Case: Commissioner of Income-Tax- 8 Vs. Digiwave Infrastructure & Services Limited

1. This Appeal by the Revenue challenges the order passed by the Income Tax Appellate Tribunal. The Appeal, which was filed by the Revenue, is numbered as Income Tax Appeal No.690/Mum/2009. The Assessment Year is 2005-06.2. We are essentially concerned with the correctness of the view taken by the Tribunal in so far as this Appeal is concerned. The Appeal of the Revenue before the Tribunal was challenging the order of the First Appellate Authority dated 22 December 2008.3. Mr. Tejveer Singh, appearing on behalf of the Revenue in support of this Appeal, submits that the questions of law and which have been framed at page 5 of the Paper Book are substantial questions of law and require determination by this Court. He submits that the Tribunal failed to note that section 28(iv) of the Income Tax Act, 1961 (for short "IT Act") deals with value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession.4. In the instant case, the return of the income was filed by the Assessee on 31 October 2005 declaring total loss of Rs.9,00,621/-. It is submitted by Mr. Singh that the Assessee is engaged in the business of procurement & production of media programmes. The assessment was completed on 27 December 2007 determining the total income at Rs.129,23,26,128/-. It has come on record that the Assessee-company borrowed funds from Indya.com, an associate concern, from time to time at commercial rate of interest. Similarly, the Assessee entered into a loan agreement with Music Broadcast Pvt. Ltd. (MBPL), another associate concern, to which loan was advanced of Rs.40,82,58,569/-. Since there was default on the part of MBPL, the Assessee-company claimed the right to convert the balance amount of loan of Rs.139.58 crores into equity share capital of MBPL. The Ministry of Information & Broadcasting alleged that this arrangement was in violation of the terms and conditions of the licence issued to MBPL. There were admittedly certain legal proceedings against this Ministry and at the instance of MBPL. The Assessee-company eventually waived the loan granted to MBPL together with interest. The legal proceedings, therefore, were withdrawn. At the same time Indya.com waived loan of Rs.116.52 crores and interest of Rs.5.47 crores advanced to the Assessee. The Assessee did not offer the same as income for the year under section 28(iv), but the Assessing Officer considered the Assessees reply and bearing in mind this provision considered the amount of Rs.116,52,58,569/- on account of waiver of loan as income of the Assessee for the year under consideration. The Assessing Officer also added an amount of Rs.5,47,70,190/- being the interest amount waived by Indya.com. Both these amounts were added to the total income of the Assessee-company.5. This order of the Assessing Officer was challenged before the Commissioner (First Appellate Authority) and the Commissioner relying upon the judgment of this Court in the case of Mahindra & Mahindra v. CIT [2003] 261 ITR 501 /128 Taxman 394 deleted the additions. The order passed by the Commissioner of Income Tax (Appeals) dated 22 December 2008 was challenged by the Revenue in Appeal and the Tribunal upheld the order of the Commissioner.6. After having heard Mr. Tejveer Singh and Mr. Kaka, learned Sr. Counsel appearing for the Assessee and perusing the findings of the Income Tax Appellate Tribunal in the light of the above noted factual position, we do not find any perversity or error apparent on the face of record in the order of the Tribunal enabling us to interfere with the same in our further Appellate jurisdiction.7. The questions of law are framed on the footing that the Tribunal has misread this provision or rather misconstrued it.8. That does not appear to be the case, inasmuch as, if two loans were taken by the Tribunal into consideration, coupled with the nature of the business of the Assessee, it noted that in the assessment year 2002-03 the Assessee set off brought forward business loss against net interest income by claiming interest to be business income. That is because it was charging interest at the rate of 9% p.a. from MBPL. There the Revenue did not accept the claim of the Assessee and held that the interest income was not connected with the business of the Assessee and hence no set off was allowed against the business losses. Again in assessment year 2004-05, the Revenue Authorities assessed the interest income as income from other sources. The Tribunal noted that when the loan of Rs.116.52 crores has been waived by Indya.com in favour of the Assessee, the Assessing Officer sought to apply section 28(iv) by terming such waiver as income of the Assessee and arising from the business of the Assessee. This stand of the department, therefore, has been commented upon by the Tribunal in para 3 and it held that if section 28(iv) was applied that means the loan was treated as connected with the business of the Assessee. However, in earlier years the Revenue did not accept the loan transactions from Indya.com and to MBPL both as business transactions. It now cannot question or turn around from its findings. Mr.Tejveer Singh would find fault with it, but what we have concluded is that in the given facts and peculiar to the Assessee, that