Commissioner of Income Tax and Another vs Kudremukh Iron Ore Co. Ltd.

The present appeal is presented seeking admission of the appeal, raising the following substantial question of law:

Whether the Tribunal was. correct in holding that the BIFR having ordered for waiver of interest payable by KISCO, in favour of the Assessee no interest would accrue for income tax purposes also and the accrued interest under the mercantile system is not liable to tax ?

It is not in dispute that Respondent-Assessee is carrying on the business of manufacturing of iron ore concentrate and pellets. For the assessment year 2004-05, the return of income came to be filed by the Respondent-Assessee on 30-10-2004 declaring an income of Rs. 3,51,23,53,400. The Assessee company had advanced loan to M/s Kudremukh Iron Ore & Steel Co. Ltd. (hereinafter referred to as KISCO) a private limited company, to an extent of Rs. 2,27,50,00,000. The assessing officer by its order dated 29-12-2006 held that the interest earned on the loan amount, which accrued during the current assessment year was Rs. 21,26,41,000 and said amount was brought to tax under the head "Income from other sources".

Aggrieved by assessment order dated 29-12-2006 Assessee filed an appeal before the Commissioner (Appeals). The Commissioner (Appeals) by his order dated 28-3-2007held that computation of interest on the loan advanced referred to above by the assessing officer was justified and addition made by the assessing officer was upheld. This order came to be challenged by the Respondent-Assessee before the Tribunal in ITA No. 911/Bom/2007.

It is pertinent to mention here that during the pendency of the proceedings before the Tribunal, an order dated 18-6-2007 came to be passed by the Board for Industrial and Financial Reconstruction(hereinafter referred to as BIFR) and in the said order, it was held that Assessee was required to waive off the interest accrued but not accounted for on the loan of Rs. 2,27,50,00,000 advanced to KISCO till the effective date of merger. The Tribunal after referring to Section 32 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "SIC Act, 1985") was justified in saying that the rules or schemes made under the said enactments shall have overriding effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973),and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976).

Section 32 of the SIC Act reads as under:

Effect of the Act on other laws: The provisions of this Act and any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976), for the time being in force or in the memorandum or articles of association of an industrial company or in any other instrument having effect by virtue of any law other than this Act.

The Tribunal on perusal of the rehabilitation scheme presented before the BIFR has proceeded to hold that same will have binding effect for considering the applicability of provisions of Income Tax Act also. After referring to two judgments in respect of Ezy Slide Fastners Ltd. Vs. Joint Commissioner of Income Tax (Assessment), and Commissioner of Income Tax Vs. Shree Pipes Limited, the Tribunal held that in the absence of any challenge to the order of BIFR declaring the unit concerned as a sick industry by the Assessee, the order of the BIFR and the rehabilitation scheme approved have to be considered to have waived off the interest component and accordingly, held that addition of interest component of Rs. 21,26,41,000 added by assessing officer has to be deleted from the income, while computing the income of the Assessee to arrive at exact amount of tax to be paid by the Assessee. It further held that Assessee would also get consequential relief in respect of interest charged under Sections 234B and 234D of the Income Tax Act. Aggrieved by this order dated 22-1-2010, the Appellants-Revenue is before us.

According to the learned Counsel appearing for the Appellants-Revenue, the Tribunal without giving an opportunity to the revenue proceeded to place reliance on the order passed by BIRR and also the rehabilitation scheme ignoring totally Section 19 of the SIC Act, 1985, which reads as under:

Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial institution or State level institution or any institution or other authority (any Government, bank, institution or other authority required by a scheme to provide for such financial assistance being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company.

He further contends that at least Tribunal ought to have remitted back the matter to the assessing officer to make fresh computation of income after referring to the rehabilitation scheme pertaining to sick industry.

We have gone through the order of the Tribunal and also Sections 19 and 32 of the SIC Act, 1985. If, BIFR proceeded to pass an order declaring the concerned industry as a sick industry by its order dated 18-6-2007 without complying with Sub-section (2) of Section 19 of the SICA, 1985 as contended by the learned Counsel for the Appellants-Revenue, it was very much within the domain of the Appellants-Revenue to challenge the order of BIFR. Till today, the order of BIFR dated 18-6-2007 has not been challenged by any person including the Appellants. There cannot be any dispute that all concerned will have to comply and abide by the provisions of the SIC Act, 1985 irrespective of the provisions of Income Tax Act to levy and collect the tax on the interest earned by the Respondent-Assessee. In the absence of challenge to BIFR order and rehabilitation scheme approved by it, the Tribunal was justified in holding that addition of interest of Rs. 21,26,41,000 as income from other sources while computing the income of Assessee by assessing officer was not justified as there is waiver of payment of said interest by the industry, which was declared as a sick industry. Section 32 being explicitly clear and only two enactments being excluded from its purview i.e., Foreign Exchange Regulation Act and the Urban Land (Ceiling and Regulations Act), we are of the view that order of the Tribunal is just and proper. In the absence of challenge to the order of BIFR, the findings of Tribunal cannot be held as contrary to law.

Accordingly, the appeal is dismissed at the stage of admission as we are of the view that no substantial questions of law arise for our consideration for being formulated and adjudicated. No costs.