Commissioner Of Income Tax Delhi ... vs Tosha International Ltd
2008 Latest Caselaw 1720 Del

           THE HIGH COURT OF DELHI AT NEW DELHI

%                                  Judgment delivered on: 23.09.2008

+            ITA 1143/2008

COMMISSIONER OF INCOME TAX
DELHI (CENTRAL) - II                                    ... Appellant

                                  - versus -

TOSHA INTERNATIONAL LTD                                 ... Respondent

Advocates who appeared in this case:

For the Appellant : Mr R. D. Jolly

CORAM:-

HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE RAJIV SHAKDHER

1. Whether Reporters of local papers may be allowed to see the judgment ?

2. To be referred to the Reporter or not ?

3. Whether the judgment should be reported in Digest ?

BADAR DURREZ AHMED, J (ORAL)

1. This appeal by the revenue is directed against the order dated

31.07.2007 passed by the Income Tax Appellate Tribunal in ITA

4922/Del/2005 in respect of the assessment year 2001-2002.

2. The assessee was engaged in the manufacturing of black and

white picture tubes. The assessee company ran into huge losses and it

ultimately became a sick company and registered with the BIFR.

Under the one time settlement scheme, the financial institutions and

banks required the assessee to pay 60% of the amount due towards

principal and waived the entire interest payment. There is no dispute

with regard to the waiver of interest payment. The only objection

raised by the Assessing Officer is with regard to the waiver of the

principal amount to the extent of Rs 10,47,93,857/- which the assessee

had directly credited to the Capital Reserve Account. According to the

Assessing Officer the assessee had derived benefit on the basis of either

depreciation or utilizing the working capital which would have formed

part of the earlier year‟s income. According to the Assessing Officer

since the loans ceased to exist, this amounted to cessation of liability

and, therefore, it has to be treated as an income. Consequently, the

Assessing Officer added the said sum of Rs 10.47 crores in the income

of the assessee. The Commissioner of Income Tax (Appeals) deleted

the addition by observing that the remission of the principal amount of

loan did not amount to income under Section 41 (1) nor under Section

28 (iv) nor under Section 2(24) of the Income Tax Act, 1961

(hereinafter referred to as the „said Act‟).

3. The revenue went in appeal before the Tribunal against the

order of the Commissioner of Income Tax (Appeals) with regard to the

deletion of the said sum of Rs 10.47 crores. We note that the Tribunal

has examined the case in detail and particularly from the standpoint of

the provisions of Section 41 (1) of the said Act. The Tribunal has

observed as under:-

"As per our considered view, for attracting the provisions of Section 41 (1), the first requisite condition to be satisfied is that the assessee should have got deduction or benefit of allowance in respect of loss, expenditure or trading liability incurred by it and subsequently during any previous year, the assessee should have received any amount in respect of such loss, expenditure or trading liability by way of remission or cessation thereof. The remission would become income only if the assessee has claimed deduction in respect of expenditure or trading liability. In Mahindra & Mahindra Ltd. Vs. CIT, Hon‟ble High Court of Bombay 261 ITR 501, held that no allowance or deduction having been allowed in respect of loan taken by assessee for purchase of capital assets, Section 41 (1) was not attracted to remission of principal amount of loan. In the instant case, the assessee has not got any deduction on account of acquisition of capital assets as the same has been reflected in the balance sheet and not in the P&L account, and also the remission of the principal amount of loan so obtained from the bank and financial institution had not been claimed as expenditure or trading liability in any of the earlier previous year. So far as waiver of interest is concerned, the assessee company itself has treated the same either as income or has not claimed the same as expenditure in the computation of income filed before the lower authorities."

4. We see no reason to interfere with the conclusions of the

Tribunal as the same have been rendered on a correct appreciation of

law. The principles enunciated in Mahindra & Mahindra Limited v.

CIT: 261 ITR 501(Bom) are fully applicable and we see no reason to

take a different view.

5. Consequently, no substantial question of law arises for our

consideration. The appeal is dismissed.

BADAR DURREZ AHMED, J

RAJIV SHAKDHER, J September 23, 2008 SR