tax liability in case of reversal of interest liability.
This query is : Resolved
09 July 2007
what will be the tax implications in the following situation:-
a company named x has taken certain loans from a bank.the company was unable to repay the interest liability on the same.this interst was earlier disallowed under sec.43B .due to loss the co.decided to go for one time settlement.the bank has waived of the interest liability as a consequence of which the company has written back the interst liability.now during the year company has no other income.is the interest written back is taxable?
a company named x has taken certain loans from a bank.the company was unable to repay the interest liability on the same.this interst was earlier disallowed under sec.43B .due to loss the co.decided to go for one time settlement.the bank has waived of the interest liability as a consequence of which the company has written back the interst liability.now during the year company has no other income.is the interest written back is taxable?
09 July 2007
Mr Vineet
As you have claimed the interest as an expenses in previous years & get tax benefits, it is obvious that any income by written back of interest liability shall be subject to tax.
As you have claimed the interest as an expenses in previous years & get tax benefits, it is obvious that any income by written back of interest liability shall be subject to tax.
11 July 2007
I would agree with Sanjeev partially. However if this interst was earlier disallowed under sec.43B there is no question of taxation on its being written vack.
11 July 2007
Dear Vineet
If the interest on the loan which has been allowed earlier has been written back, then such write back would be chargeable to tax. However if the same has been subject to disallowance u/s 43B then it would not be subject to tax. Since you mentioned that there is no income, credit made in the books would be subject to provisions of Book Profits Tax under section 115 JB. It may be argued that instead of crediting the same to profit and loss account, the same may be credited to the profit and loss apporpriation account to avoid section 115JB. But in such case, the profit and loss account would not show a true and fair view.
If the interest on the loan which has been allowed earlier has been written back, then such write back would be chargeable to tax. However if the same has been subject to disallowance u/s 43B then it would not be subject to tax. Since you mentioned that there is no income, credit made in the books would be subject to provisions of Book Profits Tax under section 115 JB. It may be argued that instead of crediting the same to profit and loss account, the same may be credited to the profit and loss apporpriation account to avoid section 115JB. But in such case, the profit and loss account would not show a true and fair view.
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