S. 41(1): Cessation of liability to repay loan taken for capital purposes is not assessable as income

CIT vs. Xylon Holdings Pvt. Ltd (Bombay High Court)

The cessation of liability to repay the loan taken for purchase of a car is not assessable as income u/s 41(1) in accordance with Mahindra and Mahindra Ltd 261 ITR 501 (Bom). Though in Solid Containers Ltd 308 ITR 407 (Bom) it was held that waiver of a loan taken for trading activity would become the assessee’s income and be subject to tax even if the assessee had never claimed a deduction for the loan, that decision is not applicable because there the loan was taken for "trading purposes" and not for purchase of a capital asset. In the alternative, the waiver of a loan is not taxable u/s 28(iv) as that provision applies only when a benefit or perquiste is received in kind and not in cash.