By K. B. BHUJLE
Advocate
CIT vs. Neon Solutions Pvt. Ltd; 387 ITR
667 (Bom):
The assessee
subscribed 2 % non-convertible unsecured debentures issued by one of its group
companies in 2003. As the company which issued the debentures was in financial
difficulties, waiver of interest on the debentures till March 31, 2010 was
approved at a meeting of the debenture holders in 2004. A resolution was passed
by the board of directors of the assessee to this effect.
The Assessing
Officer brought to tax the notional interest at the rate of 2 % on the debentures for the A. Ys. 2007-08 and
2009-10 on the ground that the waiver of interest was unbelievable. The
Tribunal deleted the addition and held that even in the mercantile system of
accounting, income could be regarded as accrued only if there was certainty of
receiving it and not when it was waived.
On appeal by the Revenue, the Bombay High
Court upheld the decision of the Tribunal and held as under:
“i) The
order of the Tribunal was based on the facts and its findings were not found to
be perverse or arbitrary. It found that the various resolutions passed by the
company and the communications exchanged between the parties established the
fact that the interest on the debentures was waived for six years and that
there was no reason to disbelieve the resolution waiving the interest.
ii) Amalgamation of the
issuing company with the also establishes the fact that it was in financial
difficulties. Moreover, for the A. Ys. prior to 2007-08 no additions were made
by the Department on account of notional interest.
iii) No question of law
arose.”
