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Home › All Judgements › S. 41(1) Waiver Of Loan Whether Income + S. 234D Interest Post Amendment

S. 41(1) Waiver Of Loan Whether Income + S. 234D Interest Post Amendment

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DATE: (Date of pronouncement)
DATE: September 17, 2012 (Date of publication)
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CIT vs. Xylon Holdings Pvt. Ltd (Bombay High Court)Click here to download the judgement (xylon_41_1_loan_waiver.pdf)

S. 41(1): Cessation of liability to repay loan taken for capital purposes is not assessable as income
The cessation of liability to repay the loan taken for purchase of a car is not assessable as income u/s 41(1) in accordance with Mahindra and Mahindra Ltd 261 ITR 501 (Bom). Though in Solid Containers Ltd 308 ITR 407 (Bom) it was held that waiver of a loan taken for trading activity would become the assessee’s income and be subject to tax even if the assessee had never claimed a deduction for the loan, that decision is not applicable because there the loan was taken for "trading purposes" and not for purchase of a capital asset. In the alternative, the waiver of a loan is not taxable u/s 28(iv) as that provision applies only when a benefit or perquiste is received in kind and not in cash.
CIT vs. Indian Oil Corporation Ltd (Bombay High Court) Click here to download the judgement (IOC_234D_retrospective_operation.pdf)

S. 234D applies even to refunds granted prior to 1.6.2003

The argument that as in Bajaj Hindustan it had been held that s. 234D did not apply to refunds granted prior to 1.6.2003, the Explanation to s. 234D inserted by the FA 2012 w.r.e.f. 1.6.2003 (which provides that s. 234D shall also apply to assessment years commencing pre 1.6.2003) did not apply to the assessee is not acceptable because Explanation 2 is a declaratory/ clarificatory amendment. The alternate argument, relying on Kerala Chemicals 323 ITR 584 (Ker) that interest can be charged only from 1.6.2003 is also not acceptable in view of the language of Explanation 2 to s. 234D.

Note: This impliedly approves Kotak Mahindra Capital Co. Ltd (ITAT Mumbai Special Bench) on the point

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