Case Law Details
Where monies were advanced through the mechanism of equity participation, the intention of the lender – in the present case, the assessee, was to derive income rather than to increase its investment on the capital Such being the case, if there were profits, with the assessee/lender from the investment, it would properly lie in the Revenue side of income and conversely, if there were losses – as in the present case – it properly would have fallen, as was correctly claimed, as bad debts in the present instance.
1. The question of law urged in this appeal against the order of the Income Tax Appellate Tribunal (ITAT) is:-
“Whether the investment write off to the tune of `2,56,35,395/-, could be characterised on the Revenue side or did it fall in the Capital side as loss?”
2. The assessee, a statutory Corporation created in 1948 and restructured in 1993, is engaged in financing companies and ventures. It lent finances through rupee loans, foreign currency loans, under writin, direct subscription (of equity), issuing guarantees and equipment leasing services to various borrowers. These fall under the outgoings given to its clients/borrowers and are broadly shown as “investments as assistance” to industrial concerns in the form of equity shares, preference shares, convertible debentures and non-convertible debentures. This is in accordance with the provisions of the Companies Act. The assessee also separately maintains an investment portfolio in respect of 17 of its financial assistance transactions; the assessee reported losses which it sought to write off as bad debts. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)], rejected the assessee’s contentions.
3. The ITAT upon appeal accepted the assessee’s plea, inter alia finding as follows:-
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