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2016 (4) TMI 384 - ITAT MUMBAI

2016 (4) TMI 384 - ITAT MUMBAI - TMI - Disallowance of short term capital loss - Held that:- Right to recover the money from the Indian entity, in the light of the financial difficulties that the Indian entity was traversing through, was valued at Euro 7,31,000. There is no dispute about bonafides of this valuation. As for the vague allegations about the tax evasion motive, nothing cogent has been brought on record at all. The authorities below were in error in fighting shy of the tax corollarie .....

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is acquired. There is also no dispute that if the capital loss is to be allowed, the loss has to be short term capital loss. In these circumstances, in our considered view, there is no justification in declining the short term capital loss claimed by the assessee.- Decided in favour of assessee - I.T.A. No. 3833/Mum/2011 - Dated:- 31-3-2016 - Pramod Kumar AM and Pawan Singh JM For The Appellant : Nitesh Joshi For The Respondent : Jasbir Chauhan ORDER Per Pramod Kumar, AM: 1. By way of this appe .....

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ommissioner (Appeals) erred in holding that the loan of Euro 9 million due from Siemens Nixdorf Information Systems Limited was not a capital asset. 3. The learned Commissioner (Appeals) erred in holding that the transfer of loan will not result in short term capital loss. 4. The learned Commissioner (Appeals) ought to have appreciated that the loan was a capital asset and that the assignment thereof had resulted into short term capital loss. 5. The learned Commissioner (Appeals) erred in statin .....

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illion." (Page 4, Para 2.2) (Erroneous observation highlighted in Italics) (b) "Further the Assessing Officer has discussed the definition of transfer at page 13 of his order." (Page 7, Para 2.3) (Erroneous observation highlighted in Italics) Grounds not decided 7. The learned Commissioner (Appeals) erred in not deciding the following grounds in the appeal: 4. The learned Deputy Director erred in holding that to the extent of diminution in value, there was no debt which could have .....

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ed representatives fairly agreed to the proposition put to them. 4. To adjudicate on this appeal, only a few material facts need to be taken note of. The assessee before us is a non-resident company and it has a wholly owned subsidiary in India by the name of Siemens Nixdorf Information Systems Limited (SNISL, in short). The assessee had loaned an amount of Euros 90,00,000 to the SNISL, vide agreement dated 21st September 2000. SNISL, as is the stand of the assessee, ran into serious financial t .....

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00,000 from SNISL, was not a capital asset under section 2(14); (b) that the assignment of this debt, or the right to recover the money from SNISL, was not a transfer under section 2(47); (c) even going by the valuation report, what is recoverable is only Euro 7,31,000 and what is not recoverable cannot be transferred either; and (d) it is a sham transaction only with the tax motives since the advance to the SNISL was in the capital field and a capital loss is not allowed as deduction. Aggrieved .....

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titute a capital asset. On the contrary, the Assessing Officer has rightly held that such loan can only be current asset and diminution in value of debt does not result in short term capital loss. The finding of the Assessing Officer is correct and the same is upheld. The appellant company had not filed any return of income in India and for the first time, return of income for the Assessment year 2002-03 has been filed claiming only short term capital loss of ₹ 34,68,84,558/- because of as .....

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ty in the order of the Assessing Officer and therefore, his order is confirmed on this issue and this ground of appeal is dismissed. 3.3 I have carefully gone through the order of the Assessing Officer and also the submissions as made by the Authorized Representative of the appellant company and I find that the word assignment has not been used in the Section 2(47) of the Income-tax Act. However, 'transfer' includes sale, exchange or relinquishment of the asset or the extinguishment of a .....

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the appellant company for Euro 0.731 million to M/s. Siemens AG, there was a diminution in the value of loan because SNISL, India incurred heavy losses and could not repay the loan to the appellant company. Consequently, M/s. Siemens AG could recover higher or lower amount, out of the loan amount given to M/s. SNISL, India although it had purchased this loan of Euro 9 million for a sum of Euro 7,31,000 only from the appellant company. It could have been a business decision for M/s. Siemens AG t .....

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taken by the learned CIT(A) as well, and is in further appeal before us. 6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 7. The first thing, which is in fact fundamental to the dispute before us, is whether or not an advance given by the assessee is a capital asset. Section 2(14) defines the capital asset as property of any kind held by an assessee, whether or not connected with his busine .....

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V Patel [(1995) 215 ITR 30 (Bom)] had an occasion to consider this question in the context of wealth tax, and this is what Their Lordships had to say: ………So far as the meaning of "property" is concerned, it is wellsettled that it is a term of widest import and subject to any limitation which the context may require, it signifies every possible interest which a person can hold or enjoy. As observed by the Supreme Court in Commissioner, Hindu Religious Endowments vs. .....

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n ble jurisdictional High Court, there is no reason for us to exclude an advance from the scope of capital asset . An advance given by the assessee is a property in the sense it is an interest which a person can hold and enjoy, and since it is a property and it is not covered by the exclusion clauses set out in Section 2(14), it is required to be treated as a capital asset . Learned counsel s reliance on the decision of Hon ble Gujarat High Court s judgment, in the case of CIT Vs Minor Bababhai .....

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bservation to the effect that a loan is a current asset and not a capital asset , we may only point out that the concept of current asset is alien to the law on taxation of capital gains, or, for that purpose, to the law on taxation of income. The expression capital asset is a defined expression under section 2(14) and, even though it may be more appropriate to describe an advance, a debt or a recoverable amount as a current asset from an accountant s perspective or from any other perspective, a .....

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in this case is the money recoverable from an Indian entity which is thus essentially required to be treated as in India, and, as is the mandate of Section 9(1)(i) any income, inter alia, through the capital asset situated in India is deemed to accrue or arise in India. As a corollary to this taxability of income, the loss through the capital asset situated in India is also required to be taken into account. The authorities below were, in determining whether or not the amount recoverable from an .....

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exchange or relinquishment of the asset . There is no dispute that the rights to recover the money from the Indian entity, which is what the capital asset is in this case, was sold to Siemens for a consideration of Euro 7,31,000. All these rights, under the arrangements with Siemens, belonged thereafter only to Siemens Limited. The sale of trade debts, or even loans, is a part of day to day trade and commerce. Learned CIT(A) has not even raised on any issues on this aspect of the matter; all tha .....

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