The assessee advanced an amount of 90 lakhs Euros to his subsidiary in India.
The subsidiary company ran into serious financial trouble and it was likely to wound up. In this situation the assessee sold this debt and claimed the difference between the amount invested in subsidiary and consideration received on such transfer as a short term capital loss.
According to the assessing officer the amount lent by the assessee to its subsidiary cannot be considered as a Capital Asset under section 2(14) of the Income Tax Act, 1961 and also the transfer of Loan amount does not come under the purview of section 2(47) of the Act. Hence amount claimed as short term capital loss shall be disallowed.
The loss arising on transfer of investment done in subsidiary shall be considered as a capital loss and amount shall be allowed as a deduction under head capital gain.
It is held that the term capital asset is defined as ‘property of any kind held by an assessee, whether or not connected with his business or profession’, except those which are specifically excluded. It further records the exclusion is only for stock in trade, consumables or raw materials held for purposes of business. Therefore from above explanation it is clear that the loan is not specifically excluded from the definition of Capital Asset hence shall be treated as a capital asset.
Further when it is concluded that the above loan is a capital asset, it shall be
considered as a transfer u/s 2(47) of the Act.
The amount lent to subsidiary shall be considered as a capital asset and loss arising on transfer of such asset can be claimed as a short term capital loss.
Source: [2020] 114 taxmann.com 531 (Bombay)
Commissioner of Income Tax (IT)-4 v. Siemens Nixdorf Information Systemse GmbH
