1. There being a difference of opinion between the two Members of divisional Bench "A", Chennai, the following question has been referred by the Hon'ble President of ITAT for my opinion as Third Member under Section 255(4) of the Income-Tax Act, 1961.
On the facts and circumstances of the case, whether waiver of loan constitutes income of the assessee or not? 2. The facts which are relevant and material to consider and decide the aforesaid question are as follows. The assessee is a joint venture company promoted in the year 1991 jointly by one Mr. D.A. Sutler, a British national and two Indians for manufacture and export of head tie fabrics. Initially, Mr. Butler as one part and the two Indians as the other part contributed Rs. 29,99,800/- each as their capital representing 50% of the equity capital of the company Subsequently their arose a need for additional funds for the purpose of purchase of capital assets in the form of foreign currency equivalent to Rs 2,95,06,706- which was met by Mr. Butler by advancing a loan to the assessee company after obtaining the necessary approval from the Reserve Bank of India during the period 1995 to 1997. The said loan was to be repaid by the assessee company in annual equal instalments over a period of 5 years The repayment period was subsequently rescheduled with necessary approval of the Government of India as per the agreement reached between the parties. The assessee company, however, could not repay anything out of the said loan to Mr. Butler till the year 1998.
In the year 1998, Mr. Butler suddenly passed away and his estate vested with the executors and trustees. There after, the executor of the estate of Mr. Butler entered into a settlement agreement with the assessee company on 26.06.2000, agreeing, inter alia, for the waiver of the aforesaid loan advanced to the assessee company. In his return of income filed for the year under consideration, the assessee company claimed the waiver of the loan as a capital receipt not chargeable to tax. The Assessing Officer, however, treated the same as a casual and non-recurring income of the assessee company observing that the said waiver had occurred accidentally without any stipulation, contract, calculation or decision. He held that the said waiver of loan was nothing but a windfall to the assessee company and the same being in the nature of casual and non-recurring income, was liable to tax in its hands as income going by the inclusive definition given in Section 2(24). For this conclusion, he relied on the decisions of the Hon'ble Supreme Court in the case of CIT v. G.R. Karthikeyan 201 ITR 866 as well as in the case of P. Krishnamenan v. CIT 35 ITR 48 and after allowing exemption to the extent of Rs. 5000/- under Section 10(3) he brought the balance amount of Rs. 2,95,01,700/- to tax in the assessment completed under Section 143(3). This addition made by the Assessing Officer was confirmed by the ld. CIT(A), while dismissing the appeal filed by the assessee company against the order of the Assessing Officer by his appellate order dated 11.07.2005.
3. Aggrieved by the aforesaid order of the learned CIT(A), the assessee preferred an appeal before the Tribunal and after hearing the arguments of both the sides, the ld. Accountant Member in his leading order accepted the stand taken on behalf of the assessee company that the waiver of loan constituted capital receipt, which was not liable to tax as casual or non-recurring income. He held that the receipt of loan by the assessee company was capital in nature and waiver of the same was a capital receipt, which could not be characterised as income even under the widest import of the definition of income given in the Section 2(24). For this conclusion, he relied on the decision of the Hon'ble Bombay High court in the case of Cadell Weaving Mill Co. Pvt. Ltd. v.CIT 249 ITR 265 as affirmed by the Hon'ble Supreme Court in the case of CIT v. DP. Sandhu 273 ITR 1. He also distinguished the decision of Hon'ble Supreme Court in the case of CIT v. G.R. Karthikeyan (supra) relied upon by the Assessing Officer observing that the amount received by the assessee in the said case by way of price money of the race was not in the capital nature. He further distinguished the decision of the Hon'ble Supreme Court in the case of Krishna Menon v. CIT 35 ITR 48 relied upon by the Assessing Officer observing that teaching of Vedanta in that case was held to be vocation of the assessee and therefore receipts from such teaching were held to be income. He also observed that the amount received by the assessee for teaching of Vedanta was not a capital receipt whereas the receipt of loan in the present case was of capital nature. The ld. Accountant Member thus finally held that the waiver of loan could not be treated as casual income of the assessee under Section 10(3).
