TaxTMI 
TaxTMI 
2019 (1) TMI 268
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....s as claimed on sale of investment be not disallowed being capital in nature and added back to the taxable income, the assessee replied as under:- 1. "The assessee company has made investment in shares of two subsidiary companies which are engaged in the business of generation of power & in real estate respectively. 2. The company's management decides to involve in these business through 'SPV' (special purpose vehicle). Thus two subsidiary companies were formed to implement such objects with the sole object of earning business profit thought such SPV. ' 3. The entire investment is such companies was made by the assessee company only as measure of commercial expediency to further is business objectives and were related to the business operations of the assessee company. 4. The power planet run by one of the subsidiary company could not come into operation due to certain restrictions and non availability of permission from various Government Authorities of Government of Himachal Pradesh. In fact the total investment made by such subsidiary company represents application fees Rs. 200000/-, processing charges Rs. 800000/- and 50% of upfront fees of Rs. 850000/- with a st....
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....69,290/- as per the provisions of Income Tax Act, 1961. Thus, the genuineness and incurring of the loss by the appellant company has not declared by the appellant company. In regard to the same, it is not denied by namely M/s. Cosmos Hydro Power Ltd. and M/s. Cosmos Hospitality and States Pvt. Ltd. had been shown as investment in the balance sheet. It has been under the Companies Act, 1956 since the appellant company held 97.5% shareholding of M/s. Cosmos Hydro Power Ltd. and 85% shareholding of M/s. Cosmos Hospitality and States Pvt. Ltd. It was submitted that both these any enhancement in value over a period of time and/or to earn dividend there from. It has been stated that such investments were with the business objectives to earn business profits through such special purpose vehicle. In support of the claim, the appellant has referred to the decision of Bombay Bench of Hon'ble ITAT in the case of DCIT vs. Coalgate Pamolive Pvt. Ltd. and it is therefore, eligibility of loss incurred on sale of investment. In case of Coalgate Pamolive Pvt. Ltd., the facts were that assessee claimed a loss on account of sale of shares held in Camolate Investment Pvt. Ltd. In the said case, it was....
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.... commercial considerations, and, therefore, loss on sale of such shares is admissible as business losses. In the case of DCIT vs Gujarat Small Industries Corporation (84 TTJ 22), a coordinate bench of this Tribunal was dealing with a situation in which "from the facts on record, it is obvious that the Girnar Scooter Ltd. was floated for the same purpose as a subsidiary and later on sold off when the loss started mounting" and on these facts the coordinate bench held that loss on sale of shares in subsidiary was business loss in nature. We are in considered agreement with the line of reasoning thus adopted by the coordinate bench. In view of these discussions, as also bearing in mind entirety of the case, we uphold the stand of the CIT(A) and decline to interfere in the matter. " 5.1 In the above judgment, it is evident that Hon'ble Tribunal referred to decision of DCIT vs. Gujarat Small Industries Corporation 84 TTJ 22 where the Hon'ble Tribunal had approved the stand of the CIT(A) in following the judgments of the Apex Court in Brook Bond India Ltd. vs. CIT reported in 162 Corporation vs. CIT reported in 65 ITR 117 wherein too it has been held that if of the assessee, the loss ....
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.... view was also expressed in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd.vs. CIT 227 ITR 172 whereby it has been held as under: "It is true that this court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice. Accounting practice cannot override section 56 or any other provision of the Act. As was pointed out by Lord Russell in the case of B . S. C. Footwear Ltd. ( 1970 ) 77 ITR 857, 860 ( CA ), the income-tax law does not march step by step in the footprints of the accountancy profession. " 5.4. In view of the above binding precedents, it is evident that the disclosure by itself cannot be a ground to regard the nature of loss claimed as capital loss. assessee. Thus, there has to be commercial expediency in incurring such expenditure. In the instant case, in my opinion, the aforesaid test has not been satisfied. It has not been e....
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....he assessee. The said claim is only made after the claim was not accepted under Section 36(1)(vii) of the Act. If the argument of the assessee is to be accepted, whenever a holding company lends money to a subsidiary company, then the holding company would be entitled to the said benefit. That is not the intent of the law. Though there is no prohibition in law for starting subsidiary company, to get the benefit of Section 37, the money lent should be laid out and expended only for the purpose of business of the assessee. There should be a direct nexus between the assessee and the business for which the money is lent. If that connection is not there, merely because the money was lent to a sister concern or to a subsidiary company would not enable the assessee to claim such deduction. The Assessing Officer and the appellate authorities on careful consideration of the material on record have recorded the finding of fact. In the circumstances, we do not see any justification to interfere with the said concurrent finding of fact recorded. " 5.5. In view of the above, I agree with the conclusion of the Assessing Officer business or incidental to the business of the appellant. The Hon'....
