TaxTMI 
TaxTMI 
2009 (12) TMI 100
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....in the course of assessee's business? 2. . The facts of the case in a nutshell are as follows: 3. The assessee has been involved in the money lending business. The assessee's Memorandum and Articles of Association permitted the money lending business. The asssessee also had a subsidiary company. From the year 1969 onwards, the assessee had been financing monies to its subsidiary company apart from financing to various other concerns and interest was charged on the amount financed by its assessee to its subsidiary company from the assessment year 1970-71 to 1977-78. The said interest offered by the subsidiary company has been assessed as business income. Thereafter, due to the commercial expediency, the assessee did not charge the interest. The subsidiary company became weak and therefore in order to prop-up the financial business interest, the assessee paid further amounts totalling Rs.26,08,278.79 which is due as on 30.09.1988, after collecting a sum of Rs.10,000/- a sum of Rs.25,98,278.79 was written off as bad debt. 4. The subsidiary company paid back the outstanding principal amount of Rs.7,50,000/- but there was an outstanding interest of Rs.4,13,567.22. The assessee ....
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....n 41 (1) of the Income Tax Act, 1961 in the case of the subsidiary company. It was further observed that in any case, the debt will have to be construed as trade debt in the course of the Appellant's business. Accordingly, the First Appellate Authority has allowed the appeal filed by the assessee in so far as the disallowance of the bad debt is concerned. 7. Not being satisfied with the same, the Revenue filed a further appeal to the Tribunal and the Tribunal also confirmed the order of the First Appellate Authority by holding that inasmuch as the debts having become irrecoverable, the same have been rightly written off as bad debts. Challenging the said order, the Revenue has filed the present appeal. 8. The Contentions of the learned counsel appearing for the Revenue: 9. Mr.J.Narayanaswamy, learned counsel appearing for the Revenue submitted that the advances have been made by the assessee towards subsidiary company not in the course of its business. The assessee after knowing that the interest was not paid by the subsidiary company periodically has given further amounts only in order to tide over the difficulties of the subsidiary company and therefore the same ca....
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.... payment thereafter. The said payments have been made during the course of the business and also due to commercial expediency, since the business of the subsidiary company was sagging requiring to be proped-up. Thereafter the amount became irrecoverable and the assessee also suffered a loss towards the sale of the shares which resulted in losing the subsidiary company. Hence under those circumstances, the assessee was constrained to write off the money advanced in favour of the subsidiary company as irrecoverable amounting to bad debts. 14. The above said facts would clearly show that the transaction of the assessee being the financing company with the subsidiary company is genuine and bonafide. The subsidiary company has been paying the interest earlier and thereafter paid the principal amount. The assessee paid further advances in its own interest with a view to recover the amount given earlier, to sustain a share and to avoid the guarantee being invoked. The mere fact that the payment of money after the stoppage of interest from the subsidiary company by itself cannot be a ground to hold that the transactions are not in the course of the business.There is no bar in law fo....
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....ned in this case were not an isolated instance but were a part of the formidable list of such advances made by the assessee-company to its subsidiaries, some of which were managed by it as managing agent. It may be repeated here that the employees of the assessee-company were on the board of directors of the subsidiary company concerned and it is also a fact that the income of the subsidiary showed an upward trend after the share capital of the subsidiary company was taken over by the assessee-company. No doubt, the balance-sheet of the subsidiary as on 31st December, 1965, does not inspire much confidence. However, the subsidiary was engaged in the business of consulting engineers and, by its very nature, the share capital and the assets were not formidable. The financial position was undoubtedly weak but the assessee did its very best to prop up the sagging finances of the subsidiary and bolster up its declining business. The assessee was intimately connected with the various subsidiaries and the interests of the subsidiaries were, therefore, vitally connected with the assessee's business interests which were diverse. The memorandum of association permitted the assessee-company t....