Saturday, April 9, 2016

An advance or debt is a capital asset; loss on sale of debt allowed as short-term capital loss

Facts
a)  Assessee, a foreign company, granted loan of € 90,00,000 to its subsidiary in India.
b)  It sold the aforesaid debt for € 7,31,000 as its subsidiary ran into serious financial crisis. The assessee claimed short term capital loss on this transaction of sale of debt.
c)  Assessing Officer (AO) disallowed claim of assessee on ground that loan couldn’t be treated as capital asset under Section 2(14).

d)  CIT(A) confirmed the order of AO. Aggrieved assessee filed the instant appeal before the tribunal.

The tribunal held in favour of assessee as under-
1)  Section 2(14) defines 'capital asset' as property of any kind held by an assessee except one specifically excluded in the said section. An advance isn’t covered by the exclusionary clause. Therefore, the question which arose was what would be covered under the term "property".
2)  The Bombay High Court in the case of CWT v. Vidur V Patel [1995] 79 TAXMAN 288 (BOM.) held that the word ‘Property’ signifies every possible interest which a person can hold or enjoy.
3)  An advance/debt given by assessee to its subsidiary in India was a property in the sense that it was an interest which it held and enjoyed, and since it was a property and was not covered by the exclusionary clauses set out in section 2(14), it was required to be treated as a 'capital asset'.
4)  Hence, assessee was allowed to claim short-term capital loss on sale of debt- [2016] 68 taxmann.com 113 (Mumbai - Trib.)
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