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....the main objects to be pursued by the company on incorporation and the objects ancillary or incidental to the attainment of main objects, the ld. counsel for the assessee drew the attention of the Bench to various clauses of the Memorandum of Association. Referring to the decision of the Hon'ble Punjab & Haryana High Court in the case of Bright Enterprises Pvt. Ltd. vs. CIT, vide ITA No.224 of 2013, order dated 24.07.2015, he submitted that when the holding company invests amounts for business of its subsidiary, it must be held for business expediency. The Hon'ble High Court, relying on the decision of Hon'ble Supreme Court in the case of SA Builders (P) ltd. vs. CIT, 288 ITR 1 (SC), has held that two companies may be in different lines of business, still it makes no difference. He drew our attention to paras 34 and 35 of the said order which read as under:- "34. We agree with the view taken by the Delhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd. (2002) 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justif....
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....ent. He submitted that the above decision of the Tribunal has been upheld by the Hon'ble Bombay High Court reported in 370 ITR 728 and the SLP filed by the Revenue was dismissed by the Hon'ble Supreme Court vide SLP No.25987/2015 dated 21.12.2017. He also relied on the following decisions:- (i) Apollo Tyres Ltd. vs. ACIT, ITA No.223/Cochin/2015, order dt.10.01.2017; & (ii) DCIT vs. Gujarat Small Industries, 84 TTJ AHD 22. 10. The ld. DR, on the other hand, heavily relied on the order of the CIT(A). He submitted that there is no proximate relationship between the nature of business and investment. The various decisions relied on by the ld. counsel for the assessee are distinguishable and not applicable to the facts of the present case. 11. The ld. counsel for the assessee, in his rejoinder submitted that the ld.CIT(A) has only denied the benefit on account of commercial expediency which is discernible from para 5.4 of the order of the CIT(A). The genuineness and incurring of the loss by the assessee company is not in doubt. The dispute is only regarding the nature and allowability of the loss so as to set off the same against the business income. He submitted that in t....
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....conclusion that the CIT (Appeals) had not considered the judgment of the Supreme Court in the correct perspective. With respect, we find that the Tribunal has not even analyzed the judgment of the Supreme Court in S.A. Builders Ltd. vs. Commissioner of Income-Tax (Appeals) and another (supra). 16. As we noted earlier, the funds/reserves of the appellant were sufficient to cover the interest free advances made by it of Rs. 10.29 crores to its sister company. We are entirely in agreement with the judgment of the Bombay High Court in Commissioner of Income Tax vs. Reliance Utilities & Power Ltd., (2009) 313 ITR 340, para-10, that if there are interest free funds available a presumption would arise that investment would be out of the interest free funds generated or available with the company if the interest free funds were sufficient to meet the investment. 17. The Assessing Officer's view that the advance was not for business purposes as the appellant had no business dealings with the sister company is erroneous. Commercial expediency in advancing loans does not arise only on account of there being transactions directly between the holding company and the subsidiary company o....
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....the loans granted by the assessee to Camelot would have been an inadmissible business deduction and the entire transaction was devised to avoid legitimate tax liability. We see substance in the plea of the company that anyone buying a company would like to buy a company with minimum liabilities, it was considered appropriate to first pay off the dues by the company, even by raising the funds through fresh issue, and then sell the company. This explanation is in consonance with the ground business realities and we find no infirmity in the same. The advances given by the assessee were finally converted into equity, as the assessee company subscribed to the Camelot shares to enable Camelot to pay off its dues to the assessee company. On these facts, in our humble understanding, the assessee had invested in the Camelot, and extended financial help to Camelot, purely for commercial expediency. The head under which investments in subsidiaries is shown is governed by the disclosure requirements under Schedule VI to the Companies Act, and, therefore, the fact that an asset is shown as 'investment' per se does not, and cannot, negate the fact that the such investments are made on th....
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....underlying motive to serve business interests of the assessee in making such investment. Let us now turn to the facts of the case before us. The company in which shares are subscribed is engaged only in the business of manufacturing the toothbrushes for the assessee company. Any investment in such a company is justified for pure commercial considerations, and, therefore, loss on sale of such shares is admissible as business losses. In the case of DCIT Vs Gujarat Small Industries Corporation (84 TTJ 22), a coordinate bench of this Tribunal was dealing with a situation in which " from the facts on record, it is obvious that the Girnar Scooter Ltd. was floated for the same purpose as a subsidiary and later on sold off when the loss started mounting" and on these facts the coordinate bench held that loss on sale of shares in subsidiary was business loss in nature. We are in considered agreement with the line of reasoning thus adopted by the coordinate bench. In view of these discussions, as also bearing in mind entirety of the case, we uphold the stand of the CIT(A) and decline to interfere in the matter. ..................................................................................