4. The ld. Judicial Member did not agree with the aforesaid view taken by the ld. Accountant Member in the proposed order. According to him, the decision of Hon'ble Bombay High court in the case of Cadell Weaving Mill Co. Pvt. Ltd. v. CIT (supra) relied upon by ld. Accountant Member was on the issue of chargeability of capital receipt and the same thus was not related to revenue receipt in the nature of income chargeable to tax within the meaning of Section 2(24). He held that the decisions of Hon'ble Supreme Court in the case of P. Krishna Menon v. CIT (supra) and CIT v. G.R. Karthikeyan (supra) relied upon by the Assessing Officer, on the other hand, were directly applicable to the facts of the present case and relying upon the same, he held that the waiver of loan was revenue receipt constituting 'income' within the meaning of definition given in Section 2(24), which was chargeable to tax being casual and non-recurring. On account of the above difference between the two Members, the matter has been referred to me by the Hon'ble President of ITAT under Section 255(4) to resolve the controversy.
5. I have heard the arguments of both the sides and also perused the relevant records. The question involved in the present case is whether the waiver of loan, in the facts and circumstances of present case, constitutes the income of the assessee or not? The Revenue authorities have held that the waiver of loan gave rise to casual or non-recurring income in the hands of the assessee company which was chargeable to tax. However, as held by the Hon'ble Bombay High Court in the case of Cadell Weaving Mill Co. P. Ltd. (supra) and approved by the Hon'ble Supreme Court in the case of D.P. Sandhu (supra) relied upon by the ld.AM, any receipt of capital nature could be taxed only in accordance with the specific provisions contained in Section 45 to 55 and if it not so taxble, the same cannot be treated as casual and non-recurring receipts of the nature envisaged in Section 10(3). In short, it was held that capital receipts can not be treated as casual and non-recurring receipts of the nature referred to in Section 10(3). It thus makes it abundantly clear that if the amount received by the assessee is of capital nature, the same can not be brought into tax as nonrecurring/casual income. In this background, it is therefore pertinent to ascertain the nature of amount received by the assessee company as a result of waiver of loan in the present case to resolve the controversy involved in the present case.
6. In this regard, it is observed that the loan of Rs. 298.06 crores availed by" the assessee from Mr. Butler for the purpose of purchase of capital asset was subsequently waived by the executors of the estate of Mr. Butler on his death in terms of clause 8 of settlement agreement dated 26.06.2000 entered into with the assessee company, which reads as under: That FIDELITY shall undertake any liability that may arise due to non-fulfilment of export obligations of Fidelity Textile P. Ltd., Chennai. In turn, the ESTATE shall waive the foreign currency loan of SFR 11,12,000 in full, voluntarily extend to FIDELITY Textile P. Ltd. By late Mr. Derek Arthor Butler. FIDELITY, Mr. H. Ramachandra Rao or his two sons shall not be liable to pay any claim made by the ESTATE towards this account and the ESTATE shall fully indemnify FIDELITY, Mr. H. Ramachandra Rao and his two sons against any such claim.
7. As is evident from the aforesaid clause of the relevant agreement, the loan advanced by late Mr. Butler was agreed to be waived entirely by the executors and trustees of his estate as per the settlement agreement entered into with the assessee company and there is no dispute about this factual position. There is also no dispute about the fact that the said loan was availed and actually utilized by the assessee company for the purpose of purchase of capital assets. The ld.JM held this waiver of loan as a revenue receipt in the hands of the assessee company relying on the decision of Hon'ble Supreme Court in the case of P. Krishna Menon (supra) and G.R. Karthikeyan (supra) observing that the same were squarely applicable to the facts of the present case. A perusal of these two decisions, however, shows that facts involved therein were entirely different from: the facts of the present case.
