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2016 (8) TMI 562 - HC - Income TaxLoss on sale of actionable claim - whether was a business loss allowable as a deduction in the accounting period ending 31.12.1977? - Held that:- The submission of Assessee that the amount of ₹ 103 lakhs were advanced to M/s. Varun Shipping Company Ltd., was onaccount of business expediency so as to ensure that the State Bank of India does not adopt proceedings to enforce the guarantee given by the Respondent-Assessee for the loan granted to M/s. Varun Shipping Company Ltd. is a possible course of action adopted by a business. Further, we find that the investment of the Respondent-Assessee in M/s. Varun Shipping Company Ltd., is reflected in its contribution to the share capital of M/s. Varun Shipping Company Ltd.,. This contribution can be considered to be an investment as any increase in profitability of M/s. Varun Shipping Company Ltd., would result in dividends and likely appreciation of the share price resulting in the investor earning more than the investment made. The advance of ₹ 103 lakhs is not with the above objective/intention. In any case, it is very clear from the Assessment Order that the interest to the extent to which the Respondent-Assessee had waived, on the advance of ₹ 103 lakhs to M/s. Varun Shipping Company Ltd., was treated as business income and not as income from other sources. In the above view, the amount of ₹ 103 lakhs advanced to M/s. Varun Shipping Company Ltd., cannot be considered to be an investment in the present facts but appropriately a loan in the course of carrying on of business. Consequently, any loss on account of nonrecovery of ₹ 103 lakhs or any part thereof, would necessarily be a business loss in computing the profits and gains from business. Therefore, the first subpart of the question of law as framed is to be answered in the affirmative i.e. the loss on account of reduced recovery of the loan of ₹ 103 lakhs advanced to M/s. Varun Shipping Company Ltd., is to be considered as a business loss and not as a loss on investment.
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