The Income Tax Appellate Tribunal (ITAT), Pune bench has held that the waiver of cash loan by a holding company vide Agreement is not taxable as “Income from Profits and Gains from Business and Profession” under section 28(iv) of the Income Tax Act, 1961.
The assessee, Drillco Hertel Limited is a subsidiary of M/s Kennametal Inc USA, which was holding 50% shares of the assessee company and Mr J.K Khanna along with his family members was holding 50% shares of the assessee company as per the Joint Venture Agreement.
For the relevant assessment year, Kennametal Inc USA had advanced a Cash Loan of Rupees equivalent to USD 5,00,000/- to Assessee DHL. There was a promissory note. Later, Kennametal Inc waived the cash Loan of USD 5,00,000/- advanced to the assessee vide Master Agreement.
The AO has treated the said cash loan of USD 5,00,000/- as income u/s 28(iv).
Section 28(iv) of the Income Tax Act, 1961 refers to “any benefit” arising from the business.
A two-Member Tribunal comprising Shri S.S Godara, Judicial Member and Dr Dipak P. Ripote, Accountant Member relied on the Apex Court’s decision in the case of CIT Vs Mahindra & Mahindra and held that “the said Loan of USD 500000/- was a cash Loan. Therefore, respectfully following the Hon’ble Supreme Court’s decision in the case of CIT Vs Mahindra & Mahindra (supra), it is held that the waiver of cash Loan of Rupees equivalent to USD 5,00,000/- is not income within the purview of Section 28(iv) of the Act. Hence, the AO is directed to delete the impugned addition qua USD 5,00,000/-.”
The assessee was represented by Shri Nikhil Pathak and the department was represented by Shri M.G.Jasnani.
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