8. In the case of P. Krishna Menon (Supra) a clear nexus was found to be established between the imparting of teaching of Vedanjta by the assessee to one Mr. L and the amounts stated to be gifted by the said Mr. L to the assessee on regular basis and it was accordingly held by the Hon'ble. Supreme Court that the amounts so received was assessee's income arising from his vocation as a teacher of Vedanta, which was chargeable to tax. Similarly, in the case of Karthikeyan (supra) relied upon by the ld. JM, the assessee had participated in the All India Highway Motor Rally and was awarded the first prize of Rs. 20,000/- by the Indian Oil Corporation and another sum of Rs. 2000/- by the All India Highway Motor Rally. The Assessing Officer included this amount aggregating to Rs. 22,000/- in the income of the assessee relying upon the definition of the income given in Section 2(24) and when the matter travelled to the Hon'ble Supreme Court, the action of the Assessing Officer was upheld by their Lordships observing that the definition of income given in Section 2(24) is an inclusive definition.
9. It is thus clear that In none of the aforesaid cases, the issue relating to the exact nature of income, whether capital or revenue, was under consideration and neither it was the case of the assessee nor was it held by the Hon'ble Supreme Court that even the capital receipts, which are not chargeable to tax as capital gain, could still be brought to tax as casual or non-recurring income or otherwise. The issue involved in these cases before the Hon'ble Supreme Court thus was different from the one involved in the present case and the reliance of the Revenue authorities as well as that of the ld. JM thereon was clearly misplaced. On the other hand, the ld. AM was right in holding that the said decisions were inapplicable to the facts of the present case after distinguishing the same giving good reasons in Para No. 10 of his proposed order. Even the case of CIT v. South India Pictures Ltd. 29 ITR 910 relied upon by the ld. JM involved different facts in as much as the amount was received by the assessee in that case not as the price of any capital assets sold or surrendered or destroyed, but the same was simply received by the assessee in the course of its going distributing agency business, which was held to be income chargeable to tax. It was thus a case of trading receipt in the hands of the assessee during the course of its regular business and same being not capital receipt but revenue receipt, was held to be chargeable to tax by the majority view. It is worthwhile to note here that Hon'ble Justice Bhagavathi dissented from this majority view while holding that the films constituted capital assets of the assessee and the amount received for cancellation of assessee's right under the agreements in such films being capital assets, was a capital receipt. This decision of Hon'ble Supreme Court thus clearly lays down the proposition that if the compensation received is on account of surrender of capital assets, the same is capital receipt whereas if the amount is received as trading receipt during the regular course of business, it is a revenue receipt.
10. In the present case, the loan in question was availed by the assessee company from Mr. Butler admittedly for the purpose of purchase of capital assets and the same was indeed utilized for the said purpose. The availing of the same, loan as well as utilization thereof thus related to the capital structure of the assessee company and the same in no way was related to its trading affairs. In the case of CIT v. Phoolchand Jiwan Ram 131 ITR 37, the amount payable by the assessee to J.D. had arisen because the said party had paid a sum of Rs. 1,80,000/- to the Bombay firm on the assessee's account and considering that vis-a-vis assessee and the J.D., the said amount was not a payment made for the purchase of stock-in-trade, but it was a credit in respect of the amount borrowed by the assessee from J.D. in order to discharge its liability to the Bombay firm, Hon'ble Delhi High Court held that the same could not be described as a liability on trading account. It was therefore held by the Hon'ble Delhi High Court that the remission of such liability, not being a trading liability would not give rise to any profits chargeable to tax. In the case of Mahendra & Mahendra Ltd. v. CIT 261 ITR 501, the assessee had purchased plant and machinery from one K.J.C. of America for which purpose K.J.C. had advanced a loan to the assessee for ten years. Later on K.J.C. was taken over by A.M.C.and the latter agreed to waive the principle amount of the said loan.
In these facts and circumstances, it was held by the Hon'ble Bombay High Court that the waiver of loan would not constitute business income of the assessee. To the similar effect is the decision of Hon'ble Madras High Court in the case of CIT v. Ganesan Chettiar 133 ITR 103 wherein it was held that a debt forgiven or waived cannot be treated as income.
