2020 (1) TMI 1147 - HC - Income Tax

Addition on account of remission of loan - waiver of loan or cessation of liability - HELD THAT - As decided in Commissioner Vs. Mahindra And Mahindra Ltd 2018 (5) TMI 358 - SUPREME COURT Section 28(iv) of the IT Act does not apply on the present case since the receipts of ₹ 57,74,064/- are in the nature of cash or money. 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. We are of the considered view that these appeals are devoid of merits and deserve to be dismissed. Accordingly, the appeals are dismissed.

Summary

Issues:
1. Whether the Tribunal was justified in holding that the CIT(A) was correct in deleting the amount on account of remission of loan by the Government of Maharashtra.
2. Whether the Tribunal was justified in holding that the waiver of liability is in the character of stock-in-trade and a trading liability.
3. Whether the Tribunal was justified in holding that the waiver of principal amount would constitute income falling under Section 28(iv) of the Income Tax Act.

Analysis:
1. The Assessing Officer treated an amount covered by the loan given by the Government of Maharashtra as taxable under Sections 28(iv) and 41(1) of the Act. However, the first appellate authority, relying on a Government resolution and the decision in Mahindra & Mahindra Ltd Vs. CIT [2003] 261 ITR 501, held that the amount was not chargeable to tax. The Tribunal upheld this decision, stating that the remission of loan would not be chargeable to tax under Sections 41(1) or 28(iv) of the IT Act.

2. The Supreme Court, in Commissioner Vs. Mahindra And Mahindra Ltd [2018] 404 ITR 1, clarified that the waiver of loan by the creditor results in the debtor having extra cash, which is a receipt in the hands of the assessee. The Court analyzed the applicability of Section 28(iv) and Section 41(1) of the IT Act. It concluded that the waiver of loan did not fall under Section 28(iv) as the benefit received was in the form of money. Additionally, the Court found that the waiver did not amount to the cessation of a trading liability under Section 41(1) since the Respondent had not claimed any deduction for interest payments in previous years.

3. The Supreme Court's decision emphasized that the waiver of loan did not meet the criteria for taxation under Section 28(iv) or Section 41(1) of the IT Act. It highlighted that the waiver was not a perquisite arising from business and did not constitute a remission of trading liability. Therefore, the appeal was dismissed based on the Court's findings, and the decision was deemed applicable to the present case. The appeal was subsequently dismissed without any order as to costs.