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2020 (4) TMI 32 - GUJARAT HIGH COURTCessation of liability - Additions u/s. 41(1) - waiver towards outstanding principal loan amount - waiver of outstanding principal loan amount is a capital receipt or not? - Tribunal deleting the addition made by the Assessing Officer and confirmed by the CIT(A) by considering the amount as capital receipt - HELD THAT:- CIT(A) has agreed to the submissions of the respondent-assessee that addition cannot be made under Section 41(1) but has considered that the respondent was paying interest on the loan taken by it which was claimed by it as expenditure in profit and loss account, and therefore, it was borrowing with interest which was waived. CIT(A) has applied the ratio of T.V.Sundaram Iyengar and Sons Ltd [1996 (9) TMI 1 - SUPREME COURT]to hold that the quality and nature of receipt for income-tax purposes is fixed once and for all, when the receipt is received and that subsequent operation can change its nature, is not absolute and that in given cases by reason of subsequent events, the amount which initially was not received as trading receipts may be regarded as business income - as considered by the CIT(A) that if the loan was for the trading purpose and was treated as such from the very beginning in the books of account, the waiver thereof may result in the income. It was, therefore, held that the waiver of the loan should be taxable under the provisions of Section 2(24) read with Section 28(iv) of the Act. Aforesaid findings given by the CIT(A) are contrary to the facts of the case as the amount credited to capital reserve by the assessee pertains to principal amount borrowed without there being any component of interest embedded therein. In that view of the matter the dictum in case of Mahindra and Mahindra Ltd [2003 (1) TMI 71 - BOMBAY HIGH COURT] would be applicable and as such neither Section 28(iv) of the Act nor Section 41(1) of the Act would be applicable so as to tax the amount of waiver of loan comprising of principal amount in the ends of the assessee. We are in agreement with the findings given by the Tribunal. The question of law raised in this appeal cannot be termed as substantial question of law.
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