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The Tax Publishers DCIT v. Rama Industries Ltd. [ITA Nos. 1857 to 1859/Mum/2013, dt. 28-3-2016] : 2016 TaxPub(DT) 2141 (Mum-Trib) Waiver of loan which was convertible into preference shares whether taxable under section 41(1) or 28(iv) *Facts:* Assessee in a capital restructuring exercise with its lenders whose loans had options to convert into preference shares had waiver on part of the loans. Assessing Officer held the waiver of loans as taxable under section 41(1) or 28(iv) basing on Solid Containers Ltd.(308 ITR 417) Mumbai high court decision. The FAA reversed the same on the ground that it was covered by Mahindra and Mahindra Ltd (128 Taxmann 394) decision. Assessee also cited Xylon Holdings Private Limited (90 DTR 205) in their favour. On further appeal: Held by the ITAT that the purpose of the waiver has to be seen whether the loan waiver arose out of loans for working capital purpose/trading purpose or for fixed capital purpose/fixed assets. In the case of the first they are taxable as per the decision of solid containers under section 28(iv) and in the case of the latter they are exempt as held in Xylon holdings also of Mahindra and Mahindra decision. The waiver may not fall in the scope of section 41(1) as no deduction was claimed on the same in earlier years a conditional pre-requisite to the taxability under section 41(1). Since this point was not considered the departmental appeal stood accepted and required an adjudication on facts.

The Tax Publishers

DCIT v. Rama Industries Ltd. [ITA Nos. 1857 to 1859/Mum/2013, dt. 28-3-2016] : 2016 TaxPub(DT) 2141 (Mum-Trib)

Waiver of loan which was convertible into preference shares whether taxable under section 41(1) or 28(iv)

Facts:

Assessee in a capital restructuring exercise with its lenders whose loans had options to convert into preference shares had waiver on part of the loans. Assessing Officer held the waiver of loans as taxable under section 41(1) or 28(iv) basing on Solid Containers Ltd.(308 ITR 417) Mumbai high court decision. The FAA reversed the same on the ground that it was covered by Mahindra and Mahindra Ltd (128 Taxmann 394) decision. Assessee also cited Xylon Holdings Private Limited (90 DTR 205) in their favour. On further appeal:

Held by the ITAT that the purpose of the waiver has to be seen whether the loan waiver arose out of loans for working capital purpose/trading purpose or for fixed capital purpose/fixed assets. In the case of the first they are taxable as per the decision of solid containers under section 28(iv) and in the case of the latter they are exempt as held in Xylon holdings also of Mahindra and Mahindra decision. The waiver may not fall in the scope of section 41(1) as no deduction was claimed on the same in earlier years a conditional pre-requisite to the taxability under section 41(1). Since this point was not considered the departmental appeal stood accepted and required an adjudication on facts.