Summary
Applying the statutory provisions considered in this 2018 judgment, the Supreme Court held that waiver of a loan used to acquire capital equipment was not taxable under section 28(iv) or section 41(1). The former provision, as then read, required a benefit other than money; the waiver was monetary. The capital borrowing was not a trading liability and no relevant interest deduction had been claimed. Depreciation on machinery did not establish deduction of the waived liability. The Revenue’s appeals were dismissed.
Issues
- Whether the monetary loan waiver was taxable under the section 28(iv) text considered by the Court.
- Whether the capital borrowing’s remission met section 41(1)’s requirements.
- Whether depreciation on the acquired equipment supplied the necessary earlier deduction.
Provisions considered
- Section 28(iv), in the text applied by this judgment, Income-tax Act, 1961The Court construed the then-considered provision as addressing benefits or perquisites other than money. The monetary loan waiver therefore fell outside it. This headnote states the historical ruling rather than the effect of later statutory amendments. (¶¶ 12, 13, 17)
Held
- Waiver absolved the borrower from repayment subject to its terms. The resulting monetary receipt nevertheless required examination under the particular taxing provisions invoked; waiver alone did not establish liability under either provision. (¶¶ 10, 11, 12, 13, 14)
- Under the section 28(iv) wording applied, the benefit had to be other than money. The waiver of Rs.57,74,064 was monetary, defeating the condition the Court identified for that provision. (¶¶ 12, 13, 17(a))
- Section 41(1) required an earlier allowance or deduction concerning the relevant loss, expenditure or trading liability. The object was to avoid a double benefit where a previously deducted liability was later remitted. (¶¶ 14, 15)
- The loan financed plant, machinery and tooling, and the purchase amount was not debited to the trading or profit-and-loss account. Its waiver concerned a capital borrowing rather than cessation of a trading liability; the assessee had not claimed deduction for the interest under section 36(1)(iii). (¶¶ 15, 16, 17(b))
- Depreciation or amortisation of the machinery was distinct from deduction of interest or the waived liability. The claimed depreciation did not bring this capital-loan waiver within section 41(1) on the facts found. (¶¶ 15, 16, 17)
Result
Revenue appeals dismissed and connected appeals disposed of accordingly; High Court result sustained. Parties to bear their own costs.