SOLID CONTAINERS LTD Vs. DEPUTY COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This appeal is directed against the order passed by the Income Tax Appellate Tribunal, Mumbai Bench dated 31st December, 2001 wherein the Tribunal has rejected the contention raised by the Assessee that the loan was a capital receipt and has not been claimed as deduction from the taxable income as expenses and, therefore, did not represent income under section 41(1) and, thus, sustained the addition of Rs.6,86,071. The Assessing Officer had made the addition on the ground that the credit balance returned back is the income of the Assessee in view of the fact that it is again directly arising out of the business activity and the same was liable to be taxed under section 28 of the Act. The learned counsel appearing for the appellant argued that the impugned order suffers from error of law as well as of appreciation of facts. While relying upon the judgment of this court in the case of Mahindra & Mahindra v. Commissioner of Income tax, 2003 ITR 261, page 501, it was contended that in relation to the transaction in question, section 28(iv) was not attracted and even provisions of section 41(1) of the Act could not be applied to treat the same as business income of the Assessee liable to tax.

(2.) In order to examine whether any substantial question of law arises in the present appeal or not, reference to basic facts may be necessary. The Assesseeappellant had taken a loan of Rs.6,86,071/during the previous year for business purposes which was returned back, as a result of consent terms arrived at between M/s. P.S. Jain Motors on the one hand and the Assessee on the other. The Assessee claimed that the said loan was the capital receipt and has not been claimed as deduction from the taxable income as expenses and therefore, did not come under section 41(1). As already noticed, this contention was rejected by the Assessing Officer on the ground that credit balance returned back is the income of the Assessee in view of the fact that it is again directly arising out of the business activity of the Assess and was liable to tax under section 28 of the Act. The order was appealed against. Commissioner partially allowed the appeal. Aggrieved from the order of the Income Tax Commissioner (Appeals), further appeal was preferred before the Income Tax Appellate Tribunal which again allowed the appeal on other counts but on the above issue and while relying upon the judgment of the Supreme Court in the case of Commissioner of Income Tax, Madurai v. T.V. Sundaram Iyengar and Sons Ltd., (1996) 6 SCC 294, sustained the view taken by the Commissioner. The Tribunal held as under:

(3.) The present appellant can hardly drive any advantage from the case of Mahindra & Mahindra Ltd. (supra). As in that case, a clear finding was recorded that the Assessee continued to pay interest at the rate of 6% for a period of 10 years and the agreement for purchase of toolings was entered into much prior to the approval of loan arrangement given by the reserve Bank of India. Therefore, the loan agreement, in its entirety, was not obliterated by such waiver. Secondly, the purchase consideration related to capital assets. The toolings were in the nature of dies and the Assessee was a manufacturer of heavy vehicles. The import was that of plant and machinery and the waiver could not constitute business. The facts of the present case are entirely different in as much as it was a loan taken for trading activity and ultimately, upon waiver the amount was retained in business by the Assessee. Thus, the principle stated by the Supreme Court in the case of T.V. Sundaram Ayengar & Sons Ltd. (supra) would be squarely applicable to the facts of the present case. The amount which initially did not fall within the scope of the provisions rendering it liable to tax subsequently have become the Assessee's income being part of the trading of the Assessee. Similar view was also taken by a Bench of Madras High Court in the case of Commissioner of Income tax v. Aries Advertising Pvt. Ltd., 2002 (255) ITR 510. The court took the view that the Assessee because of trading operation became richer by the amount which had been transferred and/or retained in the Profit and Loss Account of the Assessee.