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2023 Supreme(Kar) 521
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
S. SUNIL DUTT YADAV, J.
M/s. I.G. Petrochemicals Ltd., Represented by its Executive Director Sri Jitendra Kumar Saboo, Son of late Vishwanath Saboo – Petitioner
Versus
The Income-tax Appellate Tribunal and Anr. – Respondents
Writ Petition No.20579 Of 2022 (T-IT)
Decided On : 23-09-2023
For the Petitioner: Sri S. Ganesh, Sr. Adv. a/w Ms. Jinita Chatterjee, Adv. for Sri S. Parthasarathi.
For the Respondents: Sri E.I. Sanmathi.
The waiver of loan constitutes a benefit in the shape of money and is not taxable under Section 28(iv) of the Income Tax Act.
Headnote:
Waiver of Loan - Income Tax Act, 1961 - Section 28(iv) - The court analyzed the taxability of the waiver of loan under Section 28(iv) of the Income Tax Act. The court relied on the judgment in Mahindra and Mahindra, which held that the benefit upon waiver of loan should be other than in the shape of money to be taxable under Section 28(iv). The court concluded that the benefit of waiver of loan in the present case was in the form of a cash receipt and did not satisfy the test to make it taxable under Section 28(iv).
Fact of the Case:
The petitioner sought setting aside of an order passed by the Income Tax Appellate Tribunal in a miscellaneous petition filed under Section 254(2) of the Income Tax Act. The petitioner contended that the waiver of principal amount of term loans and working capital loans constituted a capital receipt and was not taxable income. The petitioner relied on the judgment of the Supreme Court in Commissioner of Income Tax v. Mahindra and Mahindra, which held that waiver of loan constituted a benefit in the shape of money and was not taxable under Section 28(iv) of the Income Tax Act. The Tribunal partly allowed the miscellaneous petition, holding that waiver of term loan was taxable. The petitioner challenged this order in a writ petition.
Finding of the Court:
The court analyzed the maintainability of the writ petition in light of the availability of an alternative remedy of appeal under Section 260A of the Income Tax Act. The court held that the existence of an alternative remedy does not ipso facto bar the entertaining of a writ petition, especially when the legal question raised is covered by a judgment of the Supreme Court. The court also examined the taxability of the waiver of loan under Section 28(iv) of the Income Tax Act. The court relied on the judgment in Mahindra and Mahindra, which held that the benefit upon waiver of loan should be other than in the shape of money to be taxable under Section 28(iv). The court concluded that the benefit of waiver of loan in the present case was in the form of a cash receipt and did not satisfy the test to make it taxable under Section 28(iv).
Ratio Decidendi: The waiver of loan constitutes a benefit in the shape of money and is not taxable under Section 28(iv) of the Income Tax Act.
Result: The order passed by the Income Tax Appellate Tribunal in the miscellaneous petition is set aside. The Tribunal is directed to reconsider the petition in light of the discussion made in the judgment without reopening any fresh question for consideration.
ORDER :
The petitioner has sought for setting aside of the order dated 05.09.2022 at Annexure-'F' passed by the Income Tax Appellate Tribunal "C" Bench, Bangalore in M.P.No.47/Bang/2022 in ITA No.1317/BANG/2018 for the Assessment Year 2006-07. In terms of the said order, the Miscellaneous Petition filed by the Assessee under Section 254(2) of the Income Tax Act, 1961 ('I.T. Act' for brevity) seeking rectification of the mistake in the order of Tribunal, [ITA No.1317/Bang/2018 for the A.Y.No.2006-07] dated 21.01.2022 came to be partly allowed by deleting the paragraph Nos.6, 7 and 8 and substituting the same with fresh paragraphs.
(I) BRIEF FACTS:
2. The petitioner is stated to have taken term loans and working capital loans from Banks and had entered into an One Time Settlement (OTS) with the Banks, whereby portion of the interest charged by the Bank and also part of the principal amount stood waived.
3. While petitioner had offered the waiver of interest to assessment, however, the waiver of the principal amount of term loans and working capital loans was treated to be a capital receipt and was not subjected to tax.
4. The subject matter of dispute relates to the Assessment Year 2006-2007.
5. The history of litigation is as follows:-
| 23.03.2011 | The appellant/petitioner herein, preferred an appeal ITA No.185/CIT(A)-3/BNG/2014-15 before the Commissioner of Income Tax (Appeals) challenging the order dated 12.11.2010 passed by the Assistant Commissioner of Income Tax, Circle-11(4), Bangalore, for A.Y. 2006-2007. |
| 28.02.2018 | The Commissioner of Income Tax (Appeals) dismissed the above said appeal (Annexure-B). |
| 27.12.2021 | The ITAT "B" Bench, Bangalore, disposed off the appeal filed by the Revenue against the order dated 31.10.2019 of the Commissioner of Income Tax (Appeals) for AY 2005-06, by holding that the principal portion of the loan which was received by the assessee is not in the course of trading activity and hence not taxable and remitted the matter to the assessing officer to verify if there was any deduction with respect to waiver of interest in any earlier assessment year and then only the such waiver of interest could be taxable. (Annexure-C). |
| 21.01.2022 | The ITAT "C" Bench, Bangalore partly allowed the appeal preferred by the Petitioner against the order of Commissioner of Income Tax (Appeals), Bengaluru dated 28.02.2018 for AY 2006-07. The ITAT concluded that the loan received by the assessee was in the course of carrying on business of the assessee and the waiver of the loan amount will result in revenue receipt and shall be liable to tax. (Annexure-D). |
| 25.05.2022 | The petitioner flied Miscellaneous Application u/s 254(2) for AY 2006-07 before the ITAT "C" Bench, Bengaluru in ITA.No.1317/Bang/2018 (Annexure-F). |
| 05.09.2022 | The ITAT "C" Bench, Bengaluru partly allowed the miscellaneous application. The ITAT reiterated its finding that waiver of principal amount of working capital loan is liable to be assessed u/s 41(1) for A.Y. 2006-07 (Annexure-F). |
6. The order of the Assessing Officer for the Assessment Year 2006-2007 came to be challenged before the Commissioner of Income Tax (Appeals) which confirmed the order of the Assessing Officer at Annexure-'B' which was taken up in appeal before the Income Tax Appellate Tribunal which allowed the appeal in part, while holding that waiver of term loan taken for the purpose of capital assets would not result in any benefit or perquisite flowing to the assessee which could be described to be a revenue receipt and accordingly would not constitute income of the assessee. However, as regards loans taken in the course of carrying on the business and where such loans were waived, it would result in flow back of funds to the assessee which was in the nature of revenue receipt
