Waiver of principal amount of loan borrowed couldn’t be treated as income within meaning of section 2(24): ITAT

Case Details: ITO v. Kaptronics (P.) Ltd. - [2022] 142 taxmann.com 43 (Bangalore-Trib.)

Judiciary and Counsel Details

• • Chandra Poojari, Accountant Member & Smt Beena Pillai, Judicial Member
  • Priyadarshi Mishra, CIT (DR) for the Appellant.
  • S.V. Ravishankar, Adv. for the Respondent.

Facts of the Case

Assessee-company was engaged in the business of manufacturing DBR equipment for railways. It borrowed an unsecured loan of certain amount for acquiring capital assets. The loan was waived off during the year under consideration.

The Assessing Officer (AO) was of the view that loans were received during the course of the assessee’s business and that liability of the assessee was a trading liability, thus, provisions of section 41(1) were attracted. He further held that alleged income was the value of benefit or perquisite arising from business under section 28(iv).

However, on appeal CIT(A) reversed the order of AO. Aggrieved-AO filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that the assessee had not claimed any deduction on account of the acquisition of capital assets as the same was reflected in the balance sheet. Remission of the principal amount of loan so obtained had not been claimed as expenditure or trading liability in any of the earlier previous years so far as the waiver of the same cannot fall into the provisions of section 41(1).

Further, the provisions of section 28(iv) apply to the value of benefit or perquisite whether convertible into money or not, arising from the business. It does not apply to benefits received in cash or money. Thus, the waiver of the principal amount of the loan also does not come under the definition of income as contained in section 2(24).

The definition of income as contained under section 2(24) speaks as to what are the items to be included under the definition of income. It includes profit and gains, dividends, voluntary contribution received by a trust, value of any perquisite or profit in lieu of salary, etc. Waiver of the principal amount of loan by no stretch of the imagination can be treated as income within the meaning of section 2(24).

Thus, it was clear that in the case where capital assets are acquired by obtaining a loan, and subsequently, the loan amount is waived by the other party, the principal amount of the loan waived by the other party cannot be brought to tax under section 28(iv) or section 41(1).

List of Cases Reviewed

• • Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 7 Taxman 28/132 ITR 559 (SC)
  • CIT v. T.V. Sundaram Iyengar & Sons Ltd. [1996] 88 Taxman 429/222 ITR 344 (SC) (para 11)
  • Mahindra & Mahindra Ltd. v. CIT [2003] 128 Taxman 394/261 ITR 501 (Bom.) (para 14)
  • CIT v. Aries Advertising (P.) Ltd. [2002] 125 Taxman 969/255 ITR 510 (Mad.) (para 17)
  • Solid Containers Ltd. v. Dy. CIT [2009] 178 Taxman 192/308 ITR 417 (Bom.) (para 20) followed.

List of Cases Referred to

• • CIT v. Compaq Electric Ltd. [2011] 16 taxmann.com 385/[2012] 204 Taxman 58 (Cal.) (Mag.) (para 4)
  • CIT v. Ramaniyam Homes (P.) Ltd. [2016] 68 taxmann.com 289/239 Taxman 486/384 ITR 530 (Mad.) (para 5)
  • CIT v. T.V. Sundaram Iyengar & Sons Ltd. [1996] 88 Taxman 429/222 ITR 344 (SC) (para 6)
  • Commissioner v. Mahindra & Mahindra Ltd. [2018] 93 taxmann.com 32/255 Taxman 305/404 ITR 1 (SC) (para 7)
  • CIT v. Chetan Chemicals (P.) Ltd. [2004] 139 Taxman 301/267 ITR 770 (Guj.) (para 9)
  • CIT v. Alchemic (P.) Ltd. [1981] 5 Taxman 55/130 ITR 168 (Guj.) (para 9)
  • Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 7 Taxman 28/132 ITR 559 (SC) (para 11)
  • Solid Containers Ltd. v. Dy. CIT [2009] 178 Taxman 192/308 ITR 417 (Bom.) (para 11)
  • Mahindra & Mahindra Ltd. v. CIT [2003] 128 Taxman 394/261 ITR 501 (Bom.) (para 12)
  • CIT v. Tosha International Ltd. [2009] 176 Taxman 187/[2011] 331 ITR 440 (Delhi) (para 14)
  • CIT v. Aries Advertising (P.) Ltd. [2002] 125 Taxman 969/255 ITR 510 (Mad.) (para 17).