Benefit Received in the Nature of Cash or Money from Waiver of Loan is Non-Taxable under Section 28(iv) of IT Act: Supreme Court [Read Judgment]

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In The Commissioner vs. Mahindra and Mahindra Ltd. the Supreme Court held that perquisite received in the form of waiver of loan cannot be taxed under Section 28(iv) of the Income Tax Act,1961, if the receipts are in the nature of cash or money.

In the instant case, the assessee-respondent in order to expand its product line of jeeps entered into an agreement with Kaiser Jeep Corporation (KJC). KJC agreed to sell the dies, welding equipments and die models through its subsidiary Kaiser Jeep International Corporation (KJIC). KJC granted loans to the respondent at the rate of 6% interest repayable after 10 years in instalments. Later, American Motor Corporation took over KJC and waived the principal amount of loan advanced by the KJC to the respondent. The assessee- respondent filed its return and showed Rs.57.74 lacs as cessation of its liability towards the American Motor Corporation. However, the Income Tax Officer (ITO) treated the waiver of loan as an income and not a liability. Consequently, he held that Rs.57.74 lacs were taxable under Section 28 of the Income Tax Act,1961. Respondent appealed before the Commissioner of Income Tax (Appeals) (CIT(A)) who dismissed the appeal after making some modifications. Dissatisfied, appeal was preferred before the Tribunal, and the Tribunal decided in favour of the Respondent. High Court also confirmed the decision of the Tribunal. The aggrieved Revenue preferred appeal before the Supreme Court.

The Counsel for the Revenue argued that the loan amount waived off actually amounts to income at the hands of the Respondent in the sense that an amount which ought to be paid by it is now not required to be paid. It was thus submitted that the case would fall within the ambit of Section 28(iv) of the Income Tax Act,1961.

The Counsel for the Respondent contended that the Kaiser Jeep International Corporation (KJIC) supplied the toolings and the loan was given by the Kaiser Jeep Corporation (KJC), and that these transactions were independent transactions. It was further submitted that the said sum could not be brought to tax as it represents the waiver of loan liability which was on the capital amount and is not in the nature of income.

The Bench comprising of Justice R.K. Agrawal and Justice Abhay Manohar Sapre noted that the conditions required to be satisfied for bringing an amount to into the ambit of Section 28(iv) were not satisfied in the instant case.

“In order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record that the amount of Rs. 57,74,064/- is having received as cash receipt due to the waiver of the loan. Therefore, the very first condition of Section 28 (iv) of the IT Act which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the present case. Hence, in our view, in no circumstances, it can be said that the amount of Rs 57,74,064/- can be taxed under the provisions of Section 28 (iv) of the IT Act.” observed the Bench.

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