OTS :Treatment of one time settlement scheme OTS or loan waiver under income tax with Shalini Somani
Channel: Tax4wealth
Date: 2020-06-09

Highlight: Case study of CIT Vs. Mahindra & Mahindra (2018) 404 ITR 0001 (SC)

Waiver of Term Loan waiver wherein loan is taken for:
 Capital Asset
 Non Business Purpose
 Trading or regular business purpose

The Expansion Deal  - 18.06.1964: 
FC 150
FC 170
Agreement with KJF  Kaiser Jeep Corporation

Facts of the case
Subsidiary KJIC Kaiser Jeep International Corporation - dies, welding equipment and die models
RBI Approval
Takeover
American Motor Corporation (AMC)
Principal Waiver

Case law
Taxpayer view
The purchase of tooling was not a transaction for purchase of goods on credit in the ordinary course of business and it could neither be equated with unpaid purchase consideration to be liquidated over a period of time.

Issue under Consideration
Whether waiver of loan would be taxable under section 28(iv) or 41(1) of the Act? 

Ruling of the Supreme Court

conclusion
section 28(iv) is N/A in the present case, as the amount waived is receipt in the nature of cash/ money
Section 41(1) is also N/A n this case as waiver of loan does not amount to cessation of trading liability

Benefit to be in form rather than in the shape of money
No deduction was claimed under section 36(1)(iii) of the Act.
Capital Asset purchase amount had not been debited to P&L A/c
Section 41(1) specifically talks of cessation of trading liability


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