1. INCOME TAX ACT, 1961

Business Deduction under section 36(1)(vii) - Bad debts -Ordinary course of business

Assessee-company entered into an agreement as lender with two companies F as borrower and G as guarantor. As per agreement, assessee advanced a sum of Rs. 1 crore to F for booking Maruti cars at certain interest. Subsequently, assessee was unable to recover principal amount of loan from F; therefore, it made a fresh agreement in which G became principal borrower in place of F. Assessee submitted that advanced sum represented inter-corporate deposit given to G. In spite of all efforts, assessee was unable to realized from G, and accordingly, it wrote off principal amount along with interest and claimed deduction of same as bad debts. However, department disallowed assessee claim in view of that objects clause of MOA of assessee did not contain activity of money-lending as an object, as resolution of board of directors had authorized assessee to carry on money-lending business only under other objects of memorandum and not under main clause and, therefore, giving of amount of inter-corporate deposit of Rs. 1 crore to G was not in ordinary course of business of money-lending. Held: Merely object of lending or advancing monies had been placed under other objects in memorandum of association and not under main objects, it could not conclude that advancing of money was beyond powers of assessee-company under its MOA, as it was noticed that interest on said advance was assessed in earlier years as business income and moreover board resolution authorizing said advance was in conformity with objects clause of memorandum of association, therefore, assessee claim of bad debts was allowed under provisions of section 36(1)(vii) read with section 36(2)(i)

Income-tax Act, 1961, Section 36(1)(vii) read with section 36(2),

A.Y. : 2001-02

Decision: In favour of assessee

2. INCOME TAX ACT, 1961

Business loss - Chargeability -Intra vires or ultra vires to MOA