IN THE HIGH COURT OF KERALA AT ERNAKULAM
ITA.No. 1774 of 2009()
1. COMMISSIONER OF INCOME TAX
... Petitioner
Vs
1. M/S.ACCELERATED FREEZE DRYING CO.LTD.
... Respondent
For Petitioner :SRI.JOSE JOSEPH, SC, FOR INCOME TAX
For Respondent :SRI.P.BALAKRISHNAN (E)
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice P.S.GOPINATHAN
Dated :22/03/2010
O R D E R
C.R.
C.N.RAMACHANDRAN NAIR &
P.S.GOPINATHAN, JJ.
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I.T. Appeal No.1774 of 2009
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Dated this the 22nd day of March, 2010.
JUDGMENT
Ramachandran Nair, J.
The only question raised in the departmental appeal is whether
the waiver of part of the loan by the Banks granted to the assessee is
assessable as income either under Section 28(iv) or under Section 41(1)
of the Income Tax Act. We have heard Senior Standing Counsel
Sri.P.K.R.Menon appearing for the Revenue and Adv.
Sri.P.Balakrishnan appearing for the respondent-assessee.
2. As on the last day of the previous year, assessee had an
accumulated liability due to the Banks amounting to Rs.3486.03lakhs
which was settled on payment of Rs.2450 lakhs. In the process
assessee saved an amount of Rs.1036.03 lakhs. The Assessing Officer
assessed this as deemed income assessable under the Act, but without
any specific reference to either Sections 41(1) or 28(iv) of the Act.
Even though Standing Counsel has relied on judgment of the Supreme
Court in COMMISSIONER OF INCOME-TAX VS.
2
T.V.SUNDARAM IYENGAR AND SONS LTD. reported in 222 ITR
344, we do not find any application for the said decision to the facts of
this case. However, we find that interest, if any, written off by the
Bank may be assessable under Section 41(1), if it was allowed as a
deduction in any of the preceding assessments of the assessee. This is
because interest paid on funds borrowed for business purpose is an
allowable deduction under Section 36(1)(iii) of the Income Tax Act. If
the interest allowed as a deduction in any assessment is waived, then of
course such amount may be assessable under Section 41(1) of the Act.
Counsel appearing for the assessee referred to the findings and
observations in some orders produced in the court stating that no
interest was charged by some Banks for some period and no waiver of
interest was granted in the one time settlement. However, Standing
Counsel submitted that when waiver is of consolidated amount,
necessarily part of the interest also gets waived. We find force in this
contention because the loan amount gets accumulated with interest
accretion and even though final settlement does not show break-up
details, necessarily a component of it is interest. An agreement
between the parties granting waiver of part of the loan is not binding on
the department because department is free to verify the break-up details
3
of accumulated loans and allocate from out of waiver, proportionate
accretion towards interest. So much of the interest allowed as
deduction from the preceding years that is waived by the Banks may be
assessable under Section 41(1) of the Act. We do not wish to express
any opinion on the assessability and on what amount assessment is
called for because detailed facts have to be gone into by verifying the
accounts of the assessee, the payments credited and the accumulations
of interest added to the loan account. We, therefore, allow the appeal
by setting aside the order of the Tribunal and remand the matter to the
Assessing Officer for verifying the accounts of the assessee and
making assessment, if possible under Section 41(1). We make it clear
that no assessment is permissible under Section 28(iv) as the said
Section has no application. The Assessing Officer should give
sufficient opportunity to the assessee to substantiate their case.
C.N.RAMACHANDRAN NAIR
Judge
P.S.GOPINATHAN
Judge
pms