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July 2023

Loan – Whether A Capital Asset?

By Pradip Kapasi | Gautam Nayak | Bhadresh Doshi
Chartered Accountants
Reading Time 14 mins
ISSUE FOR CONSIDERATION Lending of money on interest or otherwise to other persons, on request or otherwise, in the course of business or as an investment, is normal. Some of the money so lent at times becomes bad and irrecoverable, besides inability of recovery of interest. In such circumstances, the issue that arises for consideration is whether the loan is a capital asset within the meaning of section 2(14) of the Income tax Act. The definition includes property of any kind including the right, title and interest in property. Is loan not a property and a capital asset? Is it not an asset even under popular parlance? The case of the lender to hold it as a capital asset seems better. The additional issue that arises is whether on recovery of loan becoming bad, whether there arises a transfer within the meaning of the term under section 2(47) of the Act. Can it be said that on write-off of the loan, there is a relinquishment or extinguishment of the asset or the right therein? Is it possible to hold that there is a transfer even where legal steps are not taken or where taken but not concluded against the lender? Will the claim of the tax payer for loss and its set-off be better in cases where a loan or a deposit or advance is exchanged for another asset or similar product or where it is assigned or transferred in the course of an amalgamation? Is the amount invested in financial small savings instruments such as Kisan Vika
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