlementwasarrivedatbythebankoutof

compulsion.Theotherpartyinthiscaseisanationalizedbank,

hence,itcannotbesaidthatthewaiverwasashamtransaction

oracolourfuldevicetogivebene�ttotheassessee.Underthe

circumstances,thoughtheassesseehasgotsomebene�tby

wayofwaiveroftheprincipalamountbutthesamecannotbe

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termedasincomeoftheassesseeexigibletotax.However,itis

madeclearthatourobservationsmadeaboveareinthe

peculiarfactsandcircumstancesofthiscaseand,hence,

cannotbesimplyappliedineachandeverytypeofwaiverofthe

loanamount.

25.Now,comingtotherelianceplacedonvariouscaselawsin

thiscase.ThethrustofargumentsoftheDepartmentsisthatif

theloanisforatradingactivitythenthewaiveroftheloanwill

beatradingreceiptexigibletotaxandiftheloanisforcapital

assets,thewaiveroftheloanwilltantamounttocapitalreceipt.

Thoughboththepartieshavecitedvariousdecisionsofvarious

courtsoflaw,however,thebasedecisionwhichhasbeenrelied

uponbyboththepartiesisthedecisionoftheHon'bleSupreme

Courtinthecaseofcaseof‘T.V.SundramIyengar&Sons

Limited’222ITR344(SC).Thefactsofthesaidcasewerethat

thedepositsweretakenbytheassesseeduringthecourseof

tradefromcustomersandadjustmentsweremadeagainst

thesedepositsinthecourseoftrade.Theunclaimedsurplus

retainedbytheassesseewastreatedastradereceipt.After

consideringthefactandvariouscaselawstheHon'bleSupreme

Courtconcludedasunder;-

“TheprinciplelaiddownbyAtkinson,J.appliesinfull

forcetothefactsifthiscase.Ifacommonsenseviewif

thematteristaken,theassessee,becauseofthetrading

operation,hadbecomericherbytheamountwhichif

transferredtoitspro�tandlossaccount.Themoneyshad

arisenoutifordinarytradingtransactions.Althoughthe

amountsreceivedoriginallywasnotofincomenature,the

amountsremainedwiththeassesseeforalongperiod

unclaimedbythetradeparties.Bylapseoflongtime,the

claimofthedepositbecametimebarredandtheamount

attainedatotallydi�erentquality.Itbecameade�nite

tradesurplus.Atkinson,J.pointedoutthatinTattersall's

casenotradingassetwascreated.Merechangeofmethod

ofbook-keepinghadtakenplace.But,whereanewasset

cameintobeingautomaticallybyoperationoflaw,

commonsensedemandedthattheamountshouldbe

enteredinthepro�tandlossaccountfortheyearandbe

treatedincome.Inotherwords,theprincipleappearsto

bethatofanamountisreceivedincourseoftrading

transaction,eventhoughitisnottaxableintheyearof

receiptasbeingofrevenuecharacter,theamountchanges

itscharacterwhentheamountbecomestheassessee's

wonmoneybecauseoflimitationorbyanyother

statutoryorcontractualright.Whensuchathing

happens,commonsensedemandsthattheamount

shouldbetreatedasincomeoftheassessee.

Inthepresentcase,themoneywasreceivedbytheassesseein

courseofcarryingonhisbusiness.Althoughitwastreatedas

depositandwasofcapitalnatureatthepointoftimeitwas

received,byin�uxoftimethemoneyhadbecomethe

assessee'sownmoney.Whatremainsafteradjustmentofthe

depositshadnotbeenclaimedbythecustomers.Theclaimsof

thecustomershavebecomebarredbylimitation.Theassessee

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itselfhastreatedthemoneyasitsownmoneyandtakenthe

amountinitspro�tandlossaccount.Thereisnoexplanation

fromtheassesseewhythesurplusmoneywastakentoits

pro�tandlossaccountevenifitwassomebodyelse'smoney.

Infact,asAtkinson,J.pointedoutthatwhattheassesseedid

wasthecommonsensewayofdealingwiththeamounts.”

