Under Section 56(2)(X) of Income tax Act

[Ethirajan Parthasarathy]

An individual has defaulted in repaying Bank Loan. Later one time payment is settled and the barrower was asked to pay only let us say 2 crore as against outstanding demand of ₹ 3.5 crores.

Whether the sum of ₹ 1.5 crores waived by the Bank will be treated as his income U/s 56(2)(X)

[CASusheel Gupta]

Please refer to decision of Hon'ble Supreme Court in the case of Commissioner v Mahindra and Mahindra Limited = 2018 (5) TMI 358 - SUPREME COURT where it was held not taxable in section 28(iv) and 41(1).

As far as section 56(2)(x) is concerned, it talks of

(1) any sum of money - waiver can be equated with money since actual money was received in the year of taking loan

(2) received in previous year - At the most it can be taxed in the year in which the amount was received. By the time it comes to notice of IT department, period of issue of notice u/s 148 ,must be over.

CA Susheel Gupta

9811004443

AI Summary

Waiver of debt may constitute income under deemed-income rules and is taxable in the year the loan proceeds were received.
A bank's waiver of a borrower's obligation may be treated as equivalent to a sum of money only in respect of loan proceeds actually received, so any charge under the deemed-income provision arises, at most, in the year those proceeds were received; procedural limits on reopening past years often preclude taxing the waiver in a later year.