Pr. CIT v. Gujarat State Financial Corporation

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The Tax Publishers2020 TaxPub(DT) 3543 (Guj-HC) : (2020) 426 ITR 0047 : (2021) 277 TAXMAN 0099

INCOME TAX ACT, 1961

Section 41

Where amount was credited to the capital reserve by the assessee, which pertained to the principal borrowed without there being any component of interest embedded therein, accordingly, waiver of the principal amount of loan under the one-time settlement scheme did not constitute a trading receipt, as it was never claimed by the assessee as deduction in the past.

Business income under section 41(1) - Remission or Cessation of trading liability - Waiver of the principal amount of loan under the one-time settlement scheme - Amount credited to capital reserve

AO made addition on account of cessation of liability made under section 41(1) of the Income Tax Act, 1961, written off pursuant to one-time settlement by assessee. Case of assessee was that amount was credited to the capital reserve and was not offered to tax on the ground that the waiver was towards outstanding principal and therefore, a capital receipt. Held: Amount credited to the capital reserve by the assessee pertained to the principal borrowed without there being any component of interest embedded therein. Waiver of the principal amount of loan under the one-time settlement scheme did not constitute a trading receipt, as it was never claimed by the assessee as deduction in the past.

Followed:Commissioner v. Mahindra and Mahindra Ltd.(2018) 404 ITR 1 (SC) : 2018 TaxPub(DT) 2139 (SC)

REFERRED : CIT v. Mahindra and Mahindra Ltd. (2018) 404 ITR 1 (SC) : 2018 TaxPub(DT) 2139 (SC), CIT v. T. V. Sundaram Iyengar and Sons Ltd. (1996) 222 ITR 344 (SC) : 1996 TaxPub(DT) 1245 (SC), Iskraemeco Regent Ltd. v. CIT (2011) 331 ITR 317 (Mad) : 2011 TaxPub(DT) 0649 (Mad-HC), Logitronics Private Limited v. CIT (2011) 333 ITR 386 (Del) : 2011 TaxPub(DT) 932 (Del-HC), Punjab Distilling Industries Ltd. v. CIT (1959) 35 ITR 519 (SC) : 1959 TaxPub(DT) 0123 (SC) and Solid Containers Limited v. Dy. CIT (2009) 308 ITR 417 (Bom) : 2009 TaxPub(DT) 0811 (Bom-HC).

FAVOUR : In assessee's favour.

A.Y. : 2009-10

IN THE GUJARAT HIGH COURT