Bombay H.C : The waiver of payment a capital receipt in the hands of the assessee and not the revenue receipt

High Court Of Bombay

CIT vs. Softworks Computers (P.) Ltd.

Assessment Year : 2001-02

Section : 4

J.P. Devadhar And M.S. Sanklecha, JJ.

IT Appeal No. 6777 Of 2010

December 18, 2012

JUDGMENT

1. This appeal under section 260A of the Income-tax Act, 1961 (the Act), by the Revenue against the order dated October 5, 2007, passed by the Income-tax Appellate Tribunal (“the Tribunal”) for the assessment year 2001-02. The appellant seeks to raise the following reframed question of law for consideration of this court.

“Whether, on the facts and circumstance of the case and in law, the Tribunal is correct in holding that the waiver of payment Rs. 70,12,236 is a capital receipt in the hands of the assessee and not the revenue receipt.”

2. The respondent-assessee was dedicated software development centre providing transaction processing facilities and airline control system services to Speedwing British Airways. The respondent-assessee was located in the premises of Speedwing British Airways. Thereafter, in September-October, 1998, it was decided between Speedwing British Airways and the respondent-assessee that it should relocate itself to an independent location. For the aforesaid purpose of relocation, Speedwing British Airways provided an advance of pounds 1 lakh. Thereafter, in January, 2001, Amadeus Global Travel steps into the shoes of Speedwing British Airways and assumed its rights and liabilities. Consequent to the above, on March 1, 2001 a new agreement was signed between respondent-assessee and Amadeus Global Travel, inter alia, releasing respondent-assessee from repayment of the advance of pound 1 lakh.

3. In view of the above, in its return of income for the assessment year 2001-02, the respondent-assessee had claimed that the waiver or remission of the liability of the loan was in the nature of the capital receipt and, therefore, not included in the respondent-assessee’s taxable income. However, the Assessing Officer did not accept the respondent-assessee’s contention and in the assessment order dated March 24, 2004, added the amount of Rs. 70.12 lakhs to the income of the respondent-assessee. This was on the basis that the waiver of Rs. 70.12 lakhs was a revenue receipt and, therefore, taxable.

4. In first appeal, the Commissioner of Income-tax (Appeals) by order dated July 19, 2004, upheld the order of the Assessing Officer. The Commissioner of Income-tax (Appeals) also held that the waiver of a loan/ advance is a revenue receipt and taxable.

5. In second appeal, the Tribunal by its order dated October 5, 2007, allowed the appeal of the respondent-assessee. The Tribunal held that the amount of Rs. 70.12 lakhs cannot be subjected to the tax as the same was in the nature of the capital receipt.

6. Mr. Suresh Kumar, advocate for the Revenue, in support of the appeal submits that in view of the decision of this court in the matter of Solid Containers Ltd. v. Dy. CIT [2009] 308 ITR 417/178 Taxman 192 (Bom), a waiver of the loan taken for business purpose is in the nature of revenue receipt and, therefore, taxable. As against the above, Mr. Pardiwala, senior advocate for the respondent-assessee, submits that the issue is covered by the decision of this court in the matter of Mahindra and Mahindra Ltd. v. CIT [2003] 261 ITR 501/128 Taxman 394 (Bom), where a waiver of a loan taken for purchase of capital asset was held to be on capital account and not on revenue account. Therefore, no fault can be found with the order of the Tribunal.

7. We find that the decision of this court in the matter of Solid Containers Ltd. (supra) has also considered the earlier decision in the matter of Mahindra and Mahindra Ltd. (supra) and distinguished the same by holding that in that case the loan was given for purchase of capital assets unlike in the case of Solid Containers Ltd. (supra) where waiver was of a loan taken for trading activity and thus considered to be of a revenue nature. In the present case, the amount which was advanced as a loan to the respondent-assessee was for the purposes of relocating its office premises. The loan taken was utilised for the purposes of acquiring a office at Godrej Soap Complex, Vikroli, Mumbai. Therefore, the loan in the present fact was taken for acquisition of capital asset and not for the purposes of trading activity as in the case of Solid Containers Ltd. (supra). The present case is, therefore, covered in favour of the respondent-assessee by the decision of this court in the matter of Mahindra and Mahindra Ltd. (supra).

8. In view of the above, no substantial question of law arises for consideration by this court. Therefore, appeal is dismissed. No order as to costs.

[Citation : 354 ITR 16]

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