Debt assignment genuineness turns on facts at the transfer date; later events cannot alone turn a commercial transfer into a sham.

Genuineness and tax effect of a debt assignment must be tested on the facts existing on the date of transfer; later events do not, by themselves, make a valid commercial assignment a sham. On the Automobile Products debt, the record did not conclusively establish when liability shifted from the original debtor, so the factual position required verification and the matter was remitted for fresh adjudication. On the MCC Finance debt, the assignment was made while the debtor was under liquidation, and subsequent allotment of shares or later associations did not displace the character of the transfer as a genuine commercial arrangement. The capital loss on that assignment was therefore upheld.

---

---

Issues: (i) Whether the capital loss claimed on assignment of debts recoverable from Automobile Products of India Ltd. was allowable in the year under consideration. (ii) Whether the capital loss claimed on assignment of debts recoverable from MCC Finance Ltd. was allowable in the year under consideration.

Issue (i): Whether the capital loss claimed on assignment of debts recoverable from Automobile Products of India Ltd. was allowable in the year under consideration.

Analysis: The transfer was challenged on the ground that the debtor's liability had subsequently been taken over by the erstwhile promoters, and that the assessee should have recovered from the new obligor instead of assigning the debt. The valuation report and the date on which the liability was said to have shifted away from the original debtor were material to determine whether the debt was in fact assignable at the relevant time. The record did not contain a conclusive finding on the crucial date of transfer of liability, and the factual position required verification.

Conclusion: The issue was remitted to the Assessing Officer for fresh adjudication.

Issue (ii): Whether the capital loss claimed on assignment of debts recoverable from MCC Finance Ltd. was allowable in the year under consideration.

Analysis: The debt was assigned while the debtor was under liquidation, and the later events relied upon to suggest a preplanned arrangement occurred after the date of assignment. The subsequent allotment of shares and the later association of the related person with the debtor company could not, by themselves, determine the genuineness of the transfer as on the date of assignment. The transaction was therefore treated as a genuine commercial arrangement and not as a sham or colourable device.

Conclusion: The capital loss on this assignment was upheld in favour of the assessee.

Final Conclusion: The dispute was resolved partly in favour of the assessee, with one component upheld and the other sent back for reconsideration on the relevant facts.

Ratio Decidendi: The genuineness and tax effect of an assignment of debt must be judged on the facts existing on the date of transfer, and subsequent events cannot, without more, convert a valid commercial assignment into a sham transaction.

---