Section 28(iv) : Remission or cessation of trading liability – Loan waiver cannot be assessed as cessation of liability, if the assessee has not claimed any deduction and section 28(iv) does not apply if the receipts are in the nature of cash or money [ Section 41(1) ]

[ACIT-1(1)  vs. 
Graviss Hospitality Ltd;     dated
17/06/2015 ;  ITA. No 6211/Mum/2011,
Bench: G , AY: 2008-09  Mumbai  ITAT ]

Section 28(iv) : Remission or cessation of
trading liability – Loan waiver cannot be assessed as cessation of liability,
if the assessee has not claimed any deduction and section 28(iv) does not apply
if the receipts are in the nature of cash or money [ Section 41(1) ]

The assessee company was
allowed rebate on loan liability of Rs.3,05,10,355/- from Inter Continental
Hospital  and SC Hotels & Resorts
India Pvt. Ltd. The entire rebate on loans was credited to the P& L account
under the head ‘other income’ and the same was offered for tax.

During the assessment
proceedings, the assessee furnished the details and rebate on loan to the AO
and submitted that out of total rebate allowed, an amount of Rs.2,10,73,487/-
related to principal amount of loan waived by SC Hotels & Resorts India
Pvt. Ltd. The assessee submitted before the AO that the receipt of loan from
SCH was on capital account and therefore the waiver of the principal amount was
also on capital account. The assessee submitted that the waiver of loan on
principal amount inadvertently remained to be excluded from total income and
the same was wrongly offered for tax and therefore the same was required to be
deducted from the total income.

The AO, however, did not
accept the contention of the assessee and disallowed the same observing that
the assessee was required to file a revised return of income in this respect.
He relied on the decision of the Hon’ble Supreme Court in the case of “Goetze
(India) Ltd. vs. CIT [2006] 284 ITR 323 (SC).

In appeal, the ld. CIT(A),
observed that the waiver of loan was required to be treated as capital receipt
and was not taxable income. He, while relying upon the decision of the Tribunal
in the case of “CIT vs. Chicago Pneumatics Ltd.” [2007] 15 SOT 252 (Mumbai)
held that if the assessee was entitled to a claim the same it should be allowed
to the assessee. He therefore directed the AO to treat the same as capital
receipt.

Being aggrieved with the
order of the CIT(A), the Revenue filed the Appeal before ITAT. The Tribunal
held that the waiver was not in respect of any benefit in kind or of any
perquisite. The waiver was of the principle loan amount in cash. The assessee
had not claimed any deduction in respect of loss, expenditure or trading
liability in relation to the loan amount. The waiver was of the principle
amount of loan for capital asset. He, thereafter, relying upon the decision of
the Hon’ble Jurisdictional High Court, in the case of “Mahindra &
Mahindra Ltd. vs. CIT” 261 ITR 501, held that the waiver of the loan amount
was a capital receipt not taxable as business income of the assessee. Further
relied on the Hon’ble Bombay High Court in the case of ‘Pruthvi Brokers
& Shareholders Pvt. Ltd.’ and 
held that even if a claim is not made before the AO it can be made
before the appellate authorities. The jurisdiction of the appellate authorities
to entertain such a claim is not barred.

The Hon’ble High Court
observed that the Hon’ble Supreme Court in the case of Mahindra & Mahindra
Ltd. (2018) 404 ITR 1 held that on a plain reading of section 28 (iv) of
the Act, it appears that for the applicability of the said provision, the
income which can be taxed shall arise from the business or profession. Also, in
order to invoke this provision, the benefit which is received has to be in some
other form rather than in the shape of money. If that is because of the
remission loan liability, then, this section would not be attracted.  Accordingly, Revenue appeal was dismissed.