The waiver by the lender of even the principal amount of loan constitutes a “benefit” arising from business and is assessable to forex trading company in chennai madras as income. The High Court had to consider whether the amount representing the principal loan amount waived by the bank under the one time settlement scheme which the assessee received during the course of its business is exigible to tax.
Income Tax Act being the benefit arising for the business. The law as expounded by the Delhi High Court in Logitronics P Ltd. CIT appears to be that if a loan had been taken for acquiring a capital asset, waiver thereof would not amount to any income exigible to tax. In our considered view, the waiver of a portion of the loan would certainly tantamount to the value of a benefit. We shall now turn our attention to the distinction sought to be made between the waiver of a portion of the loan taken for the purpose of acquiring capital assets on the one hand and the the waiver of a portion of the loan taken for the purpose of trading activities on the other hand.
It appears that in so far as accounting practices are concerned, no such distinction exists. Therefore, it is clear that the moment the asset is put to use, then the interest paid in respect of the capital borrowed for acquiring the asset, could be allowed as deduction. When the loan amount borrowed for acquiring an asset gets wiped off by repayment, two entries are made in the books of account, one in the profit and loss account where payments are entered and another in the balance sheet where the amount of unrepaid loan is reflected on the side of the liability. Steel Authority of India Ltd vs. It covers only the grant of a subsidy or reimbursement by whatever name called. The above-said amendment to Section 54F of the Income Tax Act, which will come into effect only from 01. Literal interpretation create problems for those who made settlement with lender and transfer amount in to capital account without any payment of tax.