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QUERY: Assessee had borrowed loan from bank for purchase of machinery and working capital as under:

• Term Loan Rs. 100/- crores.

• Working Capital Rs. 90 /- crores.

It also had certain unpaid interest of Rs. 30/- crores. Out of this Rs. 30/- crores Rs. 12/- crores was capitalised with machinery.

Due to certain reasons company has entered into debt restructuring with the bank and amount borrowed was partly waived as under:

Term Loan Rs. 15/- crores

Working Capital Rs. 5/- crores

Interest Rs. 20/- crores

What tax treatment to be given on waiver of loan?
ANSWER: Click here to read the full answer of the expert

On debt restructuring with bank, the bank has waived Rs. 15/- crores out of term loan of Rs. 100/- crores, which was taken for purchase of machinery. So, the loan was for purchase of a capital asset and the same was not debited to trading account or profit and loss account and therefore remission of that liability cannot be treated as income under section 41(1) of the Act. See Mahindra and Mahindra Ltd. v. CIT [261 ITR 501 (Bom.)] and CIT v. Xylon Holdings (P) Ltd. [26 333 (Bom.)].