By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Chartered Accountants
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28 (2008) 118 TTJ 563 (Visakha)
Coastal Corporation Ltd. v. Jt. CIT
ITA No. 407 (Vizag.) of 2006
A.Y. : 1998-99. Dated : 30-5-2008
S. 41(1) of the Income-tax Act, 1961 — Remission of principal
portion of loan cannot be termed as waiver of trading liability and does not
fall within the purview of S. 41(1); remission of loan would not amount to
remission of depreciation claimed by the assessee on the assets acquired by
availing of the loan.
During the relevant assessment year, the company had, under
the Rehabilitation Scheme of the Government of India, opted for a one-time
settlement of term loans and interest. The reduction of principal amount payable
was credited to Capital Reserve. The waiver of the interest portion was
reflected as income and offered to tax. The Assessing Officer considered the
same in the assessment.
Subsequently, after the expiry of four years, a notice
u/s.148 was issued in respect of depreciation claimed by assessee on the fixed
assets in respect of which the term loan was reduced. The Assessing Officer held
that the claim of deduction towards depreciation is in the nature of expenditure
as it reduced the liability of the assessee to pay income-tax on such amount
and, thus, upon waiver of the loan liability which was utilised for purchase of
the asset, the consequent depreciation claimed thereon can be said to have been
recovered by the assessee and, therefore, provisions of S. 41(1) of the Act are
applicable. The CIT(A) upheld the disallowance.
The Tribunal, relying on the decisions in the following cases
held that remission of principal portion of loan does not fall within the
purview of S. 41(1) :
(a) Polyflex (India) (P) Ltd. v. CIT, (2002) 177 CTR
(SC) 93; (2002) 257 ITR 343 (SC)
(b) CIT v. Phool Chand Jiwan Ram, (1981) 131 ITR 37
(Del.)
(c) CIT v. Cochin Co. (P) Ltd., (1990) 81 CTR (Ker.)
115; (1990) 184 ITR 230 (Ker.)
The Tribunal noted as under :
1. As per the definition of ‘Actual Cost’ in S. 43(1), the
only deduction permissible from the actual cost is the amount which has been
met by any other person or authority. The words ‘which has been met by another
person or authority’ would mean the non-refundable amount given by any other
person or authority for the purpose of meeting the cost of the asset.
2. If the term loan is utilised for acquiring any asset, it
cannot be termed as ‘meeting of a portion of cost of the asset’.
3. There is no force in the contention of the Revenue that
in view of nexus between the term loan and acquisition of assets, remission of
loan will amount to remission of depreciation.
4. The principal portion of loan amount, which has been
waived, has not been claimed as deduction in any of the years. Hence, waiver
of principal portion of loan cannot be termed as waiver of trading liability
and, hence, the second clause of S. 41(1), relating to trading liability,
shall not be applicable in this case.
