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2019 (8) TMI 297 - AT - Income TaxTaxability of wavier of loan(capital) u/s 28 (iv) - profits and gains of business or profession - HELD THAT - In our considered opinion, the decision of the Hon ble Supreme Court relied upon by the Ld. AO and upheld by the ld. CIT(A) in the case of T.V. Sundaram Iyenger 1996 (9) TMI 1 - SUPREME COURT is misplaced and has been wrongly applied. In our considered view that applicability of section 28(iv) of the Act has been discussed by the Hon ble Supreme Court in the case of Mahindra Mahindra Mills Ltd. 1996 (9) TMI 1 - SUPREME COURT had held Section 28(iv) would apply only when a benefit or perquisite is received in kind and has no application where benefit is received in cash or money. Considering the totality of facts in the light of ratio laid down by the Hon ble Supreme Court in the case of Mahindra Mahindra Mills Ltd. (supra), we direct the AO to delete the impugned disallowance from the hands of the all the appellants.
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 in the case was whether the waiver of loan amounting to ?2,31,98,954/- should be treated as income under Section 28(iv) of the Income Tax Act, 1961. The Assessing Officer (AO) argued that the amount waived should be considered as income, drawing support from the Supreme Court decision in T.V. Sundaram Iyengar & Sons. The AO made the addition of the waived amount to the income of the assessee. The CIT(A) upheld this view, distinguishing the facts from the Supreme Court case of Mahindra & Mahindra Mills Ltd. However, the Tribunal found that the decision of the Supreme Court in Mahindra & Mahindra Mills Ltd. was more applicable. The Tribunal noted that Section 28(iv) applies to benefits or perquisites arising from business or profession that are not in the form of money. Since the waiver of the loan was a cash receipt, it did not satisfy the conditions of Section 28(iv). Therefore, the Tribunal concluded that the addition made by the AO under Section 28(iv) was incorrect and should be deleted. 2. Applicability of Section 41(1) of the Income Tax Act, 1961: The Tribunal also considered whether the waiver of the loan could be taxed under Section 41(1) of the Act, which deals with the remission or cessation of trading liabilities. The Tribunal referred to the Supreme Court's interpretation in Mahindra & Mahindra Mills Ltd., which clarified that Section 41(1) applies only if an allowance or deduction was claimed in respect of the liability in earlier years. In this case, the loan was for the purchase of a capital asset, and no deduction for payment of interest was claimed under Section 36(1)(iii) in any previous year. Therefore, the waiver did not amount to the cessation of a trading liability and could not be taxed under Section 41(1). The Tribunal also cited the Bombay High Court decision in CIT vs Xylon Holdings (P.) Ltd., which supported the view that the cessation of liability to repay a loan taken for the purchase of a capital asset does not result in a revenue receipt and is not taxable under Section 41(1) or Section 28(iv). Conclusion: The Tribunal concluded that the CIT(A) had incorrectly applied the ratio from T.V. Sundaram Iyengar & Sons and that the correct precedent was the Supreme Court's decision in Mahindra & Mahindra Mills Ltd. Consequently, the Tribunal directed the AO to delete the impugned disallowance from the hands of all the appellants. The appeals were allowed, and the order was pronounced in the open court on 02/08/2019.
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