26.SotheconclusionarrivedatbytheHon'bleSupremeCourt

wasthatsincetheamountreceivedbytheassesseewas

depositsfromthecustomers,notbeinginthenatureof

securitydeposits,inthecourseofhisbusinesswhichlateron

wastransferredbytheassesseetoitspro�tandlossaccount,

theHon'bleSupremeCourtheldthateventhoughthedeposits

weretreatedascapitalreceipts,thesamehadbecometrading

receiptsontransferofthesameintopro�tandlossaccountof

theassessee.Whatisrelevantinthisrespectisthatreceipts

werereceivedbytheassesseeinthecourseofitsbusinessorto

saytradingoperationsandtheassesseebywayoftransferof

thesaidamountintothepro�tandlossaccounthadbecome

richerbythatamountandthesaidamounthasbeenretained

bytheassesseeinitsbusiness.

However,inthecasebeforeus,theloanamountwasnever

receivedbytheassesseeinthecourseofbusinessbutfromthe

bankasaloanforcarryingonortosayforthepurposeof

business.Thereisacleardi�erencebetweentheterm‘inthe

Courseofbusiness’and‘forthepurposeofbusiness’.Though,

thebankerwasinthebusinessoflendingmoneyandreceiving

interestbuttotakeloanoninterestwasnotthebusinessofthe

assessee.Thebusinessoftheassesseeadmittedlywasthe

‘hosierybusiness’.Thesaidloanamountwasnotatrading

receiptreceivedfromthecustomersorfromthepartieswith

whomtheassesseewasinbusinessactivity.Evenonwaiverof

theloanamountoutofthesettlementundercompulsive

circumstances,neithertheassesseehadbecomerichernorit

canbesaidthatthesaidamountwasretainedbytheassesseein

thebusinessashisownmoney.Theunderlinedtransactionwas

notanintegralpartofthebusinessactivityoftheassessee.Itis

acasewheretheassesseehadtakenloan,partoftheloanwas

usedforcapitalassetsintheshapeofmachineryetc.andthe

otherpartoftheloanamountwasusedfortradingassets/

activities.Thebankinthiscasewhilearrivingatonetime

settlementdidconsiderastowhichpartoftheloanamount

wasusedbytheassesseeforcapitalassetsandwhichpartof

theloanamountwasusedfortradingactivity.Thepurposeof

theloan,sofarasthebankisconcerned,wastogetinterest

incomeontheloanadvanced,though,forthesecurityofthe

loanorotherwisethebankhadgiventheloanforspeci�c

purposes,i.e.forcapitalassetsorfortradingactivity

separately.

However,sincethemotiveforsettlementwasrecoveryofthe

Non-

Performingassets,hence,thebankclubbedandtakeninto

considerationtheentiredefaultingamountagainstthe

assesseeandsettledforareceiptofcertainsumoutofthetotal

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amountoutstandingagainsttheassessee.Underthe

circumstances,forthepurposeofwaiverorsettlement,itwas

irrelevantforthebankwhethertheloanwasonaccountof

tradingactivityorcapitalassetsoftheassessee.Anexamplein

thisrespectcanbegivenofapartnership�rmwherethe

partnerscontributecapital.Fromwhateversourcethey

contributethecapitali.e.eitherbytakingloanfrombankorout

oftheirownassets,isimmaterialsofarastheutility/usageof

thesaidcapitalbythepartnership�rmisconcerned.Outofthe

totalcapitalcontribution,thepartnership�rmmayusepartof

suchcapitaltowardscapitalassetsandpartofthesaidamount

towardstradingactivity.However,anyincomeorlossinthe

businessofonepartnership�rmhasnorelevancywiththe

sourceofcapitalcontributedbythepartners.Similaristhecase

withthecompany.Inthepresentcasealso,whetherthe

assesseehadearnedpro�torincurredlossesinthebusiness

activity,ithasnorelevancysofarasthesourceofcapitalis

concernedwhich,infact,wasaloanfromthebankoninterest.

Sincetheassesseewasrunningintolosses,hencethewaiverof

partoftheloaninasettlement,istowardsthecapitalreceiptof

theassesseeandcannotbesaidtobeoutofbusinessactivity

northesamecanbesaidtobeinthenatureoftradingreceipts.

Inviewofthis,wedonot�ndanyjusti�cationonthepartof

thelowerauthoritiesintaxingtheamountorpartoftheloan

amountwaivedinonetimesettlementbythebank.The

additionmadebytheAssessingo�cerandcon�rmedbythe

Ld.CIT(A)isaccordinglyorderedtobedeleted.

Intheresult,theappealoftheassesseeis,hereby,allowed.

OrderdictatedandpronouncedintheOpenCourton

16.05.2019.

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