In Brief
Mahindra & Mahindra borrowed USD 650,000 from Kaiser Jeep Corporation to purchase tooling and plant/machinery for jeep manufacturing. After American Motor Corporation acquired KJC, it waived the loan. The Revenue treated the waiver as taxable income under the Income Tax Act. The Supreme Court held the waiver is not taxable. Section 28(iv) does not apply because the receipt is cash, not a non-monetary benefit. Section 41(1) does not apply because the company never claimed interest deductions and the loan financed capital assets, not trading liabilities. The Court upheld the High Court's decision in favour of the company."
The lawyer headnote and full judgment text are available to registered users.