Treatment of waiv of loan by bank

Relevant extract of Delhi HC in case of Logitronics (p) Ltd.

The assessee, engaged in manufacture of electronic products, took a loan from SBI of which Rs. 4.76 crores was due towards principal and Rs. 1.90 crores was due towards interest. Owing to its inability to repay the amounts, the assessee entered into a settlement under which an amount of Rs. 1.85 crores was agreed to be paid towards the principal and the balance was waived. The whole of the interest was also waived. The assessee offered the amount of interest waived to tax though it claimed that the principal sum waived was a capital receipt. On appeal, the Tribunal held that the question whether the principal sum waived was income or not would depend on whether the loan was utilized for capital or revenue purposes and directed the AO to go into the matter. On appeal by the assessee, court had given the principle that the answer to the question whether the waiver of a loan is taxable as income or not depends on the purpose for which the loan was taken. If the loan was taken for acquiring a capital asset, the waiver thereof would not amount to any income exigible to tax u/s 28(iv) or 41(1). On the other hand, if the loan was taken for a trading purpose and was treated as such from the very beginning in the books of account, its waiver would result in income more so when it was transferred to the P&L A/c

Replies (6)
Good effort, keep sharing! Pls quote date of judgement.

Thanks Navin for sharing. May i enquire if it is a secured loan or unsecured loan. Will the treatment be different if its an unsecured loan from a non banking entity.

first of all we need to judge the utilization of the loan irrespective of whether its secured or unsecured.

thaxs 4 sharing its vry useful

thanks for sharing..................

Thanks for sharing....

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