Loans written off – Amount in respect of which there was no allowance or deduction claimed by assessee amounted to capital receipt not liable to tax u/s 41(1)

308
Loans written off - Amount in respect of which there was no allowance or deduction claimed by assessee amounted to capital receipt not liable to tax u/s 41(1)

Loans written off – Amount in respect of which there was no allowance or deduction claimed by assessee amounted to capital receipt not liable to tax u/s 41(1) 

SLP dismissed against High Court ruling that waiver of repayment of certain amount in respect of which there was no allowance or deduction claimed by assessee during previous year, amounted to capital receipt not liable to tax under section 41(1)

Compaq Electric Ltd.

A.K. SIKRI AND S. ABDUL NAZEER, JJ.

SPECIAL LEAVE TO APPEAL (C) NO. 19981 OF 2012

JANUARY  3, 2019

Section 41(1) of the Income-tax Act, 1961 – Remission or cessation of trading liability (Allowance or deduction)

– Assessment year 2003-04

 – Assessee-company was a wholly owned subsidiary company of DRL

 – In view of huge losses suffered by assessee-company, operations of company were funded by way of unsecured loans from DRL from year to year

– During relevant assessment year, assessee-company proposed and DRL accepted a request to agree for conversion of unsecured loan partly into equity share capital and waived balance as not recoverable

– Assessing Officer was of view that loans were received during course of assessee’s business with DRL, and that liability of assessee was a trading liability

 – Assessing Officer, thus, held that provisions of section 41(1) were attracted in respect of amount of unsecured loan written off

– High Court by impugned order held that in view of fact that in respect of amount in question, there was no allowance or deduction claimed by assessee for previous years, when creditor waived repayment of said amount, it amounted to capital receipt not liable to tax –

– Whether Special Leave Petition filed against impugned order was to be dismissed

 – Held, yes [Para 7][In favour of assessee]

LEAVE A REPLY

Please enter your comment!
Please enter your name here