452
June 29 To July 5, 2019 u Taxmann’s Corporate Professionals Today u Vol. 45 u 40the loan as well as interest amounts. Hence,
waiver of loan by the creditor results in the
debtor having extra cash in his hand. It is a
receipt in the hands of the debtor/assessee.
The short but cogent issue in the instant
case arises whether a waiver of loan by
the creditor is taxable as a perquisite under
section 28(iv) or is taxable as a remission of
liability under section 41(1).
On a plain reading of Section 28(iv) of the
IT Act, prima facie, it appears that for the
applicability of the said provision, the in-
come which can be taxed shall arise from
the business or profession. Also, in order
to invoke the provision of Section 28 (iv)
of the I.T. Act, the benefit received has to
be in some other form rather than in the
shape of money.
On a perusal of the Section 41(1), it is evident
that it is a sine qua non that there should be
an allowance or deduction claimed by the
assessee in any assessment year in respect of
loss, expenditure or trading liability incurred
by the assessee. Then, subsequently, during
any previous year, if the creditor remits
or waives off any such liability, then the
assessee is liable to pay tax under Section
41 of the I.T. Act. The objective behind this
Section is simple. It is made to ensure that
the assessee does not get away with a double
benefit-once by way of deduction and another
by not being taxed on the benefit received
by him in the later year with reference to
deduction allowed earlier in case of remission
of such liability.
The supreme court of India in the case of
CIT v. Mahindra & Mahindra Ltd. [2018] 93
taxmann.com 32/255 Taxman 305 held that
the Waiver of loan for acquiring capital assets
cannot be taxed as perquisite under section
28(iv) as a receipt in hands of debtor/asses-
see in the form of cash/money and it also
cannot be taxed as a remission of liability
under section 41(1) as waiver of loan does not
amount to the cessation of trading liability.The Supreme court has dismissed departmental
SLP in the case of CIT v. Compaq Electric Ltd.
[2019] 101 taxmann.com 400/261 Taxman 71
against High Court’s ruling that waiver of
repayment of certain amount in respect of
which there was no allowance or deduction
claimed by assessee during previous year,
amounted to capital receipt not liable to tax
under section 41(1).Treatment of Waiver of Loan Against
Property- Loan against property is not necessarily
a loan for the business purpose. It is popu-
larly known as a LAP. It is a loan availed
by keeping commercial/residential property
as collateral. LAP is a secured loan as the
security in this kind of loan is the property
owned by the person applying for the loan.
The value of property decides the amount of
potential loan you will be sanctioned.
If the loan against property is waived off
by the lender, it should be exempt from tax
being a capital receipt. It won’t be taxable
under section 41(1) as assessee would have
not claimed any allowance or deduction in
respect of such loan. It being capital receipt
would not be liable to tax.
Treatment of Forfeiture of Advance
- Advance money received by the assessee
during the course of negotiations done for
the purpose of transfer of a capital asset is
taxable under the head ‘income from other
sources’ under section 56(2)(ix), if such ad-
vance is forfeited because the negotiations
did not result in the transfer of the asset.
Advance money forfeited will be liable to
tax only in the case where negotiations were
going on for transfer of a capital asset only.
If the asset involved is not capital asset then
forfeiture of advance money will not be taxable
under the head ‘income from other sources,
WAIVER OF LOAN - WHETHER TAXABLE?