Law:

Section:

Section 28(i) of the Income-tax Act, 1961 - Business deduction/loss - Allowability of - Assessee-company was engaged in managing other companies and in financing - It financed a managing company through its 100 per cent subsidiary company - Subsequently it took over said loan, sold it to another company at loss and wrote off loss - Whether loss incurred by assessee in financing its subsidiary company must be allowed as a business loss - Held, yes FACTS The assessee-company was engaged in managing other companies and also in financing. B was a 100 per cent subsidiary company of the assessee-company. The assessee-company became the managing agent of company 'C'. It advanced loan to C from time to time and the loan as on 31-3-1949 stood at Rs. 15,67,147. Thereafter, the said debt was taken over by B and from 1-4-1949 B started financing C. The advances given by B stood at Rs. 48,52,951 as on 31-3-1956. On 1-4-1956 the assessee-company took over the loan granted by B and sold the loan to one O, a concern, in terms of the letter dated 10-4-1956, containing the terms and conditions for a sum of Rs. 26.56,561. The unrealised amount of Rs. 21,96,390 was written off by the assessee-company and the same was claimed as a bad debt/trading loss. The Tribunal held that the loan of Rs. 48,32,951 was advanced by the assessee in the ordinary course of its business and that the sum of Rs. 21,96,390 out of the aforesaid amount was allowable as a bad debt while computing the assessee's total income and that it was not a capital loss. On reference : HELD On going through the agreement dated 28-6-1949 it would appear that B was to finance C and for such financing the assessee was to grant financial accommodation to B up to Rs. 45 lakhs. The book debts and also the right, title and interest of B under hypothecation created by C was to be hypothecated to the assessee. It was clear that because of certain difficulties, the assessee could not directly advance the loan to its managed companies like C. It was really to the 100 per cent subsidiary B that advances were made and all the book debts were hypothecated by C and other subsidiary companies were hypothecated to the assessee.…

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