the Tribunal commented on this conflicting stand or versions of the Revenue. Either loans should retain the character originally labled or attached to or it should answer the term as a business loan. We do not find any reason nor any fault with the Tribunal, when it upheld the order of the Commissioner by looking at the matter either way. In para 4 what it has noted is that the Assessee would be entitled to set off, in the sense that if one loan which was advanced to it has been now written off and equally the advance made by this Assessee to MBPL became non-recoverable, then, what it derives by way of loan having been shown as income and what is the amount written off by the Assessee can be adjusted against each other. Because of the waiver, the liability of MBPL to repay the same would enable the Assessee to adjust a receipt or claim a set off. That is how the Tribunal concluded that the Assessing Officer charged to tax receipt of waiver of loan of Rs.116.52 crores as business income together with interest at Rs.5.47 crores but did not allow the deduction for waiver of the loan granted to the Assessee to the tune of Rs.139.58 crores. If both transactions are loan transactions and one part of it is treated as business income then second part could not have, in these peculiar facts, given a different character. We do not see as to how the observations made in para 4 could be seen out of context. Those are made in the backdrop of the peculiar facts and that is how the conclusion of the Commissioner that Rs.122 crores being the difference of the amount cannot be taken as income under section 28(iv) came to be upheld.

Decision reasoning: 0[ds]6. After having heard Mr. Tejveer Singh and Mr. Kaka, learned Sr. Counsel appearing for the Assessee and perusing the findings of the Income Tax Appellate Tribunal in the light of the above noted factual position, we do not find any perversity or error apparent on the face of record in the order of the Tribunal enabling us to interfere with the same in our further Appellate jurisdiction.7. The questions of law are framed on the footing that the Tribunal has misread this provision or rather misconstrued it.8. That does not appear to be the case, inasmuch as, if two loans were taken by the Tribunal into consideration, coupled with the nature of the business of the Assessee, it noted that in the assessment yearthe Assessee set off brought forward business loss against net interest income by claiming interest to be business income. That is because it was charging interest at the rate of 9% p.a. from MBPL. There the Revenue did not accept the claim of the Assessee and held that the interest income was not connected with the business of the Assessee and hence no set off was allowed against the business losses. Again in assessment yearthe Revenue Authorities assessed the interest income as income from other sources. The Tribunal noted that when the loan of Rs.116.52 crores has been waived by Indya.com in favour of the Assessee, the Assessing Officer sought to apply section 28(iv) by terming such waiver as income of the Assessee and arising from the business of the Assessee. This stand of the department, therefore, has been commented upon by the Tribunal in para 3 and it held that if section 28(iv) was applied that means the loan was treated as connected with the business of the Assessee. However, in earlier years the Revenue did not accept the loan transactions from Indya.com and to MBPL both as business transactions. It now cannot question or turn around from its findings. Mr.Tejveer Singh would find fault with it, but what we have concluded is that in the given facts and peculiar to the Assessee, that the Tribunal commented on this conflicting stand or versions of the Revenue. Either loans should retain the character originally labled or attached to or it should answer the term as a business loan. We do not find any reason nor any fault with the Tribunal, when it upheld the order of the Commissioner by looking at the matter either way. In para 4 what it has noted is that the Assessee would be entitled to set off, in the sense that if one loan which was advanced to it has been now written off and equally the advance made by this Assessee to MBPL becamethen, what it derives by way of loan having been shown as income and what is the amount written off by the Assessee can be adjusted against each other. Because of the waiver, the liability of MBPL to repay the same would enable the Assessee to adjust a receipt or claim a set off. That is how the Tribunal concluded that the Assessing Officer charged to tax receipt of waiver of loan of Rs.116.52 crores as business income together with interest at Rs.5.47 crores but did not allow the deduction for waiver of the loan granted to the Assessee to the tune of Rs.139.58 crores. If both transactions are loan transactions and one part of it is treated as business income then second part could not have, in these peculiar facts, given a different character. We do not see as to how the observations made in para 4 could be seen out of context. Those are made in the backdrop of the peculiar facts and that is how the conclusion of the Commissioner that Rs.122 crores being the difference of the amount cannot be taken as income under section 28(iv) came to be upheld.