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TMI Blog2009 (3) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... d as has been advanced during the course of normal business activities of the assessee. Moreover a single transaction of loan cannot be termed as business activity and that too after lapse of several years when loss of capital has occurred. It is a settled law as held by Hon'ble Supreme Court in the case of CIT vs. Nainital Bank Ltd.[ 1964 (9) TMI 11 - SUPREME COURT] that every loss is not so deductible unless it is incurred in carrying out the operation of the business and is incidental to the operation. Therefore, we find that the assessee had advanced loan for acquisition of shares in joint venture company DCM Toyota Ltd., which was renamed as DCM Daewoo Motors Ltd. Thus the amount advanced was in respect of fixed capital. Therefore, the assessee's claim cannot be allowed as a business loss u/s. 28 r/w s. 37. As contended that the Tribunal has allowed the claim of the assessee in AY 2000-01 by dismissing the Revenue's appeal that interest paid on borrowed funds diverted to sister concerns as a measure of commercial expediency could not be disallowed in view of decision of Hon'ble Supreme Court in the case of S.A. Builders Ltd. vs. CIT(A) Anr.[ 2006 (12) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee admits not only by declaration but also by conduct. The assessee has written off the loan as loss to it for good. That being the case, here also we cannot say that there is any transfer involved. It is purely a case of disappearance of the loan itself. It is not that the assessee has transferred its right to the assets in favour of a third party whereby the right has extinguished. The asset itself is extinguished. Thus in our considered opinion the loss suffered by the assessee cannot be treated as capital loss u/s. 45. Thus, claim of the assessee is not allowable either as business loss u/s. 28 r/w provisions of s. 37 nor as capital loss u/s. 45. Therefore, we do not find any infirmity in the order of CIT(A) confirming the stand of the AO on both the counts. The appeal filed by the assessee is dismissed in terms of above discussions. - Member(s) : I. P. BANSAL., K. D. RANJAN. ORDER-K.D. RANJAN, A.M.: This appeal filed by the assessee for asst. yr. 2002-03 arises out of the order of the learned CIT(A)-XIII, New Delhi. 2. Ground Nos. 1, 3, 5 and 6 are not pressed and as such, these are dismissed, as not pressed. Ground No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anding against DCM International Ltd. and number of shares held by DCM International Ltd. in Daewoo Motors was 21.47 lacs. During the year under consideration the assessee company had purchased 21.47 lakhs shares of Daewoo Motors India Ltd. at the price of Rs. 28.14 (including stamp duty) per share adjusting the loan to the extent of Rs. 6.04 crores. Out of the balance loan of Rs. 131.05 lacs, the assessee received an amount of Rs. 32.05 lakhs and the balance amount of Rs. 98.55 lakhs was written off as bad debts. 4. During the course of assessment proceedings it was explained by the assessee that the amount of Rs. 98.55 lakhs was debited in the books of accounts against provision for bad debts made in earlier years which had not been claimed deductible and had been added back in the computation of taxable income. Since the amount had been actually written off as bad debts in this year, the deduction for the same was allowable in the year under consideration. Further, as the amount had not been debited to P L a/c and had been deducted from the provision in the accounts, deduction for the same was to be claimed in computation of taxable income. Through an oversight, deduction for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that the claim has not been made as bad debts. It is also admitted fact that loan was given free of interest and it was never intended for earning the profits from the said loan. Since the loan was given on principle of commercial expediency, the loss of principal amount was a business loss and was claimed as deduction under s. 28 r/w s. 37 of the Act. Alternatively, it has been submitted that the loan was given to support the subsidiary company. Loan is an asset and when an asset is extinguished it amounts to transfer within the meaning of provisions of s. 2(47) of the Act. Therefore, it amounts to capital loss. He placed reliance on the decision of Hon'ble Calcutta High Court in the case of Turner Morrison Co. Ltd. vs. CIT (2001) 165 CTR (Cal) 451 : (2000) 245 ITR 724 (Cal). On the other hand, the learned senior Departmental Representative submitted that the loan advanced is not in line with the business of the assessee and, therefore, it cannot be treated as a loss to be allowed as business loss under s. 28 of the Act. He placed reliance on the decision of Hon'ble Madhya Pradesh High Court (Indore Bench) in the case of Binodiram Balchand Co. vs. CIT (2002) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) that every loss is not so deductible unless it is incurred in carrying out the operation of the business and is incidental to the operation. Whether loss is incidental to the operation of a business is a question of fact to be decided on the facts of each case, having regard to the nature of the operations carried on and the facts of each case and the nature of the risk involved in carrying them out. The degree of the risk or its frequency is not of much relevance but its nexus with the nature of the business is material. The principle laid down by Hon'ble Court in the case of CIT vs. Nainital Bank Ltd. has been followed by Hon'ble Andhra Pradesh High Court in Soni Hinduji Kushalji Co. vs. CIT (1973) 89 ITR 112 (AP) and Hon'ble Madras High Court in CIT vs. Textool Co. Ltd. (l982) 27 CTR (Mad) 133 : (l982) 135 ITR 200 (Mad). Hon'ble Supreme Court in Sutlej Cotton Mills Ltd. vs. CIT 1978 CTR (SC) 155 : (1979) 116 ITR 1 (SC) has held that it is to be seen whether the loss suffered by the assessee was a trading loss or not could depend on the answer to the question, whether the loss was in respect of a trading asset or a capital asset. In the former case, it would be a trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the net worth of the assessee was much more than the amount advanced as interest-free loan to subsidiary companies. Therefore, the order passed by the learned CIT(A) deleting the interest on interest-free loans was upheld on the principle of commercial expediency. From above facts it is clear that the Tribunal allowed the claim of assessee primarily on the ground that the amount was not advanced out of borrowed funds. Further, the deletion of interest on principle of commercial expediency would not mean that the assessee was engaged in business of money-lending and the amount given as loan was in the ordinary course of business or it was part of circulating capital. Moreover, in the instant case the amount claimed as loss was given for purchase of shareholding of Toyota Corporation in joint venture company DCM Toyota Ltd. Therefore, in view of decision of Hon'ble Supreme Court in the case of Sun Engineering Works (P) Ltd. the assessee cannot be treated to be engaged in the business of money-lending and the loss of capital will be allowable as business loss. Therefore, the claim of the assessee does not survive. The decision of Hon'ble Calcutta High Court in the case of Turner Morri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the Supreme Court, where the assets are destroyed, there is no question of their transfer to others, there is a capital loss but it is not on account of any transfer, but it is on account of disappearance of the asset itself. The said principle applies in case before us. When an assessee finds his valuable assets like loan valueless merely for the inability of the debtor company to pay a part of such loan, the assessee's asset in the form of loan disappears. This is a position which the assessee admits not only by declaration but also by conduct. The assessee has written off the loan as loss to it for good. That being the case, here also we cannot say that there is any transfer involved. It is purely a case of disappearance of the loan itself. It is not that the assessee has transferred its right to the assets in favour of a third party whereby the right has extinguished. The asset itself is extinguished. Thus in our considered opinion the loss suffered by the assessee cannot be treated as capital loss under s. 45 of the IT Act, 1961. 12. Thus from the above discussion the claim of the assessee is not allowable either as business loss under s. 28 read with provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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