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The Tax Publishers CIT v. Ramaniyam Homes (P.) Ltd. [Tax Case (Appeal) No. 278 of 2014, dt. 22-4-2016] : 2016 TaxPub(DT) 2061 (Mad-HC) Waiver of loan principal portion - whether subject to tax under section 28(iv) *Facts:* Assessee was offered a onetime settlement of their term loans, the interest was offered to tax, the question arose on the taxability of the principal portion. Dispute was not about the interest part. The assessing officer subjected the principal portion to tax under section 41(1) and section 28(iv) which was negated by the Commissioner (Appeals) also upheld by the ITAT. The departmental appeal thus reached the high court: Held against the assessee that the principal will fall in the scope of section 28(iv) thus subject to tax. The question was only about applicability of section 28(iv) for waiver of loan. Assessees plea was based on the verdict of Iskraemeco Regent Limited v. CIT [(2011) 196 TAXMAN 103] where it was held that section 28(iv) did not apply to loan waivers. This was upturned by the same high court in this decision. *Applied: (i) CIT v. T.V. Sundaram Iyengar & Sons Ltd. [222 ITR 344], (ii) Solid Containers Ltd. v. Deputy Commissioner of Income Tax [308 ITR 417 (Bom.)], (iii) Logitronics P Ltd. v. CIT [333 ITR 386]* (iv) Rollatainers Ltd. v. CIT [339 ITR 54]. Following are key takeaways in this decision: In TV Sundaram Iyengar & Sons case it was held that the character of receipt when received might have been of capital nature but underwent a change into revenue in its purpose and usage, thus waiver of this was taxable as income as benefit did flow to the assessee by such waiver. Delhi high court verdict in Rollatainers/Logitronics held that if waiver is on capital account for asset acquisition then no taxability can arise as is capital receipt, on the contrary if on revenue account is taxable. It was missed out in Rollatainers/Logitronics case that section 28(iv) cannot cover money waiver but only a benefit or a perquisite in kind. This was wrong in the scope of sec. 28(iv) or its wording itself. As for the distinction between capital and revenue receipt basing on end use of the loan, the high court held that section 36(1)(iii) has clearly made a distinction that the interest post put to use period is an allowable expenditure as is for the purpose of business irrespective of treatment in books. This point was not seen in Iskraemeco case thus needs to be distinguished now. Note: SLP Civil Appeal No.5751 of 2011 has been admitted against the decision of Iskraemeco by the Supreme court.

The Tax Publishers

CIT v. Ramaniyam Homes (P.) Ltd. [Tax Case (Appeal) No. 278 of 2014, dt. 22-4-2016] : 2016 TaxPub(DT) 2061 (Mad-HC)

Waiver of loan principal portion - whether subject to tax under section 28(iv)

Facts:

Assessee was offered a onetime settlement of their term loans, the interest was offered to tax, the question arose on the taxability of the principal portion. Dispute was not about the interest part. The assessing officer subjected the principal portion to tax under section 41(1) and section 28(iv) which was negated by the Commissioner (Appeals) also upheld by the ITAT. The departmental appeal thus reached the high court:

Held against the assessee that the principal will fall in the scope of section 28(iv) thus subject to tax.

The question was only about applicability of section 28(iv) for waiver of loan.

Assessees plea was based on the verdict of Iskraemeco Regent Limited v. CIT [(2011) 196 TAXMAN 103] where it was held that section 28(iv) did not apply to loan waivers. This was upturned by the same high court in this decision.

Applied: (i) CIT v. T.V. Sundaram Iyengar & Sons Ltd. [222 ITR 344],

(ii) Solid Containers Ltd. v. Deputy Commissioner of Income Tax [308 ITR 417 (Bom.)],

(iii) Logitronics P Ltd. v. CIT [333 ITR 386]

(iv) Rollatainers Ltd. v. CIT [339 ITR 54].

Following are key takeaways in this decision:

In TV Sundaram Iyengar & Sons case it was held that the character of receipt when received might have been of capital nature but underwent a change into revenue in its purpose and usage, thus waiver of this was taxable as income as benefit did flow to the assessee by such waiver.

Delhi high court verdict in Rollatainers/Logitronics held that if waiver is on capital account for asset acquisition then no taxability can arise as is capital receipt, on the contrary if on revenue account is taxable.

It was missed out in Rollatainers/Logitronics case that section 28(iv) cannot cover money waiver but only a benefit or a perquisite in kind. This was wrong in the scope of sec. 28(iv) or its wording itself.

As for the distinction between capital and revenue receipt basing on end use of the loan, the high court held that section 36(1)(iii) has clearly made a distinction that the interest post put to use period is an allowable expenditure as is for the purpose of business irrespective of treatment in books. This point was not seen in Iskraemeco case thus needs to be distinguished now.

Note: SLP Civil Appeal No.5751 of 2011 has been admitted against the decision of Iskraemeco by the Supreme court.