The Tax Publishers2020 TaxPub(DT) 4444 (Raj-HC) : (2020) 423 ITR 0089

INCOME TAX ACT, 1961

Section 41(1)(a)

Where assessee, Co-operative Society (involved in milk and milk product processing) secured a loan from the National Dairy Development Board (NDDB) for which the Government of Rajasthan stood guarantor, subject to payment of commission and later on State wrote off said liability subject to condition that it to be treated as a capital grant to be used only for capital and rehabilitation purposes then the same could to be taxed as remission or cessation of trading liability as loan utilized by the assessee was for the capital purposes and State, instead of fully writing off the amounts, (repayable by the assessee) imposed an important condition that they would be utilized only for capital/rehabilitation purposes.

Business addition under section 41(1)(a) - Remission or cessation of trading liability - Assessee, Co-operative Society (involved in milk and milk product processing) secured a loan from the National Dairy Development Board (NDDB) for which the Government of Rajasthan stood guarantor - State wrote off the liability recorded against assessee subject to certain conditions

The assessee, a Cooperative Society (involved in milk and milk product processing) had secured a loan from the National Dairy Development Board (NDDB) for which the Government of Rajasthan stood guarantor subject to payment of commission of Rs. 25 lakhs per annum. This was claimed as an expenditure for several years upto the assessment year in question. The amount remained outstanding and was shown as payable to the Government of Rajasthan. The State of Rajasthan wrote off that liability of Rs. 4,74,77,000 allowing it to be treated as a capital grant to be used only for capital and rehabilitation purposes. Held: The assessee continued to remain liable to repay those amounts. In these circumstances, the State instead of fully writing off the amounts, (repayable by the assessee) imposed an important condition that they would be utilized only for capital/rehabilitation purposes. This was therefore a significant factor i.e. the writing off was conditional upon use of the amount in the hands of the assessee which was for the purpose of capital. In such circumstances the amount involved was not liable to tax.

Applied :CIT v. TV Sundaram Iyengar and Sons Limited (1996) 222 ITR 344(SC) : 1996 TaxPub(DT) 1245 (SC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2004-05



IN THE RAJASTHAN HIGH COURT

SUBSCRIBE TaxPublishers.inSUBSCRIBE FOR FULL CONTENT

TaxPublishers.in

'Kedarnath', 7, Avadh Vihar, Near Nirali Dhani,

Chopasni Road

Jodhpur - 342 008 (Rajasthan) INDIA

Phones : 9785602619 (11 am - 5 pm)

E-Mail : mail@taxpublishers.in / mail.taxpublishers@gmail.com