WAIVER OF LOAN TAKEN BY ASSESSEE FOR BUSINESS PURPOSES ASSESSABLE AS BUSINESS INCOME

The assessee had taken a loan of Rs. 6,86,071 for business purposes which was written back and directly credited to the reserves account, as a result of consent terms arrived at in a suit. The assessee claimed this amount as capital receipt, even though it had offered the interest on the said loan as its income by crediting the same to its profit and loss account. The Assessing Officer added the amount
to the total income of the assessee as its income and this was upheld by the Tribunal. On appeal to the High Court, dismissing the appeal, HC held that it was a loan taken for trading activity and ultimately, upon waiver the amount was retained in the business by the assessee. The amount had become the assessee's income and was assessable.