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The Tax Publishers2013 TaxPub(DT) 1785 (Del-HC) : (2013) 052 (I) ITCL 0281 Income Tax Act, 1961 --Business income--Benefit or perquisite under section 28(iv) Waiving obligation of assessee-company to issue shares --Assessee-subsidiary company had received share application money from its holding company in the earlier years. Assessing officer found that holding company had waived the obligation of assessee-company to issue shares towards share application money and the entire amount was transferred to capital reserve account, therefore, he considered the same as taxable under section 28(iv) as a business receipt. *Held:* Was not justified, as the amount of share application was never received towards trading purpose and the same was treated as a capital receipt. Moreso, the law declared in Handloom Export Corporation of India v. CIT 1983 TaxPub(DT) 522 (Del-HC) :(1983) 140 ITR 532, concluded that the amount had never changed its character when it was eventually transferred to capital reserve account and the period of time when the amounts were held by assessee in its books factually eliminated the suspicion that the amount was given as grants or aid. Income Tax Act, 1961, Section 28(iv) Income Tax Act, 1961 --Business income--Profits chargeable to tax under section 41(1) Waiving obligation of assessee to repay loan amount--Assessee-subsidiary company had imported consumables from its holding company in the earlier years in respect of which outstanding liability existed in its books of account. Assessing officer noticed that holding company had waived the obligation of the assessee-company to repay outstanding liability and the entire amount of the same was transferred to capital reserve account, therefore, he treated the amount of outstanding liability to be taxable under section 41(1). *Held:* Was not justified, as the amount had never received towards trading purpose and it was a liability towards purchase of capital assets. Moreso, the law declared in Handloom Export Corporation of India v. CIT 1983 TaxPub(DT) 522 (Del-HC) : (1983) 140 ITR 532 (Del) concluded that the amount never changed its character when it was eventually transferred to capital reserve account. However, the matter was remanded for determination of restricted question as to whether any amount was allowed as depreciation by assessee towards goods, it imported from its holding company. Income Tax Act, 1961, Section 41(1) In the Delhi High Court S. Ravindra Bhat & R.V. Easwar, J.J. CIT v. ICC India (P.) Ltd. ITA 396/2012 A.Y. 2006-07 20 November, 2012 *Decision:* In assessees favour. JUDGMENT The Revenue is aggrieved by an order of ITAT dated 30-9-2011 in ITA No.ll74/Del/2011. It urges that the following questions of law arise for consideration : '7. Whether the Tribunal fell into error in deleting the additions of Rs. 7,32,88,530 made by assessing officer under section 28(iv) of the Act on account of write back of share application money? 2. Whether in the facts of the case the ITAT fell into error in deleting the addition of Rs. 45,41,542 made by the assessing officer under section 41(1) of the Act on account of write back of loan?' SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 1785 (Del-HC) : (2013) 052 (I) ITCL 0281

Income Tax Act, 1961

--Business income--Benefit or perquisite under section 28(iv) Waiving obligation of assessee-company to issue shares --Assessee-subsidiary company had received share application money from its holding company in the earlier years. Assessing officer found that holding company had waived the obligation of assessee-company to issue shares towards share application money and the entire amount was transferred to capital reserve account, therefore, he considered the same as taxable under section 28(iv) as a business receipt. Held: Was not justified, as the amount of share application was never received towards trading purpose and the same was treated as a capital receipt. Moreso, the law declared in Handloom Export Corporation of India v. CIT 1983 TaxPub(DT) 522 (Del-HC) :(1983) 140 ITR 532, concluded that the amount had never changed its character when it was eventually transferred to capital reserve account and the period of time when the amounts were held by assessee in its books factually eliminated the suspicion that the amount was given as grants or aid.

Income Tax Act, 1961, Section 28(iv)

Income Tax Act, 1961

--Business income--Profits chargeable to tax under section 41(1) Waiving obligation of assessee to repay loan amount--Assessee-subsidiary company had imported consumables from its holding company in the earlier years in respect of which outstanding liability existed in its books of account. Assessing officer noticed that holding company had waived the obligation of the assessee-company to repay outstanding liability and the entire amount of the same was transferred to capital reserve account, therefore, he treated the amount of outstanding liability to be taxable under section 41(1). Held: Was not justified, as the amount had never received towards trading purpose and it was a liability towards purchase of capital assets. Moreso, the law declared in Handloom Export Corporation of India v. CIT 1983 TaxPub(DT) 522 (Del-HC) : (1983) 140 ITR 532 (Del) concluded that the amount never changed its character when it was eventually transferred to capital reserve account. However, the matter was remanded for determination of restricted question as to whether any amount was allowed as depreciation by assessee towards goods, it imported from its holding company.

Income Tax Act, 1961, Section 41(1)

In the Delhi High Court

S. Ravindra Bhat & R.V. Easwar, J.J.

CIT v. ICC India (P.) Ltd.

ITA 396/2012

A.Y. 2006-07

20 November, 2012

Decision: In assessees favour.

JUDGMENT

The Revenue is aggrieved by an order of ITAT dated 30-9-2011 in ITA No.ll74/Del/2011. It urges that the following questions of law arise for consideration :

'7. Whether the Tribunal fell into error in deleting the additions of Rs. 7,32,88,530 made by assessing officer under section 28(iv) of the Act on account of write back of share application money?

2. Whether in the facts of the case the ITAT fell into error in deleting the addition of Rs. 45,41,542 made by the assessing officer under section 41(1) of the Act on account of write back of loan?'