profit on settalment of loan
This query is : Open
03 March 2011
sir,loan settalment se hone wala profit ka income tax point se kya treatment karna chahiye?
ise kis head me taxable karenge?
ise kis head me taxable karenge?
04 March 2011
sir,loan settalment se hone wala profit ka income tax point se kya treatment karna chahiye?
ise kis head me taxable karenge?
ise kis head me taxable karenge?
04 March 2011
Please refer the CA FInal Old Direct TAX suggested answer for Nov 2010 exam - Q.1 (B) for the same.
If the loan is for Capital Asset then waiver is not taxable as business income. If the loan is for business purpose then waiver is taxable as business income -
Whether the amount transferred to profit and loss account in case of waiver of loan
taken by assessee for business purposes assessable as business income under
section 41(1) of the Income-tax Act, 1961?
Solid Containers Ltd. v. DCIT (2009) 308 ITR 417 (Bom.)
Relevant Section: 41(1)
The assessee had taken a loan for business purposes which was written back and directly
credited to the reserves account, as a result of consent terms arrived at in a suit. The
assessee claimed this amount as capital receipt, even though it had offered the interest on
the said loan as its income by crediting the same to its profit and loss account. The Assessing
Officer added the amount to the total income of the assessee as its income and this was
upheld by the Tribunal.
The High Court held that it was a loan taken for trading activity and ultimately, upon waiver
the amount was retained in the business by the assessee. The amount had become the
assessee’s income and was assessable.
If the loan is for Capital Asset then waiver is not taxable as business income. If the loan is for business purpose then waiver is taxable as business income -
Whether the amount transferred to profit and loss account in case of waiver of loan
taken by assessee for business purposes assessable as business income under
section 41(1) of the Income-tax Act, 1961?
Solid Containers Ltd. v. DCIT (2009) 308 ITR 417 (Bom.)
Relevant Section: 41(1)
The assessee had taken a loan for business purposes which was written back and directly
credited to the reserves account, as a result of consent terms arrived at in a suit. The
assessee claimed this amount as capital receipt, even though it had offered the interest on
the said loan as its income by crediting the same to its profit and loss account. The Assessing
Officer added the amount to the total income of the assessee as its income and this was
upheld by the Tribunal.
The High Court held that it was a loan taken for trading activity and ultimately, upon waiver
the amount was retained in the business by the assessee. The amount had become the
assessee’s income and was assessable.
04 March 2011
INCOME – CESSATION OF TRADING LIABILITY -
Sec 28(iv) & 41(1)-
Waiver of loan under a scheme formulated by Reserve Bank of India known as “One time Settlement
Scheme” assessee credited said waiver amount in general reserve account. The Tribunal held that
loan amount waived could not be treated as its income either under section 28(iv) or under section
41(1).
Loans availed by assessee from Banks were not in the nature of trading liability but were in nature of
capital liability and, therefore waiver, of loan liability was not waiver of any trading liability hence
the provision of section 41(1) was not applicable.
Accelerated Freez & Drying Co. Ltd. v Dy CIT (2009) 31 SOT 442 (Cochin ).
Editorial note - Judgment of Bombay High Court in Solid Containers v Dy CIT (2009) 308 ITR 417
(Bom) considered and distinguished.
Sec 28(iv) & 41(1)-
Waiver of loan under a scheme formulated by Reserve Bank of India known as “One time Settlement
Scheme” assessee credited said waiver amount in general reserve account. The Tribunal held that
loan amount waived could not be treated as its income either under section 28(iv) or under section
41(1).
Loans availed by assessee from Banks were not in the nature of trading liability but were in nature of
capital liability and, therefore waiver, of loan liability was not waiver of any trading liability hence
the provision of section 41(1) was not applicable.
Accelerated Freez & Drying Co. Ltd. v Dy CIT (2009) 31 SOT 442 (Cochin ).
Editorial note - Judgment of Bombay High Court in Solid Containers v Dy CIT (2009) 308 ITR 417
(Bom) considered and distinguished.
04 March 2011
INCOME - REMISSION OR CESSATION OF TRADING
LIABILITY - LIMITATION OF TIME - Sec 41(1)-
When the assessee continued to reflect or record liabilities as still payable to creditors and had not
written off ultimately in books of account and moreover there was no evidence to indicate that said
liabilities had ceased to exit, question of taking such outstanding liabilities as deemed profits did not
arise.
DSA Engineers (Bombay) vs. ITO (2009) 30 SOT 31 (Mum.)
LIABILITY - LIMITATION OF TIME - Sec 41(1)-
When the assessee continued to reflect or record liabilities as still payable to creditors and had not
written off ultimately in books of account and moreover there was no evidence to indicate that said
liabilities had ceased to exit, question of taking such outstanding liabilities as deemed profits did not
arise.
DSA Engineers (Bombay) vs. ITO (2009) 30 SOT 31 (Mum.)
04 March 2011
thanks sir,
but sir assessee loan lene wala hai and uska taoal principal + interest=217200 hai jisko Bank 167200 me settal karne ko tyaar ho gya to balance amount jo benefit ho rha hai uska kya kre?
but sir assessee loan lene wala hai and uska taoal principal + interest=217200 hai jisko Bank 167200 me settal karne ko tyaar ho gya to balance amount jo benefit ho rha hai uska kya kre?
04 March 2011
thanks sir,
but sir assessee loan lene wala hai and uska total principal + interest=217200 hai jisko Bank 167200 me settal karne ko tyaar ho gya to balance amount jo benefit ho rha hai uska kya kre?
but sir assessee loan lene wala hai and uska total principal + interest=217200 hai jisko Bank 167200 me settal karne ko tyaar ho gya to balance amount jo benefit ho rha hai uska kya kre?
04 March 2011
if the loan was for trading liability like for business purpose, then this will be your business profit and accordingly you have to credit the difference to profit & loss account.
if the loan was taken for Capital Asset, then credit the difference to the Asset or credit in the capital reserve account.
if the loan was taken for Capital Asset, then credit the difference to the Asset or credit in the capital reserve account.
30 May 2016
suppose Company has purchased an asset from vendor for Rs.1Lakh, Rs.10,000 was payable till long period after aquisition of asset but now as per settlement no amount is payable by company, whether the amount of Rs.10,000 is taxable?
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