CIT Vs Star Investments Pvt. Ltd (Madras High Court)
Madras High Court held that pledging of shares for the enable sister concern to avail loan is certainly an activity undertaken in the course of business. Accordingly, sale of shares thereon to satisfy dues of defaulting sister company is entitled for deduction of business loss/ debt.
Facts- The present petition has been preferred by the revenue mainly contesting that Tribunal has erred in holding that the assessee is eligible for deduction of bad debts of Rs.8,46,97,280/- when the transaction is not in the nature of loan between the parties. It is also contested that Tribunal has erred in holding that the assessee’s action of standing as guarantor for the loan availed by its sister concern and consequential invocation of the guarantee clause by the bank and appropriation of the amounts by the sale of the share held by the assessee to satisfy the dues of the defaulting sister company is for the purpose of the assessee’s business and the assessee is entitled for deduction of business loss.
Conclusion- Held that the shares were pledged, so as to enable the sister concern/group company to avail the loan from ICICI. Therefore, certainly, it has to be in the course of business. Thus, the loss incurred by the assessee was for the business expediency of the group company. Such loss/debt should be treated as having been incurred for the purpose of business and directly relatable to the business of the assessee and thus, eligible for deduction as loss or bad debt in their return of income. Otherwise, it would not reflect the true profit and gain of assessee. A sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency, and in order indirectly to facilitate the carrying on the business, may yet be expended wholly and exclusively for the purposes of the trade.
