1. CIT v/s HCL Technologies Limited [2018] 404 ITR 719 SC
[Note: The Supreme Court gave the decision in relation to old Section 10A. The same holds good even for Section 10AA.]
Law: Section 10AA, Explanation 1, Clause 1 defines Export turnover.
While considering Export turnover deduct
1. freight, telecommunication charges, insurance attributable to delivery of articles, things outside India
2. expenditure incurred in foreign exchange attributable to rendering of services outside India
Background:
The Assessee has deducted expenditure incurred in foreign exchange attributable to rendering of services outside India from Export Turnover as well as Total Turnover
Issue: Whether such expenditure can be deducted from Total Turnover for calculating deduction under Section 10AA?
Assessee: Your Honour, Total Turnover is not defined in the Act. Hence ordinary meaning has to be understood in conformity with the context in which it is used. Expenditure which is deductible from Export turnover is also deductible from Total Turnover
AO: I completely disagree your honour.
Law allows, to deduct such expenditure only from Export turnover. Law is silent regarding, whether such expenditure can be deducted from Total Turnover. Such expenditure cannot be deducted from Total Turnover.
Judge:
If deduction for such expenditure is allowed only against Export turnover and not against Total Turnover, It would give rise to inadvertant, unlawful, meaningless and illogical results and causes grave injustice, which is never the intent of law.
Hence expenditure incurred in foreign exchange attributable to rendering of technical services outside India is deductable from Total Turnover also.
The Case is Closed ...
Assessee is jump[ing with joy .............ha .....haah
AO is perplexed, is telling But But But..................... sometimes But remains as it is in life.............
2. CIT v/s Mahindra and Mahindra LTD [2018] 404 ITR 1 (SC)
Background:
Assessee has taken a loan from K.
K is acquired (taken over) by AMC.
It is as good as Assessee has taken loan from AMC.
The loan is taken for purchase of plant and machinery and tooling equipment. Later Loan principal amount is waived by AMC (lender).
Issue: Whether amount of loan waived, is taxable income in the hands of Assessee?
AO: Your Honour, amount of loan waived is taxable under Section
28(iv) as a perquisite or
41(1) as a waiver of trading liability
Assessee: My Lord, to apply Section 28(iv), income must arise from business or profession and benefit received should be in non monetary form
Loan amount is received in cash. Its a cash receipt. Hence Section 28(iv) is not applicable.
AO: Objection your Honour.
Judge: Objection over ruled. Mr. Assessee, you can proceed.
Assessee: Thank you, your Honour.
Lets consider the requirements to apply Section 41(1)
- allowance or deduction is claimed in any assessment year and
- allowance or deduction is in respect of a trading liability incurred by the assessee
Subsequently if creditor waives such trading liability, it becomes taxable income in the hands of Assessee.
For example credit purchase of goods.
1. Purchase amount (Purchases) is debited to P and L Account.
(allowance or deduction is claimed in an assessment year)
2 Sundry Creditors will appear in B/S
(credit purchases, i.e. trading liability incurred by the assessee)
Subsequently if creditor waives such trading liability, it becomes taxable income in the hands of Assessee. In this case loan is taken for purchase of Plant and Machinery (Capital Assests).
Its not a trading liability.
- when the loan amount is waived,
- it is not waiver of trading liability
- it is just waiver of liability in respect of capital assets.
Hence Section 41(1) is not applicable
AO: (with a frustrated voice).
This is all misleading analysis. Your Honour, kindly tax it under Section 28(iv) or 41(1) or some other Section !!
Judge: (smiles)
Loan amount is received in cash. Its a cash receipt.
when such loan amount is waived, Section 28(iv) is not applicable.
- it is not waiver of trading liability
- it is just waiver of liability in respect of capital assets.
Hence Section 41(1) is not applicable. The case is closed.
To be continued. Further case studies will be updated shortly.
The author can also be reached at harishseasky@gmail.com
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