11. As already observed, the receipt of loan availed by the assessee company from Mr. Butler for the purpose of purchase of capital asset was purely of capital nature and this being the undisputed position, the waiver of the said loan amount was not a such subsequent event imprinting a different quality to the original receipt so as to change the nature of the receipt itself. As such considering all the facts of the case and keeping in view the legal position emanating from the aforesaid judicial pronouncements, I am inclined to agree with the view of ld. AM that the waiver of loan in the present case represented capital receipt, which did not constitute income of the assessee within the meaning of the Section 2(24) and accordingly the same was not chargeable to tax.
12. The matter will now go to the Division Bench for passing the order in conformity with the majority view.
1. In this appeal, the assessee had raised various grounds, but at the time of hearing, the ld. counsel of the assessee submitted that there were two disputes, which are as under: (1) Confirmation of addition on account of waiver of loan amounting to Rs. 2,95,06,700.
In addition to the above, a petition had been moved for admittance of additional ground, but no arguments were raised in favour of this additional ground, therefore the same is being dismissed as not pressed.
2. Ground (1): The brief facts of the case are that during the assessment proceedings, the Assessing Officer noticed that the assessee had received loan amounting to Rs. 2,95,06,700 from Mr. D.A. Butler, who was a foreign promoter in the company and had participated in the equity capital also. Mr. Butler died in the year 1998 and this loan was later on waived by his estate and the waiver was duly approved by the RBI. Upon enquiry why this loan should not be treated as income within the purview of Section 41(1) of the Act, the assessee filed a copy of the settlement executed into between the assessee company and the estate of the late Mr. D.A. Butler dated 26.6.2000 and submitted that the waiver of loan by a foreign shareholder cannot be taxed under the provisions of Section 41(1) of the Act. It was contended that it was not a case of recoupment in subsequent years of losses or expenditure allowed in an earlier year from the recovery of bad debts allowed in the earlier year. After considering the submissions, the Assessing Officer was of the view that this sum was in the nature of casual and non-recurring income as it had all the characters of such nature. He further observed that liability to repay the loan was ceased on account of deed of agreement executed and it has become final and has not been subjected to any appeal and there is no revival of the liability in future. Hence, this is nothing but a windfall to the company and it is to be treated as casual and non-recurring income. The definition of income is an inclusive one and what all is 'coming in' is to be considered as income in its broadest sense. The AO also relied on the decision of P. Krishna Menon v. CIT 35 ITR 48 (SC), where the voluntary payment without existence of legal claim of such payment was held to be revenue in character. He further relied on another Supreme Court judgment in the case of CIT v. G.R. Karthikeyan 201 ITR 866 (SC), where it was held that even if the receipt does not fall within Sub-clause (ix) or for that matter any of the sub-clauses in Section 2(24), it may yet constitute income. The addition was confirmed by the ld. CIT (Appeals).
3. Before us, the ld. AR submitted that the company was promoted in the year 1991 jointly by Mr. D.A. Butler, a British national and two Indian residents for manufacture and export of Headtie fabrics, a special type of fabric required for overseas market by Mr. Butler. Being a joint venture project, the equity capital was contributed by Mr. Butler and Indian promoters at Rs. 29,99,800 each. Later on, a need arose for additional funds and the Indian promoters were not in a capacity to invest, therefore Mr. Butler advanced sums totaling to Rs. 2,95,06,700 by way of loan to the company during 1995-97. The investment in equity capital as well as loan was approved by RBI and in this context he referred to RBI approvals which have been filed in the paperbook from page 3 to 17. Mr. Butler died in the year 1998 and his estate vested with the executors and trustees. He further submitted that Mr. Butler when he was sick had expressed the desire that the loan given to the company would be waived by him because he has not helped the company in carrying out its business. However, he could not waive the loan during his lifetime and ultimately same was waived by the executors of his estate under copy of the agreement of waiver of the loan, which is placed at pages 18 to 24 of the paperbook and approval for such waiver by RBI at page 25.
