2019 (9) TMI 199 - HC - Income Tax

Capital asset u/s 2(14) - Scope of the term Asset / property - interest of every kind - whether loan given to its subsidiary in India, by the foreign company constitute capital asset - transfer in terms of Section 2(47) - HELD THAT - No application while dealing with the Act. It is also his submission that the reliance upon decision of the Gujarat High Court in CIT v/s. Minor Bababhai 1980 (8) TMI 53 - GUJARAT HIGH COURT is inappropriate, as in that case, the Revenue has accepted that the amount due from the un-secured creditor were in the nature of capital assets. Thus, there was no dispute on the issue of 'capital asset' as in this case. Therefore, this appeal deserves admission. Section 2(14) of the Act has defined the word capital asset very widely to mean property of any kind. However, it specifically excludes certain properties from the definition of 'capital asset'. The Revenue has not been able to point out any of the exclusion clauses being applicable to an advancement of a loan. It is also relevant to note that it is not the case of the Revenue before us that this amount of ₹ 90 lakhs Euros was a loan/ advance income of its trading activity. The impugned order of the Tribunal has considered the meaning of the word property as given in the context of the definition of asset in the Wealth Tax Act to hold property to include the every interest which a person can enjoy. This was extended by the Tribunal to understand the meaning of the word property as found in the context of capital asset under Section 2(14). The Revenue has not been able to point out any reasons to understand meaning of the word property as given in the Section 2(14) of the Act differently from the meaning given to it under Section 2(e) of the Wealth Tax Act, 1957. The Revenue has not been able to point out why the above decision of this Court rendered in the context of capital assets as defined in Section 2(14) of the Act, is inapplicable to the present facts. Nor, why the loan given to M/s. SNISL would not, in the present facts, be covered by the meaning of capital asset as given under Section 2(14) of the Act. As the issue raised herein stands concluded by the decision of this Court in M/s. Bafna Charitable Trust 1997 (9) TMI 93 - BOMBAY HIGH COURT and also by the self evident position as found in Section 2(14) of the Act, the question as framed does not give rise to any substantial question of law.

Summary

Issues:
1. Interpretation of the term 'capital asset' under Section 2(14) of the Income Tax Act.
2. Whether a loan given to a subsidiary company constitutes a capital asset.
3. Determination of short-term capital loss on the assignment of a loan.

Analysis:

1. The primary issue in this case revolves around the interpretation of the term 'capital asset' as defined under Section 2(14) of the Income Tax Act. The Respondent claimed a short-term capital loss on the assignment of a loan to its subsidiary company. The Assessing Officer disallowed the loss, arguing that the loan did not qualify as a capital asset under the Act.

2. The Respondent's subsidiary company faced financial troubles, leading to the assignment of the loan to another entity. The Commissioner of Income Tax (Appeals) upheld the disallowance of the short-term capital loss, stating that the loan was not a capital asset. However, the Tribunal, in its order dated 31st March, 2016, allowed the appeal, determining that the loan constituted a capital asset under Section 2(14) of the Act.

3. The Tribunal analyzed the definition of 'capital asset' under Section 2(14), emphasizing that it includes "property of any kind held by an assessee." It relied on precedents to interpret the term 'property' broadly, encompassing various interests. The Tribunal concluded that the loan of €90 lakhs qualified as a capital asset and that the transfer of this loan was covered under Section 2(47) of the Act, allowing the Respondent to claim a loss on capital account.

4. The Appellant challenged the Tribunal's decision, arguing that the loan did not meet the criteria of a capital asset under Section 2(14) of the Act. However, the High Court upheld the Tribunal's decision, citing previous judgments that supported the broad interpretation of 'property' and 'capital asset.' The Court emphasized that the loan in question was not related to the Appellant's trading activity, further solidifying its classification as a capital asset.

5. Ultimately, the High Court dismissed the Appeal, stating that the issue was conclusively settled by previous decisions and the clear language of Section 2(14) of the Act. The Court found no substantial question of law arising from the interpretation of 'capital asset' in this context, thereby upholding the Tribunal's decision in favor of the Respondent.