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2009 (3) TMI 227 - AT - Income TaxClaim for loss suffered on loan advance - business loss u/s. 28 r/w s. 37 or capital loss u/s. 45 - business of manufacturing and real estate - loan given to subsidiary company to acquire shareholding - loan not connected with the business of the assessee company - AO rejected the claim - In earlier years interest in respect of loans had been disallowed on the ground that the loans were not given in business interest - alternative claim of the assessee was also rejected on the ground that loan could not be said to be capital asset and therefore, loss suffered on settlement of loan could not be said to be capital loss u/s. 45 - CIT(A) upheld the order passed by AO. HELD THAT:- The loan given to DCM International Ltd. was not connected with the business of the assessee company. Thus the amount of loan initially given was not in line with the business activities of the assessee. When the amount advanced is not in line with the business, the same cannot be treated 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) TMI 82 - SUPREME COURT]. Hence, the Tribunal has accepted the contention of the assessee in principle that the said loan was given for the purposes of business and, therefore, the loss incurred is allowable as deduction u/s. 28/37 as the same was incurred during carrying on of the business of the assessee. We are unable to accept this proposition. It is a settled law as held by Hon'ble Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd.[1992 (9) TMI 1 - SUPREME COURT] that it is neither desirable nor permissible to pick out a 'Word or a sentence from the judgement of the Supreme Court divorced from the context of the question under consideration and treated to be the complete law declared by the Court. The judgement must be read as a whole and the observations from the judgement have to be considered in the light of questions which were before the Court. 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 term 'capital asset' has been defined u/s. 2(14), which means property of any kind connected with his business or profession, but does not include (i) any stock-in-trade, consumable stores or raw materials held for the purpose of the business; (ii) personal effects; (iii) agricultural lands. The definition of "transfer" in cl. (47) of s. 2 includes extinguishment but that extinguishment refers not to the extinguishment of the asset itself but to the extinguishment of the holder's right to the assets. This position of law has been finally settled by the Supreme Court in its decision in Vania Silk Mills (P) Ltd. vs. CIT[1991 (8) TMI 2 - SUPREME COURT]. In the 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 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.
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