04 March 2011
Please refer the CA FInal Old Direct TAX suggested answer for Nov 2010 exam - Q.1 (B) for the same. If the loan is for Capital Asset then waiver is not taxable as business income. If the loan is for business purpose then waiver is taxable as business income - Whether the amount transferred to profit and loss account in case of waiver of loan taken by assessee for business purposes assessable as business income under section 41(1) of the Income-tax Act, 1961? Solid Containers Ltd. v. DCIT (2009) 308 ITR 417 (Bom.) Relevant Section: 41(1) The assessee had taken a loan for business purposes which was written back and directly credited to the reserves account, as a result of consent terms arrived at in a suit. The assessee claimed this amount as capital receipt, even though it had offered the interest on the said loan as its income by crediting the same to its profit and loss account. The Assessing Officer added the amount to the total income of the assessee as its income and this was upheld by the Tribunal. The High Court held that it was a loan taken for trading activity and ultimately, upon waiver the amount was retained in the business by the assessee. The amount had become the assessee’s income and was assessable.
04 March 2011
INCOME – CESSATION OF TRADING LIABILITY - Sec 28(iv) & 41(1)- Waiver of loan under a scheme formulated by Reserve Bank of India known as “One time Settlement Scheme” assessee credited said waiver amount in general reserve account. The Tribunal held that loan amount waived could not be treated as its income either under section 28(iv) or under section 41(1). Loans availed by assessee from Banks were not in the nature of trading liability but were in nature of capital liability and, therefore waiver, of loan liability was not waiver of any trading liability hence the provision of section 41(1) was not applicable. Accelerated Freez & Drying Co. Ltd. v Dy CIT (2009) 31 SOT 442 (Cochin ). Editorial note - Judgment of Bombay High Court in Solid Containers v Dy CIT (2009) 308 ITR 417 (Bom) considered and distinguished.
04 March 2011
INCOME - REMISSION OR CESSATION OF TRADING LIABILITY - LIMITATION OF TIME - Sec 41(1)- When the assessee continued to reflect or record liabilities as still payable to creditors and had not written off ultimately in books of account and moreover there was no evidence to indicate that said liabilities had ceased to exit, question of taking such outstanding liabilities as deemed profits did not arise. DSA Engineers (Bombay) vs. ITO (2009) 30 SOT 31 (Mum.)
04 March 2011
thanks sir, but sir assessee loan lene wala hai and uska taoal principal + interest=217200 hai jisko Bank 167200 me settal karne ko tyaar ho gya to balance amount jo benefit ho rha hai uska kya kre?
04 March 2011
thanks sir, but sir assessee loan lene wala hai and uska total principal + interest=217200 hai jisko Bank 167200 me settal karne ko tyaar ho gya to balance amount jo benefit ho rha hai uska kya kre?
04 March 2011
if the loan was for trading liability like for business purpose, then this will be your business profit and accordingly you have to credit the difference to profit & loss account.
if the loan was taken for Capital Asset, then credit the difference to the Asset or credit in the capital reserve account.
30 May 2016
suppose Company has purchased an asset from vendor for Rs.1Lakh, Rs.10,000 was payable till long period after aquisition of asset but now as per settlement no amount is payable by company, whether the amount of Rs.10,000 is taxable?
CAclubindia
