9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (1) TMI 268 - AT - Income TaxLoss incurred on sale of shares of subsidiary company - long-term capital loss OR business loss - Held that - Loss on sale of shares held as investment in subsidiary companies is a revenue loss. Also when holding company invests amounts for business of its subsidiary, it must be held for business expediency. We find merit in the arguments advanced by the assessee. See BRIGHT ENTERPRISES PVT. LTD. VERSUS COMMISSIONER OF INCOME TAX, JALANDHAR (PUNJAB) 2015 (11) TMI 342 - PUNJAB & HARYANA HIGH COURT We are of the considered opinion that the CIT(A) was not justified in holding that the loss incurred on sale of shares of subsidiary companies is a capital loss and not a business loss. The grounds raised by the assessee are accordingly allowed. - decided in favour of assessee.
Issues Involved:
1. Nature of loss on sale of shares of subsidiary companies – whether it is a capital loss or a business loss. 2. Applicability of the principle of commercial expediency in determining the nature of the loss. Issue-wise Detailed Analysis: 1. Nature of Loss on Sale of Shares of Subsidiary Companies: The primary issue was whether the loss incurred by the assessee on the sale of shares of its subsidiary companies should be treated as a capital loss or a business loss. The Assessing Officer (AO) observed that the assessee had shown the amount as an investment in the balance sheet, thus considering it a capital asset under section 2(14) of the IT Act. Consequently, the AO treated the loss as a long-term capital loss and disallowed it for setting off against business income, allowing only its carry forward as per the Income-tax Act. The assessee contended that the investments were made for commercial expediency to further its business objectives, and thus, the loss should be considered a business loss. The CIT(A) upheld the AO's decision, stating that the investments were not related to the business operations of the assessee and did not satisfy the test of commercial expediency. 2. Applicability of the Principle of Commercial Expediency: The assessee argued that the investments in the subsidiary companies were made purely for commercial expediency, aiming to conduct business in power generation and hospitality/real estate through special purpose vehicles. The assessee cited various judicial precedents, including the Hon'ble Supreme Court's decision in the case of SA Builders (P) Ltd. vs. CIT, which emphasized that investments made for commercial expediency should be considered business expenses. The Tribunal considered the arguments and judicial precedents, including the decisions in the cases of Bright Enterprises Pvt. Ltd. vs. CIT and DCIT vs. Colgate Palmolive India Ltd. The Tribunal noted that the principle of commercial expediency is crucial in determining the nature of the loss. It emphasized that as long as the investment is justified on the grounds of commercial expediency, the loss on sale of such investment should be treated as a business loss. The Tribunal observed that the CIT(A) had accepted the genuineness of the loss but denied the benefit on account of commercial expediency. The Tribunal found merit in the assessee's arguments, stating that the investments in the subsidiary companies were made to serve the business interests of the assessee. The Tribunal concluded that the loss incurred on the sale of shares of the subsidiary companies should be regarded as a business loss, not a capital loss. Conclusion: The Tribunal allowed the appeal filed by the assessee, holding that the loss incurred on the sale of shares of subsidiary companies is a business loss and not a capital loss. The Tribunal emphasized the importance of commercial expediency in determining the nature of the loss and cited various judicial precedents to support its decision. The appeal was allowed, and the decision was pronounced in the open court on 31.12.2018.
|