4. The ld. AR argued that no doubt Section 2(24) defines the income and definition is of inclusive nature, but it still deals with items which have some element of income. In case of capital items, only capital gains have been included in the income and not all the capital items.
He then submitted that for example, gifts received by an assessee being of capital nature could not be taxed in the hands of the donee and that is why the Board has already issued a Circular No. 158 dated 27.12.1974. He brought to our attention para 2 of the Circular, which reads as under: 2. Receipts which are of a casual and non-recurring nature will be liable to income tax only if they can properly be characterized as "income" either in its general connotation or within the extended meaning given to the term by the Income-tax Act. Hence, gifts of a purely personal nature will not be chargeable to income-tax, except when they can be regarded as an addition to the salary or when they arise from the exercise of a profession or vocation.P.Krishna Menon v. CIT (supra) relied on by the AO and pointed out that the decision is clearly distinguishable. In that case, the assessee after retirement from Government service, spent his time in studying and teaching Vedanta philosophy. One of his disciples used to come from England at regular intervals and used to stay with the assessee for few months at a time and attend his discourses and receive instructions in Vedanta and had the benefit of his teaching. This gentleman transferred the entire balance standing to his credit at Bombay amounting to more than Rs. 2 lakhs to the account of the assessee opened in the assessee's name in the same bank at Bombay. Thereafter, from time to time further sums were transferred to the assessee's account. In this background, the Supreme Court held that teaching was a vocation, if not a profession and teaching Vedanta was just as much teachings any other teaching and therefore a vocation and thus money received in exercise of such vocation was held to be income of casual nature. Therefore, the main reason for holding the receipt as income was exercise of vocation, which is not there in the present case.
5. Then, he referred to the other decision relied on by the AO in the case of CIT v. G.R. Karthikeyan (supra). He submitted that in that case, the assessee had income from salary and business and participated in a car rally. The rally was restricted to private motor cars and the rally route was about 6956 kms. and can start from any of the cities of Delhi, Calcutta, Madras or Bombay and proceed anti-clockwise and arrive at the starting point. The rally was designed to test endurance driving and reliability of the automobiles. The method of ascertaining the first prize winner was based on the system of penalty points for various faults and the competitor of least penalty points was adjudged the winner of the first prize. On this basis, the assessee won the first prize and received Rs. 22,000 in all and a question arose whether this sum was taxable or not. The Supreme Court held that the amount to be taxable on the reasoning that the words "other gains of any sort" in Section 2(24) Clause (ix) were of wide amplitude. It was further held that rally was a contest and the assessee entered the contest to win the same. According to the ld. AR, this was clear case of casual income covered by the definition itself because any winning from lotteries, cross puzzles, races, etc. is already mentioned in Clause (ix) of Section 2(24).
6. Therefore these two decisions are clearly not applicable to the facts of the case. He then referred to the decision of the Bombay High Court in the case of Cadell Weaving Mill Co. Pvt. Ltd. v. CIT 249 ITR 265, which has been affirmed by the Supreme Court in the case of CIT v.D.P. Sandhu 273 ITR I, where it was held that capital receipts normally will not fall under the concept of casual income Under Section 10(3) because Under Section 2(24) defining income, only capital gains arising on transfer of asset are to be charged under the head 'capital gains'.
Since the receipt in the present case is of capital nature right at the time of receipt of loan and no transfer is involved, therefore same could not have been treated as casual income and charged to tax and thus addition was not justified. On the other hand, the ld. DR while strongly supporting the orders of the lower authorities submitted that income has been defined Under Section 2(24) in inclusive manner and whatever profits and gains derived by any assessee are to be charged to tax as income. In that sense, even waiver of loan would constitute as a windfall to the assessee and shall be treated as income. He strongly relied on the decisions of P. Krishna Menon v. CIT (supra) and CIT v.G.R. Karthikeyan (supra) 7. We have considered the rival submissions carefully and have gone through the relevant material on record. The admitted facts are that one Mr. D.A. Butler advanced loan amounting to Rs. 2,95,06,700 to the assessee company which was approved by the RBI. Later on, Mr. D.A.Butler died and his estate went to his executors, who waived the loan given to the assessee company. It cannot be denied that the nature at the time of receipt of loan was of capital, then such transaction cannot be changed into revenue at the time of waiver of the loan, this would still remain of the capital nature. Such capital items cannot be subject to tax. In fact, para 2 of the Circular No. 158 dated 27.12.1974 reads as under: 2. Receipts which are of a casual and non-recurring nature will be liable to income tax only if they can properly be characterized as "income" either in its general connotation or within the extended meaning given to the term by the Income-tax Act. Hence, gifts of a purely personal nature will not be chargeable to income-tax, except when they can be regarded as an addition to the salary or when they arise from the exercise of a profession or vocation.
