Case: THE COMMISSIONER Vs. MAHINDRA AND MAHINDRA LTD. THROUGH M.D

a. For the proper appreciation of the issue in the case at hand, we deem it apposite to mention the gist of the facts. The appellant herein is the Department of Income Tax (for brevity the Revenue), on the other hand, respondent herein is Mahindra & Mahindra Ltd. (for brevity the Respondent) - a company registered under the Companies Act, 1956.b. The Respondent, way back, decided to expand its jeep product line by including FC-150 and FC-170 models. For this purpose, on 18.06.1964, it entered into an agreement with Kaiser Jeep Corporation (for short the KJC) based in America wherein KJC agreed to sell the dies, welding equipments and die models to the assessee. The final price of the tooling and other equipments was agreed at $6,50,000/-including cost, insurance and freight (CIF). Meanwhile, the Respondent took all the requisite approvals from the concerned Government Departments. The said toolings and other equipments were supplied by the Kaiser Jeep Corporation through its subsidiary Kaiser Jeep International Corporation (KJIC).c. However, for the procurement of the said toolings and other equipments, the KJC agreed to provide loan to the Respondent at the rate of 6% interest repayable after 10 years in installments. For this purpose, the Respondent addressed a letter dated 07.06.1965 to the Reserve Bank of India (RBI) for the approval of the said loan agreement. The RBI and the concerned Ministry approved the said loan agreement.d. Later on, it was informed to the Respondent that the American Motor Corporation (AMC) had taken over the KJC and also agreed to waive the principal amount of loan advanced by the KJC to the Respondent and to cancel the promissory notes as and when they got matured. The same was communicated to the Respondent vide letter dated 17.02.1976.e. On 30.06.1976 the Respondent filed its return and shown Rs. 57,74,064/- as cessation of its liability towards the American Motor Corporation. After perusal of the return, the Income Tax Officer (ITO) concluded that with the waiver of the loan amount, the credit represented income and not a liability. Accordingly, the ITO, vide order dated 03.09.1979, held that the sum of Rs 57,74,064/- was taxable under Section 28 of the Income Tax Act, 1961 (for brevity the IT Act).f. Being dissatisfied, the Respondent preferred an appeal before the Commissioner of Income Tax (Appeals) being No. CIT(A) V/CCIV/IT/261/79-80. After perusal of the matter, learned CIT (Appeals), vide order dated 23.03.1981, dismissed the appeal and upheld the order of the ITO with certain modifications.g. Being aggrieved, the Respondent as well as the Revenue preferred appeals being Nos. 2007 (Bomb.) of 1981 and 2132 of 1981 respectively before the Tribunal. The Tribunal, vide order dated 16.08.1982, set aside the order passed by learned CIT (Appeals) and decided the case in favour of the Respondent.h. Being aggrieved, the Revenue filed a Reference before the High Court at Bombay. In that Reference, three applications were filed, one by the assessee and rest two by the Revenue. Vide impugned common judgment and order dated 29.01.2003, the High Court confirmed certain findings of the Tribunal in favour of the Respondent.i. Hence, these instant appeals have been filed by the Revenue.

Reasoning:
10. The term loan generally refers to borrowing something, especially a sum of cash that is to be paid back along with the interest decided mutually by the parties. In other terms, the debtor is under a liability to pay back the principal amount along with the agreed rate of interest within a stipulated time.11. It is a well-settled principle that creditor or his successor may exercise their Right of Waiver unilaterally to absolve the debtor from his liability to repay. After such exercise, the debtor is deemed to be absolved from the liability of repayment of loan subject to the conditions of waiver. The waiver may be a partly waiver i.e., waiver of part of the principal or interest repayable, or a complete waiver of both the loan as well as interest amounts. Hence, waiver of loan by the creditor results in the debtor having extra cash in his hand. It is receipt in the hands of the debtor/assessee.13. On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record that the amount of Rs. 57,74,064/- is having received as cash receipt due to the waiver of loan. Therefore, the very first condition of Section 28 (iv) of the IT Act which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the present case. Hence, in our view, in no circumstances, it can be said that the amount of Rs 57,74,064/- can be taxed under the provisions of Section 28 (iv) of the IT Act.Section 41 (1) of the IT Act.The said provision15. On a perusal of the said provision, it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under Section 41 of the IT Act. The objective behind this Section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. It is undisputed fact that the Respondent had been paying interest at 6 % per annum to the KJC as per the contract but the assessee never claimed deduction for payment of interest under Section 36 (1) (iii) of the IT Act. In the case at hand, learned CIT (A) relied upon Section 41 (1) of the IT Act and held that the Respondent had received amortization benefit. Amortization is an accounting term that refers to the process of allocating the cost of an asset over a period of time, hence, it is nothing else than depreciation. Depreciation is a reduction in the value of an asset over time, in particular, to wear and tear. Therefore, the deduction claimed by the Respondent in previous assessment years was due to the deprecation of the machine and not on the interest paid by it.16. Moreover, the purchase effected from the Kaiser Jeep Corporation is in respect of plant, machinery and tooling equipments which are capital assets of the Respondent. It is important to note that the said purchase amount had not been debited to the trading account or to the profit or loss account in any of the assessment years. Here, we deem it proper to mention that there is difference between trading liability and other liability. Section 41 (1) of the IT Act particularly deals with the remission of trading liability. Whereas in the instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, we find no force in the argument of the Revenue that the case of the Respondent would fall underSection 41 (1) of the IT Act.17. To sum up, we are not inclined to interfere with the judgment and order passed by the High court in view of the following reasons:a. Section 28(iv) of the IT Act does not apply on the present case since the receipts of Rs 57,74,064/- are in the nature of cash or money.b. Section 41(1) of the IT Act does not apply since waiver of loan does not amount to cessation of trading liability. It is a matter of record that the Respondent has not claimed any deduction under Section 36 (1) (iii) of the IT Act qua the payment of interest in any previous year.18. In view of above discussion, we are of the considered view that these appeals are devoid of merits and deserve to be dismissed.