TaxTMI 
TaxTMI 
2016 (8) TMI 562
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....of case dated 30th June, 1986 : "(15) As already stated, while considering the question as to whether the interest income constituted real income of the assessee, the right of the assessee to recover a sum of Rs. 103 lakhs from Varun, was sold by the assessee as an actionable claim to M/s. Pearl Thread Mills Ltd., for Rs. 45 akhs and the balance of Rs. 57,84,590/was written off by the assessee as a bad debt. The assessee claimed deduction of the letter amount as a business loss. The contention was negatived by the Commissioner (Appeals). He held that it was not the business of the assessee company to advance loans to Varus, that the loans were advanced as a part of an investment programe find that it was not, therefore, a business loss. He further held that the deduction of the amount, in any case, be allowed during the assessment year 1978-79. The assessee questions the correctness of this finding. We have already set out at length of the circumstances under which the loans made to Varun and we have already held that the amount were advanced not by way of investment but purely in an attempt to prevent the State Bank Proceeding against the assessee, as a guarantor. In our view, t....
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....iting of the balance amount. By the arrangement entered into on 27.10.1977, one of the directors had agreed to take assignment of the actionable claim for Rs. 45 lakhs in this same or in the name of himself or in the nominee. This arrangement was final and it is clear that there was no chance of the assessee recovering the balance amount of Rs. 57,84,590/. A reading of the agreement will show that there were no prospects of realizing any amount from Varun and that the assignment of the actionable claim for Rs. 45 lakhs was only to reduce the loss of the assessee. It is, therefore, clear that the balance amount had become a loss and the directors and the shareholders had treated the same as such. In light of what has been stated earlier, they were also justified in doing so. The assessee had actually written off the balance amount during the accounting period relevant to the assessment year under appeal. In the profit and loss account of the assessee for the year ending 31.12.1977, the balance amount was actually shown as a loss on account of assignment of the actionable claim. The position has been explained in the report of the auditors and also in the noted on the balance sheet. ....
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.... activity. Consequently, any loss on account of nonrecovery of the amount advanced to M/s. Varun Shipping Company Ltd., has been treated as a business loss and allowed by the impugned order of the Tribunal; (c) We have considered the rival submissions. The primary submission on behalf of the Revenue is that the Respondent-Assessee is not in the business of advancing loans. However the same is not supported by any evidence such as the object clause of the Memorandum of Association etc., We find that merely because normally the Respondent-Assessee does not grant loans, it does not follow that the grant of advance to M/s. Varun Shipping Company Ltd., cannot be considered to be a loan but has to be considered as an investment. It is a settled position in law that even a single/ solitary transaction could by itself be classified as a business transaction (see G. Venkataswami Naidu & Co., v/s. CIT 35 ITR 594 and CIT v/s. Sutlej Cotton Mills 100 ITR 706); (d) The other contention on behalf of the Revenue is that no prudent businessman would advance a loan to a company making a loss. This is not acceptable for the reason that the manner in which an Assessee carries out its business is en....
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....nding 31st December, 1977 i.e. the Assessment Year 1978-79. In the present facts, the actionable claim was transferred by the Respondent-Assessee to M/s. Pearl Threads Ltd., for Rs. 45 lakhs by a deed of Assignment / Transfer on 30th March, 1978. This resulted in loss of Rs. 58 lakhs. This writing off of business loss, according to Mr. Suresh Kumar, can only take place on execution of the deed of sale/assignment of actionable claim under Section 130 of the Transfer of Property Act, 1882. The sale/ assignment of actionable claim admittedly took place on 30th March, 1977. Therefore, it can be allowed as a loss only in the subsequent/following Assessment Year i.e. A. Y. 1979-80. (b) As against the above, Mr. Joshi, learned Counsel appearing for the Respondent-Assessee emphasized the undisputed fact that it was on 27th October, 1977 i.e. during subject Assessment Year, an arrangement was entered into by the Respondent-Assessee with one of its Director. By the arrangement, its Director agreed to takeover the actionable claim of Rs. 103 lakhs for consideration of Rs. 45 lakhs either in his own name or in the name of his nominee. This resulted in a loss of Rs. 58 lakhs. This loss of Rs. ....
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....ion that the loss can only be claimed in the following Assessment Year 1979-80, as the finding of the Tribunal that the writing off of Rs. 58 lakhs in the subject Assessment Year 1979-80 was on account of the arrangement dated 27th October, 1977 is not even attempted to be shown as not permissible in law. The arrangement dated 27th October, 1977 was one by which one of the directors of the Respondent-Assessee had agreed to take actionable claim at a consideration of Rs. 45 lakhs. This resulted in the Respondent-Assessee being able to quantify the loss at Rs. 58 lakhs on account of the actionable claim of Rs. 103 lakhs being the amounts advanced to M/s. Varun Shipping Company Ltd. In these circumstances, the aforesaid subquestion as framed need not be answered, as it would be academic in the context of the order of the Tribunal, allowing loss of Rs. 58 lakhs on the basis of the arrangement dated 27th October, 1977 as reflected in the Profit & Loss Account and Balance Sheet filed for the year ending 31st December, 1977. Therefore, the answer to the aforesaid subquestion need not be answered. 9 Before we close, we need to refer to the decision of this Court relied upon by Mr. Joshi i....