8. A plain reading of the above para clearly shows that receipt of casual and non-recurring nature will be treated as income only if such receipts can properly be characterized as income in its general connotation. This means, receipts which are of capital nature cannot be characterized as income because such receipts would still remain in the decision of CIT v. G.R. Karthikeyan (supra) has also been rightly distinguished because in that case also, the receipt was of capital nature by way of prize money of the race and was not in the capital nature. In these circumstances, we are of the considered opinion that waiver of loan cannot be treated as casual income Under Section 10(3) and therefore, we set aside the order of the ld. CIT(Appeals) and delete the addition.
9. Ground (2): After hearing both the parties, we find that Clause (iv) of Section 115JB reads as under: (iv) the amount of profits eligible for deduction under Section 80HHC, computed under Clause (a) or Clause (b) or Clause (c) of Sub-section (3) or Sub-section (3A), as the case may be, of that section, and subject to the conditions specified in that section; or.
This clearly shows that book profit Under Section 115JB can be reduced only if the assessee is eligible to deduction Under Section 80HHC.However, if there are brought forward losses, then they have to be adjusted against the business profits before allowing deduction Under Section 80HHC in view of the decision of the Hon'ble Apex Court in the case of Motilal Pesticides (I) Pvt. Ltd. v. CIT 243 ITR 26 as well as CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. 224 ITR 604.
Once the assessee is not eligible to deduction Under Section 80HHC, the same cannot be reduced on notional basis from the book profits for the purpose of Section 115JB. In these circumstances, we find nothing wrong with the order of the ld. CIT(Appeals) and confirm the same.
1. I have carefully gone through the proposed order of my esteemed brother, Shri T.R. Sood, Accountant Member but I am unable to persuade myself to agree with the finding recorded by him with regard to the issue of confirmation of addition on account of waiver of loan amounting to Rs. 2,95,06,700/-. In view of this I proceed to record my findings on the issue involved.
2. The fact that the assessee had received the loan amount of Rs. 2,95,06,700/- from Mr. D.A. Butler is not disputed. He died in the year 1998 and this amount was later on waived by his estate and the waiver was duly approved by the RBI, which fact also is not in dispute. The only issue is whether the amount in question falls under capital receipt as found by the learned Accountant Member or whether it s a revenue receipt.
3. The ld. Accountant Member proceeded on the basis that it is a capital receipt and therefore, the decision of the Hon'ble Bombay High Court in the case of Cadell Weaving Mil Co. P. Ltd. v. CIT 249 ITR 265, which has been affirmed by the Hon'ble Supreme Court in the case of CIT v. D.P. Sandhu 273 ITR 1 would be applicable to the facts of the case.
In my view these decisions relied upon by my learned brother were on the treatment of capital receipt chargeability.
4. According to him the waiver of loss has occurred accidentally and it has happened without stipulation, contract, calculation or decision and the liability to remit the loan was ceased on account of deed of agreement executed and it has become final and has not been subjected to any appeal or there is no revival of the liability in future. Hence this is nothing but a windfall to the company and it is to be treated as casual and non recurring income. By following the definition of Section 2(24) of the Act what all is 'coming in' is to be considered as income and for that purpose the AO relied on the decision of the Hon'ble Supreme Court in the case of P. Krishna Menon v. CIT 35 ITR 48.
