Karnataka High Court
Commissioner Of Income-Tax vs Comfund Financial Services on 11 February, 2000
Equivalent citations: [2000]245ITR143(KAR), [2000]245ITR143(KARN)
JUDGMENT V.K. Singhal, J.
1. The Revenue has filed this application with the prayer that the Income-tax Appellate Tribunal be directed to refer the following question of law arising out of its order dated September 30, 1997 :
"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the remission of Rs. 44,69,88,170 by the Deutsche Bank is on capital account and not chargeable to tax under Section 41(1) or 28(iv) in spite of the fact that the purchases which were so remitted were claimed by the assessee as a revenue expenditure in the same assessment year ?"
2. The application submitted by the Tribunal under Section 256(1) was dismissed on the ground that the finding which has been given by the Tribunal is of fact as to the nature of the amount remitted by the Deutsche Hank and other considerations following mainly the judgment of the Supreme Court referred by the Tribunal.
3. The facts of the case are that there was a waiver of Rs. 47.3 crores by the Deutsche Bank to the respondent-company. Out of this amount, the respondent-assessee offered only a sum of Rs. 2.60 crores as representing remission of interest amount by the Deutsche Bank and contended before the assessing authority that the balance of Rs. 44.70 crores approximately, was remission of overdraft or loan and that such remission was on capital account. On such premises, it was, therefore, claimed by the assessee that this amount was in the nature of capital receipt and had no element of revenue so as to be brought to taxation. The Assessing Officer did not accept the respondent-assessee's contention. He held that dues to the Deutsche Bank by the respondent-assessee were towards purchases made by the respondent-assessee during the year from the Deutsche Bank. He held that the purchases have been claimed as expenditure and allowed as such during the same year, and, therefore, the remission of such liability would be taxable under Section 41(1) of the Act. The assessment was therefore concluded by the assessing authority negativing the contention urged by the respondent-assessee. The Appellate Commissioner of Income-tax after analysing in detail the relationship between the respondent-assessee and the Deutsche Bank as well as the entire gamut of transactions in shares and securities arrived at the conclusion that the remission was on account of trading liabilities and not due to any borrowing' as such. It was held by the Appellate Commissioner that there was no doubt that there was waiver of liability by the Deutsche Bank which had resulted correspondingly in a benefit by way of cessation of a corresponding portion of the liability of the assessee which was caused by the trading transactions of the assessee. He held that consequently the entire amount of Rs. 47.70 crores written off by the Deutsche Bank constitutes benefit by way of cessation of liability arising out of business transactions and the same was therefore assessable under Section 41(1) read with Section 28(iv) of the Act. The Tribunal held that the remission by Deutsche Bank is on capital account, being waiver of overdraft dues and that the trading transactions of the Deutsche Bank with the assessee inter se and the transactions between the assessee and the third parties through Deutsche Bank stand distinctly on a separate footing. The Tribunal held that as such the remission by the Deutsche Bank is only on capital account and, therefore, not chargeable to tax either under Section 41(1) or Section 28(iv) of the Act. The Tribunal therefore, reversed the orders of the lower authorities on this aspect and held that there was no occasion for charging the amount remitted by invoking the provisions of Section 41(1) or Section 28(iv) of the Act.
4. The report of the Janakiraman Committee in which it was mentioned that the respondent entered into ready forward transactions with the Deutsche Bank. The funds were received through sale of securities. The contents of the report have been discussed by the Commissioner of Income-tax (Appeals) in para. 12 of his order. It is pointed out that the amount of remission was credited in the profit and loss account. Certain other facts have also been stated by learned standing counsel for the Department which we need not examine at this stage as the merits have to be examined after the statement of case is called for by the Tribunal. In the case of CITv. M. R. Dhawan [1994] 210 ITR 557, the Delhi High Court was of the view that the question whether the amount was assessable under Section 41 is a question of law. The same view has been taken in CJT v. Balabux Birla and Co. ; CIT v. Jay Engineering Works Ltd. ; CITv. Ram Kishan Mal Ladha Singh ; CIT v. Anand Iron and Steel Industries [1989] 179 ITR 620 (Delhi) and CIT v. Deora Pu Cabncon Manufacturing Co. Pvt. Ltd. .
5. Under Section 41(1) of the Act, the liability would arise in respect of an allowance or deduction which has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year the assessee had obtained any amount in respect of such loss or expenditure or some benefit of such trading liability by way of remission or cessation thereof.
6. The amounts credited to the profit and loss account were considered as income chargeable to tax under Section 41(1) in the case of Indian Motor Transport Co. v. CIT [1978] 114 ITR 677 (All).
7. It is not in dispute that the assessee has credited the profit and loss account and not the loan account. While according to the Revenue, the liability was on account of trading transaction and not due to any bor-rowal. Crediting the profit and loss account implies that the said amount has already been debited to some other account and must have been shown in the documents submitted before the authorities below. The Tribunal has not gone in detail in this respect. For the purpose of attracting the provisions of Section 28(iv) of the Act, the Revenue was of the view that waiver of liability by the Deutsche Bank resulted in the benefit by way of cessation of a corresponding portion of the liability of the assessee which was caused by the trading transactions of the assessee. The applicability of a provision of a statute is always a question of law. Even the Tribunal while deciding the appeal was not sure whether the provisions of Section 41(1) would be applicable when the remission or cessation of the liability pertained to the same year. The nature of the transactions of the assessee with the Deutsche Bank are stated to be direct purchases and sales of securities and also acting as a financier/banker/agent for the purchases made by the assessee from the third parties which were routed through the Deutsche Bank.
8. At this stage, it is not necessary to go into more details in the matter since the limited question to be considered is as to whether a question of law arises or not. As we are of the view that the applicability of the provisions of a statute is a question of law and it has to be examined in the present case as to whether the remission was on the capital account or chargeable to tax under Section 41(1) or Section 28(iv) which involves a question of law.
9. Looking to the facts and circumstances of the case and the controversy involved, we are of the opinion that the above question of law arises out of the order of the Tribunal. The Tribunal is, therefore, directed to draw up the statement of case and refer the above question along with the statement of case within three months from the date of receipt of this order.
10. C. P. is allowed.