Assessee had acquired certain tooling and equipments from KJC for which KJC agreed to provide loan to the assessee. Subsequently, another entity took over\u00a0 KJC and agreed to waive outstanding loan amount. Assessing Officer claimed that waived amount represented income under section 28(iv) or alternatively, under section 41(1) of the Act. The same was confirmed by CIT(A). However, ITAT and\u00a0 theHigh Court reversed the said findings of the lower authorities.<\/p>\n
\u00a0<\/p>\n
Whether waiver of loan can be taxed under section 28(iv) or section 41(1) of the Act?<\/p>\n
\u00a0<\/p>\n
Waiver of loan take by an assessee cannot be considered as income as the same amounts to a capital receipt. As a result, the same cannot be taxed under the\u00a0\u00a0\u00a0 Act. Section 28(iv) of the Act taxes value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. The said section can be invoked to tax something which is convertible intomoney,\u00a0 meaning thereby it\u00a0 can tax any receipt which is\u00a0 not in the form\u00a0\u00a0 of money or cash. Waiver of loan is a benefit received in the form of money, therefore, section 28(iv) does not apply.\u00a0 In so far as section 41(1) is concerned,\u00a0\u00a0\u00a0 the same brings to tax any loss, expenditure or trading liability in respect of which a deduction or allowance is claimed by the assessee and subsequently, any benefit is received by the assessee in the form of cash or remission or cessation\u00a0\u00a0\u00a0\u00a0\u00a0 of liability. Loan taken by an assessee is not a trading liability and no deduction\u00a0\u00a0\u00a0\u00a0 is taken in respect of such loan liability. Therefore, on waiver, section 41(1) does\u00a0 not get attracted.<\/p>\n
\u00a0<\/p>\n
The Court held that, in order to invoke the provision of Section 28 (iv) of the\u00a0\u00a0\u00a0 Act, the benefit which is received has to be in some other form rather than in\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 the shape of money and in case of waiver of loan, the benefit is received in the\u00a0 form of cash. Therefore, section 28(iv) does not get attracted. In so far as section 41(1) is concerned, the Court held that it is a sine qua non that there should be\u00a0\u00a0\u00a0\u00a0 an allowance or deduction claimed by the assessee in any assessment for\u00a0 any\u00a0 year in respect of loss, expenditure or trading liability incurred by the assessee. 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(1) of the Act. In respect of loan, no deduction is claimed by the assessee and in the facts of the\u00a0 case, even the interest amount was not claimed as a deduction under section 36(1)(iii) of the Act. Further, the Court also held that waiver of loan amounts to cessation of liability other than trading liability. Resultantly, the Court held that section 41(1) also does not apply to such waiver of loan. (AY. 1976-77) (CA Nos. 6049-6950 of 2004 dt. 24-4-2018)<\/p>\n
Taxman 49 (Bom) (HC) [S. 28(iv)], PCIT v. SICOM Ltd. [2020] 116 taxmann.com 410 (Bom) (HC) [S. 41(1)\/28(iv)] <\/em><\/strong>and PCIT v. Colour Roof (India) Pvt Ltd (ITA 896\/2017 dt. 25-9-2019) (Bom) (HC) [S. 41(1)]<\/em><\/strong><\/p>\n \u00a0<\/em><\/strong><\/p>\n \u201cNo man loses his freedom except through his own weakness.\u201d<\/em><\/p>\n – Mahatma Gandhi<\/p>\n","protected":false},"excerpt":{"rendered":" S. 28(iv): Business income \u2013 Waiver of loan \u2013 Remission or cessation of trading liability \u2013 S. 28(iv) does not apply if the receipts are in the nature of cash or money; but will apply if the benefits are received in some other form – Loan waiver amounts to benefit\/ receipt in the form of cash \u2013 Held, waiver of loan cannot be assessed u\/s 28(iv) of the Act.<\/p>\n S. 41(1) : Profits chargeable to tax – Remission or cessation of trading liability \u2013 Waiver of loan \u2013 Section 41(1) apply to a trading liability; in respect of which either an allowance or deduction is claimed by the assessee \u2013Loan is not a trading liability and no deduction is claimed in respect of the interest expense \u2013 Held, no addition can be made u\/s 41(1) of the Act in respect of waiver of loan. [S. 4, 36(1)(iii), 28(iv)]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-13302","post","type-post","status-publish","format-standard","hentry","category-income-tax-act"],"acf":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9S2Rw-3sy","jetpack-related-posts":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13302","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/comments?post=13302"}],"version-history":[{"count":2,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13302\/revisions"}],"predecessor-version":[{"id":29519,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13302\/revisions\/29519"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/media?parent=13302"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/categories?post=13302"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/tags?post=13302"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}