Court : Delhi Income Tax Appellate Tribunal
Citation: Addl. CIT Vs. Rollatainers Ltd. [2010- TIOL-379-ITAT-DEL]
Brief :The ITAT ruled that waiver of unpaid interest, which was not allowed as deduction in the past, is not liable to tax under the specific provisions of Indian Tax Laws (ITL) which provide for taxation of remission of trading liability. The ITAT also ruled that waiver of term loans used for acquiring capital assets is not liable to tax under the specific provisions of the ITL which provide for taxation of benefit or perquisite arising from business. The ITAT further held that waiver of cash credit facility used for trading operations is liable to tax since the benefit bears revenue character and, therefore, in the nature of benefit or perquisite arising from business.
Background and facts
- · In terms of specific provisions of the ITL, a benefit obtained by a taxpayer by way of remission or cessation of a trading liability, loss or expenditure allowed as deduction in the past is chargeable as business income in the year of remission or cessation.
- · In terms of another specific provision in the ITL, the value of any benefit or perquisite, whether or not convertible into money, arising from business (business perquisite) is treated as business income.
- · The Taxpayer had availed term loans and cash credit facilities from financial institutions. The terms loans were utilized for acquiring machinery. The cash credit facilities were used for working capital requirements.
- · The Taxpayer ran into financial difficulties and was unable to repay the terms loans, cash credit facilities and interest thereon. It was referred to the Board for Industrial & Financial Reconstruction as a ‘sick company’. Under a Corporate Debt Restructuring scheme, the financial institutions waived part of the term loans, cash credit facilities and unpaid interest. The Taxpayer credited the amounts waived to Profit & Loss Account (P&L).
- · The Taxpayer claimed that none of the three items were chargeable to tax. The Tax Authority, however, rejected the contention and added the waived term loans, cash credit facilities and interest amount to the Taxpayer’s income.
- · The first appellate authority upheld the Taxpayer’s claim and held that none of the items were liable to tax. Aggrieved, the Tax Authority appealed to the ITAT.
Taxpayer’s contentions
