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2018 (5) TMI 1590 - AT - Income TaxWhether the waiver of loan amount to be treated as trading receipt or capital in nature - Held that - view taken by this Court in the case of (CIT Vs Santogen Silk Mills Ltd 2015 (4) TMI 225 - BOMBAY HIGH COURT ) - waiver would not come within the purview of Section 28(iv) - the loan was a capital receipt and has not been claimed as deduction from the taxable income in the earlier years and would not come within the purview of Section 41 (1) - Thus AO is directed to delete the addition on account of waiver of the loan amount treating it as capital in nature - Decided in favor of assessee
Issues Involved:
1. Taxability of waiver of principal loan amount under one-time settlement as business income. 2. Applicability of Section 41(1) of the Income Tax Act, 1961. 3. Applicability of Section 28(iv) of the Income Tax Act, 1961. Detailed Analysis: 1. Taxability of Waiver of Principal Loan Amount: The primary issue was whether the waiver of the principal loan amount of ?4,78,30,167/- under a one-time settlement with the Catholic Syrian Bank should be treated as business income. The Assessing Officer (AO) treated this waiver as a trading receipt and brought it to tax under Section 41(1) of the Income Tax Act, 1961. The AO’s stance was based on the cessation of liability, citing the decision of the Hon’ble Delhi High Court in Rollatainers Ltd. vs. CIT. The CIT(A) disagreed with the AO, holding that the loan waiver was on capital account and not a trading receipt. The CIT(A) directed the AO to delete the addition, stating that the provisions of Section 41(1) were not applicable since the assessee had not claimed the expenditure of the amount in any of the earlier years. 2. Applicability of Section 41(1): The Revenue argued that the waiver of the principal loan amount should be taxable under Section 41(1) as business income. However, the assessee contended that Section 41(1) applies only when there is an allowance or deduction claimed by the assessee in any assessment year in respect of loss, expenditure, or trading liability incurred. The assessee further argued that the waiver of the loan amount was not a trading liability but a capital liability. The Tribunal upheld the CIT(A)’s decision, noting that the waiver of the loan amount did not fall under the purview of Section 41(1) as it was not a trading liability. The Tribunal referred to several judgments, including CIT vs. Graham Firth Steel Products Ltd. and CIT vs. Santogen Silk Mills Ltd., which supported the view that the waiver of a loan taken for capital purposes does not constitute taxable income under Section 41(1). 3. Applicability of Section 28(iv): The Revenue also contended that the waiver of the principal loan amount should be considered as income under Section 28(iv) of the Income Tax Act, which deals with the value of any benefit or perquisite arising from business or profession. The assessee countered this by stating that Section 28(iv) applies only to benefits or perquisites received in kind, not in cash. The Tribunal agreed with the assessee, citing the decision of the Hon’ble Supreme Court in CIT vs. Mahindra and Mahindra Ltd., which held that Section 28(iv) applies only when a benefit or perquisite is received in kind. Since the waiver of the loan amount was a cash receipt, Section 28(iv) was not applicable. Conclusion: The Tribunal upheld the CIT(A)’s order, directing the AO to delete the addition of ?4,78,30,167/- made on account of the waiver of the loan amount, treating it as capital in nature. The appeal of the Revenue was dismissed, and the Tribunal relied on several judicial precedents to support its decision. Result: The appeal of the Revenue was dismissed. The Tribunal pronounced the judgment in the open court on 23rd May 2018.
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