TaxTMI 
TaxTMI 
2017 (4) TMI 56
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....ing amounts advanced to its 100%wholly owned subsidiary (WOS) is a working capital loan. He directed the assessee to justify the claim. After considering the same, the AO observed that the loans and advances given by it to the WOS, a foreign company, could not fit within the parameters laid down by the provisions of section 36(1)(vii)/36(2)of the Act, that the disputed amount was not of revenue nature and had never been considered for tax in the hands of the assessee. Referring to the judgment of Premier Industries (257ITR 762),he held that same would bear the nature of quasi equity, that they were synonymous of investment equities and were capital in nature, that the writing off of capital asset would give rise to capital loss, that same was not admissible under the provisions of chapter IVD of the Act, that the loan advanced to the subsidiary was reflected in the Balance sheet in Schedule- 6.Finally, he held that loans and advances amounting to Rs. 1.55 crores did not qualify for deduction and same was to be added to the total income of the assessee. 3. Aggrieved by the order of the AO, assessee preferred an appeal before the First Appellate Authority (FAA).Before him it was a....
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....id by the assessee to WOS had to be allowed as business loss u/s. 37 of the Act, that the assessee was required to make advances in normal course of business as per Clause-10 Part- B of MOA. He firther held that facts of the case of Premier Industries (supra), were quite different from the facts of the case under consideration, that in this case the assessee itself had admitted that the advances were in the nature of quasi equity, that the advances given by its subsidiary was as per the requirements of the bank. Finally, he reversed the order of the AO. 4. Before us the Departmental Representative (DR) argued that it was a case of bad debt and not business loss, the expenditure was not incurred wholly and exclusively for business purposes. He referred to the case of Premier Industries (I) Ltd.(257/762).The Authorised Representative (AR) contended that the assessee wanted to expand business to Europe, a 100% WOS was formed in Germany, that to keep the business running the assessee had to advance loans/advances to WOS, that it was revenue expenditure .He relied upon the case of Colgate Palmolive (India) Limited(370ITR728). 5. We have heard the rival submissions and perused the ....
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.... section which could be made applicable was either section 36 or section 37. Sections 28 and 29 read together do not show that if a case comes under section 36; the applicability of section 37 will be taken out, but a case may come under section 36 or 37 and a computation may be made under either of the sections. There is a clear distinction between a business expenditure and a business loss; the former is indicative of a volition but a loss comes so to speak as ab extra. Section 37 clearly appears to be a residuary section extending the allowance to items of business expenditure and not of business losses which are deductible on the ordinary principles of commercial accounting. Non-capital expenditure incurred for the purpose of business would fall to be deducted under the omnibus residuary section 37. In the instant case, it was clear that, in order to carry on the business, it was necessary that advances should be made, without which the forest lessees might find it impossible to carry on the business. The advances made in the ordinary course of business would have been adjusted and recouped if there had been a renewal of the leases but there was no renewal of the leases and ....
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....The amount was an advance against price of one crop. The Oppigedars were to get the assistance not as an investment by the assessee company in its agriculture, but only as an advance payment of price. The amount, so far as the assessee company was concerned, represented the current expenditure towards the purchase of sugarcane, and it makes no difference that the sugarcane thus purchased was grown by the Oppigedars with the seedlings, fertiliser and money taken on account from the assessee company. In so far as the assessee company was concerned, it was doing no more than making a forward arrangement for the next year's crop and paying an amount in advance out of the price so that the growing of the crop may not suffer due to want of funs in the hands of the growers. There was hardly any element of investment which contemplates more than payment of advance price. The resulting loss to the assessee company was just as much a loss on the revenue side as would have been, if it had paid for the ready crop which was not delivered." Lastly, we would like to refer to the case of Colgate Palmolive(supra).One of the issues to be decided by the Hon'ble Bombay High Court dealt with was....