Over the course of time, Indian Courts are proving to be an essential pillar in modelling the tax laws in the Country. Determination of taxable income is perhaps the primary step that any assessment authority will have to undertake to assess the amount of tax. Section 2(24) of the Act attempts to define the term ‘Income’. Section 28(iv) takes into consideration the nexus between the business or profession, and the receipt is considered as an income chargeable to tax.
A peculiar scenario that emerged in the light of the above-stated provision was whether the waiver of loan granted to any particular entity carrying out business or profession could be classified as an income chargeable to tax under Section 28(iv). The Supreme Court, in the case of CIT v. Mahindra and Mahindra, ruled that waiver of a loan is not a chargeable income under Section 28(iv).
It is to be noted that, although the Supreme Court laid down the above-stated rule in the Mahindra Case, the Bombay High Court in Essar Shipping Ltd has dissected the judgment of the Apex Court and has substantially focussed on its applicability by comparing it with other decisions of High Courts and the Supreme Court, to the extent of overruling one of its earlier judgments. Therefore, the current position of law, including a cumulative understanding of the stand of the Apex Court in various cases in this regard, can significantly be studied by an analysis of the judgment of the Bombay High Court in the case of M/s Essar Shipping Ltd v. CIT