Waiver of principle amount of ‘non trading term loan’ can not be taxed

It has been observed by the AO that waiver of ‘term loan’ is not trading liability, expenditure or loss as envisaged under section 41(1) of the Act. In other words, he has not invoked the provision of section 41(1) of the Act but treated the waiver of principle of amount of ‘term loan’ chargeable to tax under the head ‘income from other sources’

Since the AO has not invoked the provisions of section 41(1) of the Act, therefore, respectfully following the decision of the Hon’ble Supreme Court in D.P.Sandu Bros.Chembur (P.) Ltd. (supra) wherein it has been held that in view of the finding that section 45 could not be applied, it was not open to department to impose tax on capital receipt under any of other section and the decision of the Hon’ble Bombay High Court in Cadell Wvg. Mill Co. (P.)(supra) wherein it has been held that there is no merit in the contention of the department that capital gains which arise in cases of transfer of assets whose cost of acquisition cannot be computed would fall under section 56, we  are of the view that the addition made by the AO under the head income from other sources is not sustainable in law.

INCOME TAX APPELLATE TRIBUNAL, MUMBAI

ITA No. 6494/Mum/2008 – (Assessment Year: 2004- 05)

Dy. Commissioner of Income Tax, 1(1)

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