The A.O. further found that voluntary payment without the existence of legal claim of such payment is held to be revenue in character.
5. Further, as held by the Hon'ble Supreme Court in the case of CIT v.G.R. Karthikeyan 201 ITR 866 even if the receipt does not fall within such clause or any of the Sub-clause In Section 2(24), it may yet constitute income. The A.O. stated that otherwise it would mean that several clauses to Section 2(24) has exhaustive meaning of income when the statute expressly says that it is inclusive. He, therefore, treated the amount in question as a revenue receipt and accordingly brought it to tax after granting exemption of Rs. 5,000/- Under Section 10(3) of the IT. Act, 1961.
6. Before the ld. CIT(A) the same contentions were reiterated on behalf of the assessee and the same decisions were pressed into service.
However, the ld. CIT(A) confirmed the addition made by the A.O. by following the decisions of the Hon'ble Supreme Court in the cases of P.Krishna Menon and G.R. Karthikeyan (supra).
7. While dealing with the issue the ld. Accountant Member found that the nature of receipt of loan is not a revenue receipt but capital receipt. Therefore, he distinguished the decisions of the Hon'ble Supreme Court in P. Krishna Meon and G.R. Karthikeyan (supra) and came to the conclusion that those decisions are not applicable to the facts of the present assessee's case. Finally, the ld. Accountant Member was of the opinion that the waiver of loan amount cannot be treated as casual income Under Section 10(3) of the Act and therefore, he set aside the orders of the authorities below and deleted the addition in question by following the decision of the Bombay High Court in Cadell Weaving Mill Co. Ltd. and of the Hon'ble Supreme Court in the case of D.P. Sandhu (supra) by holding that the receipt in the present case is of capital nature.
8. I am unable to agree with the finding of the ld. Accountant Member.
The facts are not seriously disputed. It is an established principle of law that income is a flow, while capital is a fund. In other words, Income is likened to fruits of a tree, while the tree being a source is capital. Income connotes a periodical return in money or moneys worth coming in with some sort of regularity or expected regularity from definite source. The distinction between the source and its yield is so well established that whatever amount is derived, with the source being intact, it will be income, while the amount received as compensation for the loss or sterlisation of the source, will be capital. A windfall or a gift, or a reward unconnected with one's profession or business is not expected to continue. Where the amount is received in a sterilisation of the capital asset or the source itself gets scorched in the process of its yielding a receipt, such amount would certainly constitute capital receipt. The income as defined in Section 2(24) is not exhaustive. It is an inclusive definition. In my view, the decisions of the Hon'ble Supreme Court in the cases of P. Krishna Menon and G.R. Karthikeyan (supra) are squarely applicable to the facts of the present assessee's case. The ratio laid down by their Lordships in the case of P. Krishna Menon at pages 54 & 55 are reproduced below: It is well established that in cases of this kind the real question is, as Rowlatt, J., put it in Reed v. Seymour: "But is it in the nature of a personal gift or is it a remuneration?", an observation which was quoted with approval by Viscount Cave, L.C., when the case went upto the House of Lords with the addition "If the latter, it is subject to the tax; if the former, it is not": see Seymour v. Reed.
We find it impossible to hold in this case that the payments to the appellant had not been made in consideration of the teaching imparted by him. Levy admitted that he had received benefit from the teaching of the appellant. It is plain to us that it was because of the teaching that the gift had been made. It is true that Levy said that he made the gifts to mark his esteem and affection for the appellant. But such emotions and, therefore, the gifts, were clearly the result of the teaching imparted by the appellant. Mr. Sastri contends that that may be so, but we have no right to follow the successive causes and as a result thereof link the gift with the teaching. An argument of this kind seems to have been advanced in Blakiston v. Cooper and dealt with by Lord Ashbourne in the following words: "It was suggested that the offerings were made as personal gifts to the vicar as marks of esteem and respect. Such reasons no doubt played their part in obtaining and increasing the amount of the offerings, but I cannot doubt that they were given to the vicar as vicar and that they formed part of the profits accruing by reason of his office." We have no doubt in this case that the imparting of the teaching was the cause causans of the making of the gift; it was not merely a causa sine quo non. The payments were repeated and came with the same regularity as Levy's visits to the appellant for receiving instructions in Vedanta. We do not feel impressed by Mr. Sastn's contention that the first payment of Rs. 2,41, 103-11-3 was too large a sum to be paid as consideration. In any case we are not concerned in this case with that payment. We are concerned with payments which are of much smaller amounts and as to which it has not been said that they were too large to be a consideration for the teaching. And one must not forget that these are cases of voluntary payments and the question of the appraisement of the value of the teaching received in terms of money is not very material. If the first payment was too big to have been paid for the teaching received, it was too big to have been given purely by way of gift.
