M/s Siemens Nixdorf Information Systemse GmbH vs. Dy. Dir. of Income Tax (Int’l Taxation) 2(1); [ITA No. 3833/M/2011; date of order: 31st March, 2016; A.Y.: 2002-03; Mum. ITAT] Section 2(14) – Capital asset – Advance given to subsidiary – Loss arising on sale of said asset was held to be treated as short-term capital loss [S. 2(47)]

M/s Siemens Nixdorf Information Systemse
GmbH vs. Dy. Dir. of Income Tax (Int’l Taxation) 2(1); [ITA No. 3833/M/2011;
date of order: 31^st March, 2016; A.Y.: 2002-03; Mum. ITAT]

Section 2(14)
– Capital asset – Advance given to subsidiary – Loss arising on sale of said
asset was held to be treated as short-term capital loss [S. 2(47)]

The assessee company has a subsidiary by the
name Siemens Nixdorf Information Systems Limited (SNISL) to which it had lent
an amount of Euros 90 lakhs under an agreement dated 21^st September,
2000. When SNISL ran into serious financial troubles and was likely to be wound
up, the assessee company sold this debt of Euros 90 lakhs to one Siemens AG.
This was done on the basis of the valuation carried out by M/s Infrastructure
and Leasing Finance Ltd. The assessee company claimed the difference in the
amount which was invested / lent to SNISL and the consideration received when
sold / assigned to Siemens AG as a short-term capital loss.

However, the AO disallowed the short-term
capital loss, pointing out that the amount lent by the assessee company to its
subsidiary was not a capital asset u/s 2(14) of the Act and also that no
transfer in terms of section 2(47) of the Act took place on the assignment of a
loss.

Being aggrieved, the assessee company
carried the issue in appeal to the CIT(A). But even the CIT(A) did not accept
the contention that the amount of Euros 90 lakhs lent to SNISL was a capital
asset and upheld the order of the AO. However, it also held that although the
assignment of a loss was a transfer u/s 2(47) of the Act, but it is of no avail
as the loan being assigned / transferred is not a capital asset.

On further appeal, the Tribunal held that
section 2(14) defines the term ‘capital asset’ as ‘property of any kind held by
an assessee, whether or not connected with his business or profession’, except
those which are specifically excluded in the said section. It further records
the exclusion is only for stock-in-trade, consumables or raw materials held for
purposes of business. It thereafter examined the meaning of the word ‘property’
to conclude that it has a wide connotation to include interest of any kind. It
placed reliance upon the decision of the Bombay High Court in the case of CWT
vs. Vidur V. Patel [1995] 215 ITR 30 rendered in the context of the
Wealth Tax Act, 1957 which, while considering the definition of ‘asset’, had
occasion to construe the meaning of the word ‘property’. It held the word
‘property’ to include interest of every kind. On the aforesaid basis, the
Tribunal held that in the absence of loan being specifically excluded from the
definition of capital assets under the Act, the loan of Euros 90 lakhs would
stand covered by the meaning of the word ‘capital asset’ as defined u/s 2(14)
of the Act. It also held that the transfer of the loan, i.e., capital asset,
will be covered by section 2(47) of the Act. The Revenue had not filed any
appeal on this issue, thus holding that the assessee company would be entitled
to claim loss on capital account while assigning / transferring the loan given
to SNISL to one to Siemens AG.

Being aggrieved with the order of the ITAT,
the Revenue carried the issue in appeal to the High Court. The Court observed
that section 2(14) of the Act defined the word ‘capital asset’ very widely to
mean property of any kind. However, it specifically excludes certain properties
from the definition of ‘capital asset’. The Revenue has not been able to point
out any of the exclusion clauses being applicable to an advancement of a loan.
It is also relevant to note that it is not the case of the Revenue that the
amount of Euros 90 lakhs was a loan / advance income of its trading activity.
The meaning of the word ‘property’ as given in the context of the definition of
asset in the Wealth Tax Act is that ‘property’ includes every interest which a
person can enjoy. This was extended by the Tribunal to understand the meaning
of the word ‘property’ as found in the context of capital asset u/s 2(14) of
the Act. The High Court in the case of Vidur Patel (Supra) has
observed
as under:

‘…So far as the meaning of “property” is
concerned, it is well settled that it is a term of widest import and, subject
to any limitation which the context may require, it signifies every possible
interest which a person can hold or enjoy. As observed by the Supreme Court
in Commissioner, Hindu Religious Endowments vs. Shri Lakshmirudra Tirtha Swami
of Sri Shirur Mutt (1954) SCR 1005, there is no reason why this word should
not be given a liberal or wide connotation and should not be extended to those
well-recognised types of interests which have the insignia or characteristic of
property right.’

The only objection of the Revenue to the
above decision being relied upon was that it was rendered under a different
Act. In this context, the Court relied on another decision in case of Bafna
Charitable Trust vs. CIT 230 ITR 846. In this case, the Court observed
as under:

‘Capital asset has been defined in clause
(14) of section 2 to mean property of any kind held by an assessee, whether or
not connected with his business or profession, except those specifically
excluded. The exclusions are stock-in-trade, consumable stores or raw materials
held for the business or profession, personal effects, agricultural land and
certain bonds. It is clear from the above definition that for the purposes of
this clause property is a word of widest import and signifies every possible
interest which a person can hold or enjoy except those specifically excluded.’

The Bombay High Court noted that the Revenue
had not been able to point out why the above decision of this Court rendered in
the context of capital assets as defined in section 2(14) of the Act was
inapplicable to the present facts; nor, why the loan given to SNISL would not,
in the present facts, be covered by the meaning of ‘capital asset’ as given u/s
2(14) of the Act. In the above view, as the issue raised herein stands
concluded by the decision of this Court in Bafna Charitable Trust (Supra),
and also by the self-evident position as found in section 2(14) of the Act, the
Revenue appeal accordingly stands dismissed.