“waiver of loan”
The decision most relied on for waiver of loan is CIT v. T.V. Sundaram Iyengar & Sons Ltd. (222 ITR 344), cited in 223 judgments on BharatTax.
Leading authorities on waiver of loan
Unclaimed deposits received in the course of trading transactions and sundry credit balances written back are taxable as business income under Section 41(1) of the Income-tax Act, 1961, as they constitute a cessation of trading liability.
The waiver of a loan taken for acquiring capital assets is considered a capital receipt and is not taxable as income under Section 28(iv) of the Income Tax Act. The ruling distinguishes between the waiver of trading liabilities and capital liabilities for tax purposes.
The write-back or waiver of a loan obtained for business purposes constitutes taxable business income under Section 28. This applies even if no prior deduction was claimed, thereby not attracting Section 41(1).
The Supreme Court upholds the constitutional validity of Section 269SS of the Income Tax Act, 1961, which prohibits certain cash loans and deposits. This ruling is foundational for penalties under Section 271D and considering exemptions under Section 273B.
For Section 41(1) of the Income Tax Act to apply, the mere expiry of the limitation period does not constitute cessation of liability; there must be an explicit act by the creditor, such as a release or admission of write-off, confirming that the liability has ceased without the possibility of revival.
Benefits received by a company from its business operations, such as waived loans not used for capital assets, are taxable under section 28(iv) of the Income-tax Act, 1961.
Waiver of a loan taken for trading purposes is taxable under section 41(1) of the Income Tax Act, 1961, as it amounts to a remission or cessation of a trading liability.
Waiver of loan principal or interest by banks/financial institutions is not taxable under Section 41(1) if the loan was not claimed as a deduction in earlier years. Such transactions are loan-based and do not fall under Section 2(24) or Section 28(iv) of the Income Tax Act.