In the view that we take, namely, that the payments with which we are concerned, were income arising from the vocation of the appellant as a teacher of Vedanta, no question of exemption Under Section 4(3)(vii) of the Act arises. In order that a payment may be exempted under that section it has to be shown that it did not arise from the exercise of vocation.
9. The decision of the Hon'ble Supreme Court in G.R. Karthikeyan's case (supra) is to the effect that the definition of the term Income" has to be construed in its widest sense, though it was casual in nature it was nevertheless income. Hence it is to be charged as income as per Section 2(24). This decision of the Hon'ble Supreme Court is directly on the point. I am unable to subscribe my view as found by my ld. Brother that G.R. Karthikeyan's case is distinguishable to the facts of the present assessee's case. The border line dispute between capital receipt and revenue receipt, even though it is very thin, can be ascertained and made clear demarcation by taking into consideration the nature of receipt from the view point of the person who has paid and who has received it. The character of the payment received may vary according to the circumstances. Thus, the amount received as consideration for the sale of a plot of land may ordinarily be a capital receipt. But if the business of the recipient is in buying and selling land, it may yet be his income as held by the Hon'ble Supreme Court in South India Pictures Ltd. (29 ITR 910). The nature of receipt in recipient's hands is more relevant than motive of payer. The form and nomenclature are not relevant to find out whether it is a capital receipt or revenue receipt. Applying the above decision of the Hon'ble Supreme Court I am of the view that this is the income coming within the definition in Section 2(24) of the Act and the A.O. has rightly given the statutory exemption Under Section 10(3) of the Act and treated the balance amount as income of the assessee. The ld. CIT(A) also on consideration of the facts and circumstances of the case, confirmed the view taken by the A.O. by following the aforesaid two decisions of the Hon'ble Supreme Court. The decision of the Supreme Court in D. P. Sandhu's case is distinguishable as that decision is applicable to capital receipts and not to the revenue receipts as in the present case. It is also a settled law that all capital receipts are not taxable unless they are specifically charged to tax. Hence, the decisions relied upon by the ld. Accountant Member will not help the assessee so as to reverse the orders of the authorities below. As the facts are not in dispute and the nature of receipt being revenue receipt, the decision of Hon'ble Supreme Court In the cases of P. Krishna Menon and G.R. Karthikeyan (supra) are squarely applicable to the present case. Hence, respectfully following these decisions I differ with the findings of the ld. Accountant Member and I hold that the orders of the authorities below with regard to addition on account of waiver of loan amounting to Rs. 2,95,06,700/- are to be confirmed and are accordingly confirmed.
10. In respect of disallowance of deduction Under Section 80HHC. I have no hesitation to agree with the findings of my ld. brother.
1. Since there being a difference of opinion between the Accountant Member and the Judicial Member, the matter is being referred to Hon'ble President of ITAT with a request that the following question may be referred to a Third Member or to pass such order as the Hon'ble President may desire: On the facts and circumstances of the case, whether waiver of loan constitutes income of the assessee or not? 1. In this case, there was a difference of opinion between the Members on the following issue: 2. When the matter was referred to the Third Member, the pointed issue was decided in favour of the assessee. In view of the majority opinion, the appeal of the assessee stands allowed. In the result, the appeal filed by the assessee is allowed.