Cipla Investments Ltd. v. ITO
ITA No. 1996/Mum./2008
A.Y. : 2003-04. Dated : 28-8-2009
S. 28, S. 41 — Waiver of amount of loan taken for acquiring
capital asset is not taxable under the Act.
Facts :
The assessee had in 1998 received a sum of Rs.82,91,076
from its holding company towards share application money which was
subsequently transferred to unsecured loans. The amount was utilised for
investment in shares of other concerns. The shares so purchased with borrowed
funds were held as capital assets and income arising on transfer of shares was
offered for tax under the head ‘Income from Capital Gains’. In view of the
losses incurred by the assessee, the holding company had written off the
amount as unrecoverable whereas the assessee company had not written back the
said amount as cessation of liability. The AO taxed the sum of Rs.82,91,076
u/s.41(1) of the Act.
On appeal by the assessee CIT(A), the CIT(A) held that the
provisions of S. 41(1) are not attracted but he held that the assessee’s
business activity comprised investment in shares and securities and
advancement of loan to various parties on interest. He also held that the
amount was obtained in the course of business and by virtue of waiver of the
amount by the holding company the assessee had gained in the course of the
business and therefore the sum waived was held to be taxable u/s.28 of the
Act.
Aggrieved, the assessee preferred an appeal to the
Tribunal.
Held :
(i) The CIT(A) was correct in holding that the provisions
of S. 41(1) do not apply.
(ii) In view of the assessee’s contention that it has not
done any trading activity nor shown any income as business income on
investments made the findings of the CIT(A) that the amount was received in
the course of its business are against his findings given while considering
the addition u/s.41(1).
(iii) The assessee’s business activity may comprise
investment in shares and securities, but as far as computation of income is
concerned the profit and loss in those transactions are said to be under the
head ‘Capital Gains’ but not ‘Business Income’, hence, the gain earned by the
assessee in the course of business in investment and advance of loans is in
the capital field but cannot be on the revenue field.
(iv) Remission of a debt by the holding company which was
not claimed and allowed as a deduction in any manner in any earlier previous
year could not be brought to tax either u/s. 41(1) or u/s.28(iv). There is no
benefit or perquisite arising to the assessee in this regard.
(v) The decision of the Bombay High Court in the case of
Solid Containers Ltd. v. Dy. CIT, (308 ITR 417) does not apply to the
facts of the case. The facts of the present case are similar to the decision
of the Bombay High Court in the case of Mahindra & Mahindra Ltd. v. CIT,
(261 ITR 501). The loans availed for acquiring the capital assets i.e.,
shares, when waived cannot be treated as assessable income by invoking the
provisions of S. 28.
(vi) Since the original receipt was undoubtedly capital in
nature its waiver does not have the quality of changing the same into a
revenue receipt.
(vii) On facts, the provisions of S. 28 do not apply and
the amount is not taxable.
The assessee’s appeal was allowed.
