2018 (5) TMI 358 - SC - Income Tax

Taxability of income as a perquisite - waiver of loan by creditor - deemed income u/s 41(1) - sum due by the Respondent to Kaiser Jeep Corporation which later on waived off by the lender - applicability of Section 28 (iv) of the IT Act - whether waiver of loan by the creditor is taxable as a perquisite under Section 28 (iv) or taxable as a remission of liability under Section 41(1)? - Held that - The very first condition of Section 28 (iv) which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the present case. Hence, in our view, in no circumstances, it can be said that the amount of ₹ 57,74,064/- can be taxed under the provisions of Section 28 (iv) of the IT Act. There is difference between trading liability and other liability . Section 41 (1) of the IT Act particularly deals with the remission of trading liability. Whereas in the instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, we find no force in the argument of the Revenue that the case of the Respondent would fall under Section 41 (1) of the IT Act. Section 28(iv) of the IT Act does not apply on the present case since the receipts are in the nature of cash or money AND Section 41(1) of the IT Act does not apply since waiver of loan does not amount to cessation of trading liability. It is a matter of record that the Respondent has not claimed any deduction under Section 36 (1) (iii) of the IT Act qua the payment of interest in any previous year.

Summary

Issues Involved:
1. Applicability of Section 28(iv) of the Income Tax Act, 1961.
2. Applicability of Section 41(1) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Applicability of Section 28(iv) of the Income Tax Act, 1961:
The primary issue was whether the waiver of ?57,74,064/- by the lender constituted taxable income under Section 28(iv) of the IT Act. Section 28(iv) states that the value of any benefit or perquisite arising from business or profession, other than in the form of money, is chargeable to income-tax. In this case, the waiver amount was received in the form of money, not as a benefit or perquisite in kind. Therefore, the condition that the benefit should not be in the shape of money was not satisfied. Consequently, the Supreme Court concluded that the amount could not be taxed under Section 28(iv) of the IT Act.

2. Applicability of Section 41(1) of the Income Tax Act, 1961:
The second issue was whether the waiver of the loan could be taxed under Section 41(1) of the IT Act, which deals with the remission or cessation of trading liabilities. Section 41(1) applies when an assessee has claimed an allowance or deduction in any assessment year for a loss, expenditure, or trading liability, and subsequently, the liability is remitted or waived. The Court noted that the Respondent had not claimed any deduction for the interest paid on the loan under Section 36(1)(iii) of the IT Act. The waiver of the loan did not pertain to a trading liability but rather to a capital liability related to the purchase of plant, machinery, and tooling equipment. Therefore, Section 41(1) was not applicable in this case.

Conclusion:
The Supreme Court dismissed the appeals, affirming that:
- Section 28(iv) does not apply as the waiver amount was received in cash.
- Section 41(1) does not apply as the waiver was not related to a trading liability, and no deduction was claimed for the interest paid on the loan.

The judgment emphasized that the waiver of the loan did not constitute taxable income under the relevant provisions of the Income Tax Act.