In Brief
Mahindra & Mahindra Ltd. borrowed $650,000 from Kaiser Jeep Corporation to purchase tooling and equipment for manufacturing jeeps. After Kaiser Jeep was taken over by American Motor Corporation, the principal loan amount of Rs 57,74,064 was waived. The Revenue assessed this as taxable income under Section 28(iv) or Section 41(1) of the Income Tax Act. The Supreme Court held that the waiver was not taxable because: (1) Section 28(iv) requires the benefit to be in non-monetary form, but this was a cash receipt; and (2) Section 41(1) applies only to trading liabilities where prior deductions were claimed—here, the loan financed capital assets and no interest deduction was ever claimed. The Court dismissed the Revenue's appeals.
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