TMI Blog2013 (11) TMI 672X X X X Extracts X X X X X X X X Extracts X X X X ..... tend that it is authorised by Memorandum of Association to carry on money lending activity. However, the Tribunal in the case of Poysha Oxygen (P) Ltd. [2007 (12) TMI 304 - ITAT DELHI] has held that the object clauses mentioned in the Memorandum of Association are not relevant for considering whether the activity undertaken by the limited company amounts to business activity or not - In the instant case, as stated earlier, no material was placed before us to show that the amount of Rs. 30.00 lakhs was advanced with the intention of lending money in the ordinary course of business and not as investment. The assessee has also not shown that he was carrying on this kind of transactions repeatedly. Hence, in the facts and circumstances of the case, the condition laid down u/s. 36(2)(i) has not been satisfied by the assessee in this regard - Decided against the Assessee. Bad debt claim of interest amount of Rs. 23,76,274/- - The contention of the assessee is that it has accounted for the accrued interest in all the years and offered the same for taxation – Held that:- This aspect has not been examined by the tax authorities. They have rejected the claim of the assessee only for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous years. Accordingly, the Assessing Officer rejected the entire claim of bad debts and added the sum of Rs. 53,76,274/- to the total income returned by the assessee. 4. The Ld. CIT(A) also confirmed the said disallowance. Aggrieved, the assessee has filed this appeal before us. 5. The Ld. Counsel for the assessee submitted that the assessee-company is an investment company and it is in existence for more than 70 years. Its main businesses are: (a) Investment in shares, Mutual Fund and other securities. (b) Placing surplus funds in fixed deposits of banks. (c) Lending money in the form of inter-corporate deposits to other corporate bodies. He further submitted that the business income of the assessee-company consisted of interest income, dividend income and profit on sale of shares. He further submitted that the provisions of sec. 372(A) of the Companies Act permit companies to give inter- corporate loans. He further submitted that clause 22 of the object clause of the company, which reads as under, authorises the company to make such kind of investments. "22. To invest or deal with the monies of the Company, not immediately required, upon such securities and in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ordinary course of business of lending money. The Ld. Counsel submitted that the tax authorities have taken the view that the lending of money is not part of the business activities of the assessee, without considering the activities carried on by the assessee company. He submitted that the assessee-company has lent the above stated amount of Rs.30.00 lakhs in the ordinary course of business, i.e., in accordance with the object clause, which is extracted above. Accordingly, the Ld A.R contended that the principal amount of Rs. 30.00 lakhs is liable for deduction u/s. 36(1)(vii) of the Act. He further submitted that the interest accrued on the said loan has been offered by the assessee for income tax purposes under the head "Income from business" in the earlier years, as per the table extracted above. Hence the condition specified u/s 36(2) has been complied with in respect of the interest amount also. Accordingly he submitted that the accrued interest of Rs. 23,76,274/- written off by the assessee is also eligible for deduction u/s. 36(1)(vii) of the Act. 5.3 The Ld. Counsel further placed reliance on the following case law to support his contentions: (a) Goetze (India) Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Poysha Oxygen (P) Ltd.(supra), the Third Member has given a categorical finding that the sequence of events and the documents proved that the transaction was a loan transaction and not a transaction of investment. For the sake of convenience, we extract below the head notes reported in 19 SOT 711 in the above said case: "Business expenditure--Bad debts--transaction in ordinary course of money lending business--Assessee company authorised to do money lending business under its 'other objects' of Memorandum of Association, entered into a tripartite agreement with 'F' and 'G', in which assessee was described as lender, 'F' as borrower and 'G' as guarantor--Under this agreement, assessee advanced a loan of Rs. 1 crore to 'F' for booking Maruti cars @ 30.5 per cent per annum interest-- Such interest assessed as business income in earlier years--On failure to realise the principal amount from 'F', a fresh agreement was entered into under which 'G' became principal borrower--As noting could be realised from 'G' despite best efforts, assessee wrote off the principal amount of Rs. 1 crore and interest thereon in the assessment year in question and claimed the same as bad debts-- A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1 crore was allowable in view of the provisions contained in s. 36(1)(vii) r/w s. 36(2)(i) 10. In the case of ITW Signode India Ltd.(supra), we notice that the Tribunal has decided the issue on the basis of commercial expediency, which is not a case herein. 11. Accordingly, in our view, the assessee could not place reliance on the above said case law also. 12. In the instant case, the assessee has not furnished any material to show that the amount of Rs. 30.00 lakhs was advanced in the regular course of business activity of lending money. The agreement, if any, entered between the assessee company and M/s Peermade Tea Company Ltd was not furnished to prove that it was a loan transaction. Instead, we notice that the assessee has simply placed reliance on Clause 22 of the object clause to contend that it is authorised by Memorandum of Association to carry on money lending activity. However, the Tribunal in the case of Poysha Oxygen (P) Ltd. (supra) has held that the object clauses mentioned in the Memorandum of Association are not relevant for considering whether the activity undertaken by the limited company amounts to business activity or not. The Head notes reported in 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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