THE COMMISSIONER versus MAHINDRA AND MAHINDRA LTD. THRG. M.D.

Citation: [2018] 3 S.C.R. 951 · Decided: 24-04-2018 · Supreme Court of India · Bench: R.K. AGRAWAL · Disposal: Dismissed

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Judgment (excerpt)

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951
THE COMMISSIONER
v.
MAHINDRA AND MAHINDRA LTD. THRG. M.D.
(Civil Appeal Nos. 6949-6950 of 2004)
APRIL 24, 2018
[R. K. AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.]
Income Tax Act, 1961 – ss. 28(iv) and 41(1) – Waived of loan
amount, taxability – Sum of Rs. 57,74,064/- due by assessee to a
Company – Later on waiver of loan by creditor-lender – Whether
taxable as a perquisite u/s. 28(iv) or taxable as a remission of liability
u/s. 41(1) – Held: Amount of Rs. 57,74,064/- is received as cash
receipt due to the waiver of loan – The very first condition of s. 28
(iv) that any benefit or perquisite arising from the business shall be
in the form of benefit or perquisite other than in the shape of money,
is not satisfied – Hence, the amount of Rs 57,74,064/- cannot be
taxed under the provisions of s. 28 (iv) – Section 41(1) deals with
the remission of trading liability, waiver of loan amounts to cessation
of liability other than trading liability – Thus, s. 41(1) does not
apply.
Dismissing the appeals, the Court
HELD: 1.1 Creditor or his successor may exercise their
“Right of Waiver” unilaterally to absolve the debtor from his
liability to repay. After such exercise, the debtor is deemed to be
absolved from the liability of repayment of loan subject to the
conditions of waiver. The waiver may be a partly waiver i.e., waiver
of part of the principal or interest repayable, or a complete waiver
of both the loan as well as interest amounts. Hence, waiver of
loan by the creditor results in the debtor having extra cash in his
hand. It is receipt in the hands of the debtor/assessee. [Para
11][957-F]
1.2 On a plain reading of Section 28 (iv) of the Income Tax
Act, 1961, prima facie, 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 the provision
of Section 28 (iv), the benefit which is received has to be in some
other form rather than in the shape of money. In the instant case,
[2018] 3 S.C.R. 951
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SUPREME COURT REPORTS
[2018] 3 S.C.R.
it is a matter of record that the amount of Rs. 57,74,064/- is having
received as cash receipt due to the waiver of loan. Therefore,
the very first condition of Section 28 (iv) which says any benefit
or perquisite arising from the business shall be in the form of
benefit or perquisite other than in the shape of money, is not
satisfied in the instant case. Hence, in no circumstances, it can
be said that the amount of Rs 57,74,064/- can be taxed under the
provisions of Section 28 (iv) of the IT Act. [Para 13][958-C-E]
1.3 On a perusal of the s.41(1) of the IT Act, it is evident
that it is a sine qua non that there should be an allowance or
deduction claimed by the assessee in any assessment for any
year in respect of loss, expenditure or trading liability incurred
by the assessee. Then, subsequently, during any previous year,
if the creditor remits or waives any such liability, then the
assessee is liable to pay tax under Section 41 of the IT Act. The
objective behind this Section is simple. It is made to ensure that
the assessee does not get away with a double benefit once by
way of deduction and another by not being taxed on the benefit
received by him in the later year with reference to deduction
allowed earlier in case of remission of such liability. The
respondent had been paying interest at 6 % per annum to the
KJC as per the contract but the assessee never claimed deduction
for payment of interest under Section 36 (1) (iii) of the IT Act. In
the instant case, CIT (A) relied upon Section 41 (1) of the IT Act
and held that the respondent had received amortization benefit.
Amortization is an accounting term that refers to the process of
allocating the cost of an asset over a period of time, hence, it is
nothing else than depreciation. Depreciation is a reduction in
the value of an asset over time, in particular, to wear and tear.
Therefore, the deduction claimed by the respondent in previous
assessment years was due to the deprecation of the machine and
not on the interest paid by it. [Para 15][959-B-E]
1.4 Moreover, the purchase effected from the KJC is in
respect of plant, machinery and tooling equipments which are
capital assets of the Respondent. The said purchase amount had
not been debited to the trading account or to the profit or loss
account in any of the assessment years. There is difference
between ‘trading liability’ and ‘other liability’. Secti

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