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DATE: March 5, 2020 (Date of pronouncement)
DATE: June 26, 2020 (Date of publication)
AY: 1984-85
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S. 28(iv): The Dept's argument that the waiver of a loan constitutes an operational subsidy which is taxable is not correct. There is a fundamental difference between “loan” and “subsidy” & the two concepts cannot be equated. While “loan” is a borrowing of money required to be repaid back with interest; “subsidy” is not required to be repaid back being a grant. Such grant is given as part of a public policy by the state in furtherance of public interest. Therefore, even if a “loan” is written off or waived, which can be for various reasons, it cannot partake the character of a “subsidy”. The waiver of a loan cannot be brought to tax u/s 28(iv) of the Act

Conceptually, “loan” and “subsidy” are two different concepts. As per the Concise Oxford English Dictionary, Indian Edition, the term “loan” has been explained as a thing that is borrowed, especially a sum of money that is expected to be paid back with interest; the action of lending. Black’s Law Dictionary, Eight Edition, describes “loan” as an act of lending; a grant of something for temporary use; a thing lent for the borrower’s temporary use, especially a sum of money lent at interest; to lend, especially money. In Supreme Court on Words and Phrases, it is stated that “loan” necessarily supposes a return of the money loaned; in order to be a loan, the advance must be recoverable; “loan” is an advance in cash which includes any transaction which in substance amounts to such advance

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DATE: September 25, 2019 (Date of pronouncement)
DATE: October 12, 2019 (Date of publication)
AY: 2009-10
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CITATION:
Taxability of loan waivers u/s 28(iv), 41(1): Argument of Revenue that loan taken from agents/ dealers is on revenue account or that on waiver of the loan, its character undergoes a change and it becomes on revenue account is not correct. S. 28(iv) & 41(1) cannot apply if the loan is on capital account and the assessee has never claimed any deduction therefor in the past (Solid Containers 308 ITR 417 (Bom) distinguished, Mahindra and Mahindra Ltd 404 ITR 1 (SC) followed)

Sine-qua-non for application of Section 41(1) of the Act, is that there should have been allowance or deduction claimed by the Assessee in any Assessment Year as a loss, expenditure or trading liability incurred by the Assessee. Subsequently, if any remission or waiver is granted in respect of which such an allowance/deduction has been claimed, then the Assessee is liable to pay t ax on the amount waived/ remitted under Section 41(1) of the Act. This, as the Court held is only to ensure that Assessee does not keep double benefit – one by way of deduction and another by waiver of the amount, which has already been deducted in computing the tax

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DATE: February 8, 2019 (Date of pronouncement)
DATE: March 23, 2019 (Date of publication)
AY: 2013-14
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Non-taxable capital receipt vs. Business Profits: Test of human probabilities has to be applied to decide whether what is apparent is real. Tax authorities are not required to put on blinkers while looking at documents. They are entitled to look into the surrounding circumstances to find out the reality. The agreement has to make commercial sense. The plea that "coining of concept" is a valuable right worth Rs. 10 cr is too naive & beyond human probabilities to merit judicial acceptance

“Coining of” the concept was in the course of the employment of the assessee, and, therefore, the plea that it belonged to the assessee, in his individual capacity, is too naïve to meet any judicial approval. In any case, there is no material on record to demonstrate that this coining of concept is such a valuable asset that it could fetch Rs 10 crores of consideration on a standalone basis, and, if that was so, it is simply beyond the human probabilities that such a valuable right could be given to someone for 7 years for commercial exploitation and development, with no strings attached, and without even finalizing as to how the fruits of such commercial exploitation will be shared by that person with the owner of this concept.

