9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2012 (12) TMI 287 - AT - Income TaxClaim for Deduction Whether the loss was incidental to the business of the assessee Following the decision of Supreme court in case of Ramachandar Shivnarayan v. CIT 1977 (11) TMI 2 SUPREME COURT Held that - There must be direct and proximate connection and nexus must be between the business operation and the loss. In the present case Biotechnology was the purpose of the joint venture and forward integration of the business of the Assessee. Loan to Rubtech was investment in the capital of Biosift by Rubtech and that Rubtech was only a conduit and that it was the intention of the Assessee to invest in the capital of Biosift. If one were to proceed on the presumption that it was direct investment by Assessee in the capital of Biosift or a loan by the Assessee to Rubtech, the intention of the loan was to further the business interest of the Assessee and it was not a case of making investment with a view to get returns on such investments alone. - The investment in the capital of Biosift through a loan to Rubtech was a strategic investment with a view to enter field of biotechnology. - The fact that the venture did not take off as expected cannot be the basis to say that the loan by the Assessee to Rubtech for making investment in share capital of Biosift was not given without business interest in mind and was a mere investment for returns - Claim of the Assessee for deduction on account of loss on account of write of debts due by Rubtech has to be allowed - appeal of assessee is allowed.
Issues Involved:
1. Allowability of loss on account of irrecoverable advance written off. 2. Nexus between the business operation and the loss. 3. Classification of the loss as capital or revenue loss. Issue-wise Detailed Analysis: 1. Allowability of Loss on Account of Irrecoverable Advance Written Off: The assessee, a company engaged in the manufacture of drugs and pharmaceuticals, claimed a deduction for a loss of Rs.1,89,80,481/- on account of irrecoverable advances written off. The advance was given to its 100% subsidiary, Rubtech Exports Pvt. Ltd., which invested the amount in the equity shares of Biosift Inc., an American company. When Biosift failed to perform as expected, Rubtech sold its investment, recovering only a fraction of the amount, leading to the loss. The assessee wrote off this loss in its books and claimed it as a deduction. The AO and CIT(A) disallowed the claim, treating it as a capital loss. The Tribunal, however, found that the loss was incidental to the business of the assessee and allowed the deduction. 2. Nexus Between the Business Operation and the Loss: The Tribunal examined the evidence to determine if the loss was incidental to the business of the assessee. The assessee argued that the loan to Rubtech was intended to establish a business connection in biotechnology through Biosift, which was in line with its business expansion strategy. The Tribunal noted that the investment in Biosift by Rubtech was aimed at furthering the business interests of the assessee, including access to biotechnology research and potential business opportunities in the US market. The Tribunal concluded that there was a direct and proximate nexus between the business operations of the assessee and the loss incurred. 3. Classification of the Loss as Capital or Revenue Loss: The Tribunal referred to several judicial pronouncements, including the Supreme Court's decisions in Ramachandar Shivnarayan v. CIT and Patnaik & Co. Ltd. v. CIT, to determine the nature of the loss. It emphasized that a trading loss with a direct and proximate connection to business operations is deductible. The Tribunal found that the loan to Rubtech was not merely an investment for returns but was intended to further the business interests of the assessee. Therefore, the loss was considered incidental to the business and not a capital loss. The Tribunal directed the AO to allow the deduction claimed by the assessee. Conclusion: The Tribunal allowed the appeal of the assessee, holding that the loss on account of irrecoverable advance written off was incidental to the business of the assessee and should be allowed as a deduction. The Tribunal emphasized the direct and proximate nexus between the business operations of the assessee and the loss, classifying it as a revenue loss rather than a capital loss.
|
