This Tax alert summarizes a recent ruling of the Madras High Court (HC) in the case of Ramaniyam Homes Pvt. Ltd. (Taxpayer) on the issue of taxability of benefit of waiver of principal amount of loan used for acquiring capital assets under section (s.) 28(iv) of the Indian Tax Laws (ITL) which taxes value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession.
In a departure from earlier rulings of Bombay and Delhi HCs and its own ruling in the case of Iskraemeco Regent Ltd., the Madras HC held that waiver of principal amount of loan by bank constitutes a benefit or perquisite for the taxpayer arising from business and hence, is taxable under s.28(iv) even if the loan was used for acquiring capital assets. The predominant judicial view prior to this ruling was that only non-monetary benefits or perquisites are covered under s.28(iv) and, hence, remission of loan which involves a monetary transaction is not covered within the scope of that provision. According to the HC, it is not the actual receipt of money, but the receipt of benefit or perquisite having a monetary value, whether convertible into money or not, which is covered by s.28(iv
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