Case Law Details
I.G. Petrochemicals Ltd. Vs Income-tax Appellate Tribunal (Karnataka High Court)
Introduction: The case of I.G. Petrochemicals Ltd. Vs. Income-tax Appellate Tribunal, Karnataka High Court, raises a critical question of whether the waiver of a loan leading to a ‘benefit’ falls within the ambit of income, rendering it chargeable to Income Tax under Section 28(iv) of the Income Tax Act (I.T. Act). This article delves into the intricacies of this case, examining relevant legal provisions, key judgments, and recent amendments.
Detailed Analysis:
Section 28(iv) of the I.T. Act specifies that “the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession” shall be chargeable to income tax under the head “Profits and gains of business or profession.” In this case, the petitioner Company received a ‘benefit’ through the waiver of loans. While the interest on the waived loans has been offered for taxation, the waived principal amount remains untaxed. The central issue here is whether the nature and purpose of the loan – i.e., whether it was a term loan or working capital loan – would determine its taxability under Section 28(iv) of the I.T. Act.
The argument presented by the Revenue is that if the loan was taken for working capital or trading purposes and was later waived, the resulting benefit would have a revenue character, rendering it taxable. However, if the loan was initially taken for capital purposes and subsequently waived, the benefit would not constitute ‘income’ under Section 28(iv) since it would be of a capital nature. This argument is based on the changing character of the receipt over time, as established in relevant court judgments.
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