TMI Blog2016 (8) TMI 562X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. - Income Tax Reference No. 896 of 1998 - - - Dated:- 9-8-2016 - M. S. Sanklecha And A. K. Menon, JJ. Mr. Suresh Kumar with Ms. Samiksha Kanani, for the Applicant Mr. Nitesh Joshi w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital of Varun contributed by the assessee and this is different from the loan advanced. It may also be noted that treating the interest on the loan as income of the assessee, the Income Tax Officer has himself treated the advance by the assessee as a trade advance loan. On this basis, he had treated the interest income as business income. The Commissioner (Appeals) was not, therefore, justified in holding that the loss of the assessee was not a business loss. (16) In view of the above finding, the alternative contention of the assessee that, in case the loss is held to be a loss of investment, should be allowed as short term capital loss, does not arise for consideration. Further, this aspect will arise for consideration only in the subsequent assessment year because the actual assignment of the actionable came took place only during the accounting period relevant to the subsequent assessment year. (17) The Commissioner (Appeals) was also not correct in holding that the business loss, in any case can be treated as loss in the subsequent assessment year. The reasoning adopted by the Commissioner (Appeals) is that in the meeting of the Board of Directors of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration, we consider the two sub-questions separately as under: (i) The first is Whether the loss on sale of actionable claim was a business loss allowable as a deduction to compute its profits and gains from business? and (ii) Second if the answer to (i) is in the affirmative Whether the loss on sale of actionable claim is allowable as deduction in the subject Assessment Year or in the following Assessment Year? 5. Re: subquestion (i): (a) Mr. Suresh Kumar, learned Counsel appearing for the Revenue states that the loss on account of actionable claim was not a business loss allowable as deduction to arrive at its profits and gains of business and in support, submits as under: (i) The Respondent-Assessee is not in the business of providing loans. Therefore, the amount of ₹ 103 lakhs which were advanced to M/s. Varun Shipping Company Ltd., was in the nature of investment; and (ii) The amounts were advanced to M/s. Varun Shipping Company Ltd., when it was making a loss and in such a case, no prudent businessman would advance a loan to a company which is suffering losses. (b) Per contra, Mr. Joshi, learned Counsel appearing for the Respondent-Assessee submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted, by the businessman; (e) The submission of Respondent-Assessee was 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.,. This, we find 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 tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove basis. In the above view, it is contended by him that the question of law as framed does not arise from the order of the Tribunal. Thus, must be returned unanswered. Alternatively, it is submitted that the question of law as framed is academic in the present facts. This for the reason that the appeal has been allowed by the Tribunal on an issue which is accepted by the Revenue i.e. Mercantile System of Accounting and arrangement dated 27th October, 1977. 7. Before dealing with the merits of the contentions, we must point out that the question of law as framed does arise from the impugned order of the Tribunal. It was the case of the Revenue before the Tribunal that the sale of actionable claim only takes place when the deed of transfer is executed and not prior thereto. Consequently, the loss on sale actionable claim can only take place on the date of execution of the deed of transfer i.e. 30th March, 1978 i.e. next Assessment Year. This was an issue which did arise before the Tribunal, as it was urged on behalf of the Revenue. However, the Tribunal did not deal with the issue as urged and held that the loss was allowable in the subject Assessment Year 1978-79 as the Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the deduction is obviously a permissible deduction under the Income tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 195253 or in the assessment year corresponding to the accounting year 1952, that its in the assessment year 195354, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other. In the present facts also, Mr. Joshi, learned Counsel appearing for the Respondent-Assessee points out that there is, in fact,no chan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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