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DATE: February 22, 2019 (Date of pronouncement)
DATE: February 27, 2019 (Date of publication)
AY: 2012-13
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CITATION:
S. 28(iv)/ 56(2)(viia)/ 47(vii): S. 56(2)(viia) is an anti-abuse provision which applies only to cases of bogus capital building and money laundering. It does not apply to an amalgamation where shares are allotted at alleged undervaluation. Increase in general reserves due to recording of assets of amalgamating company at FMV not give rise to any real income to the assessee. It is capital in nature. Amendment to s. 47(vii) by FA 2012 is clarificatory & retrospective

The question, therefore, before us is, Whether the provisions of section 47(vii) as amended by Finance Act 2012 is retrospective in nature ? It is a fact that existing provision of section 47(vii) was not possible to comply with when amalgamating company is the 100% subsidiary of the amalgamated company. This is, in fact, was a defect in Section 47(vii) prior to the amendment. The amendment was made to cure this defect. Therefore, the decisions relied upon by the Learned Counsel for the Assessee above squarely apply to this case as the provisions of section 47(vii) prior to the amendment if read clause-(a) thereof, was unworkable and could not have applied in case, where amalgamating company is the owner of 100% shares of the amalgamating company

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DATE: August 10, 2018 (Date of pronouncement)
DATE: January 17, 2019 (Date of publication)
AY: 2009-10, 2010-11
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S. 28(iv) /68: Bogus share premium: The fact that the premium is abnormally high as per test of human probabilities is not sufficient. The AO has to lift the corporate veil & determine whether any benefit is passed on to the shareholders/directors. Directions issued to AO to establish whether assessee company was used as a vehicle to pass on the benefit to shareholders/directors

We also cannot presume or apply test of human probabilities, we are dealing with the business transaction, it has to be based on cogent material. Considering the whole situation, in our considered view, the AO/CIT(A) have restricted themselves by stopping the investigation based on circumstantial evidence and applying test of human probabilities. In order to lift the corporate veil for the purpose of determining whether any benefit is passed on to the shareholders/directors, they have to bring on record proper evidence/cogent material

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DATE: April 24, 2018 (Date of pronouncement)
DATE: May 2, 2018 (Date of publication)
AY: -
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CITATION:
Loan Waiver - Applicability of S. 28(iv) & 41(1): (a) S. 28(iv) does not apply if the receipts are in the nature of cash or money (b) S. 41(1) does not apply if the waiver of loan does not amount to cessation of trading liability i.e if the assessee has not claimed any deduction u/s 36 (1) (iii) of the IT Act qua the payment of interest in any previous year

On a perusal of section 41(1), it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under Section 41 of the IT Act. The objective behind this Section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability

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DATE: April 24, 2018 (Date of pronouncement)
DATE: April 26, 2018 (Date of publication)
AY: 1998-99
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CITATION:
Law on whether amount received by an employee from redemption of Stock Appreciation Rights (SARs) can be assessed as "perquisite" u/s 17(2) (iii) or as "profits of business" u/s 28 (iv) or as "capital gains" (despite no "cost of acquisition") u/s 45 explained. CBDT Circular No. 710 dated 24.07.1995 considered

The word “Perquisite” in common parlance may be defined as any perk or benefit attached to an employee or position besides salary or remuneration. Broadly speaking, these are usually noncash benefits given by an employer to an employee in addition to entitled salary or remuneration. It may be said that these benefits are generally provided by the employers in order to retain the talented employees in the organization. There are various instances of perquisite such as concessional rent accommodation provided by the employer, any sum paid by an employer in respect of an obligation which was actually payable by the employee etc. Section 17(2) of the IT Act was enacted by the legislature to give the broad view of term perquisite

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DATE: April 22, 2016 (Date of pronouncement)
DATE: April 28, 2016 (Date of publication)
AY: 2006-07
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CITATION:
S. 28(iv): The waiver by the lender of even the principal amount of loan constitutes a "benefit" arising from business and is assessable to tax as income. Logitronics 333 ITR 386 (Del), Rollatainers 339 ITR 54 (Del), Mahindra & Mahindra 261 ITR 501 (Bom) and Iskraemeco Regent 196 TM 103 (Mad) not followed

In our considered view, the waiver of a portion of the loan would certainly tantamount to the value of a benefit. This benefit may not arise from “the business” of the assessee. But, it certainly arises from “business”. The absence of the prefix “the” to the word “business” makes a world of difference

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