Law:

Section:

I. Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Whether taxability of waiver of loan by bank would depend upon purpose for which said loan was taken - Held, yes - Whether if loan was taken for acquiring capital asset, waiver thereof would not amount to any income exigible to tax, but, on other hand, if loan was taken for trading purpose and was treated as such from very beginning in books of account, waiver thereof may result in income, more so when it was transferred to profit and loss account - Held, yes II. Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Assessment year 2004-05 - Assessee-company was engaged in business of financing and making investments in shares - During relevant assessment year, it had written off amount of certain loan taken by it more than ten years ago and for which no claim was made by party for so many years - It was treated as capital receipt and was reduced from taxable income - Assessing Officer, however, held amount written off as taxable income of assessee - On appeal, Tribunal deleted addition on ground that amount of loan was not used in servicing alleged money lending business and, therefore, it could not be treated as part of circulating capital to be treated as trading receipt - Whether having regard to finding of fact of Tribunal constituting nature of loan, no question of law did arise from Tribunal's order - Held, yes FACTS-I The assessee-company was engaged in the business of manufacturing of electronic products. It was enjoying loan facility from the bank. As the assessee could not discharge its liability during specified time, the bank categorized that loan as Non-Performing Asset (NPA). The issue of recovery of loan was referred to the Debt Recovery Tribunal in the year 2000. During the pendency of those proceedings, the assessee entered into one-time settlement with the bank, in terms of which on payment of a part of principal loan amount, the bank waived remaining loan amount and outstanding interest. In its return of income, the assessee showed interest waived as income but principal amount of loan waived was not offered for taxation. The Assessing Officer held that even…

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