1. This appeal is directed against the order of the CIT(A), dt. 29th April, 1993, for the asst. yr. 1990-91. The ground taken by the Revenue reads as under: "The learned CIT(A) erred in directing the AO to allow the assessee's claim of capital loss of Rs. 7,50,000 on the view that the write off of the loan amounted to a capital loss. The appellate authority ought to have noticed that for allowing as a deduction for income-tax purpose the loss should have arisen on the transfer of a capital asset effected during the year and that in this case the assessee had only written off as irrecoverable a loan advanced during the previous year relevant to the asst. yr. 1989-90. The CIT(A) ought to have upheld the disallowance of the claim as capital loss as in this case there was no transfer of a capital asset within the meaning of Section 45." 2. The respondent-company advanced some amount to M/s Fort William Co.
Ltd., Calcutta and returned the interest received thereon in earlier years under the head 'other sources'. The amount of the advance of Rs. 7,50,000 or so was written off in the year of account relevant for the asst. yr. 1989-90, i.e. in the year of account relevant for the immediately preceding assessment year. It claimed the amount as a trading loss, but the claim was rejected by the AO and even though the assessee filed an appeal against the order of the AO for that year, the appeal was withdrawn before the CIT(A). For the present asst. yr.
1990-91, the assessee claimed a deduction for the amount of Rs. 7,50,000 as capital loss. Though it is stated that the amount is claimed as a capital loss, it appears that the assessee meant it as a loss under the head 'capital gains'. The AO rejected the claim for the deduction of Rs. 7,50,000 as being loss under the head 'capital gains' for the reason that the amount had been written off in the year of account relevant for the asst. yr. 1989-90 and did not relate to the asst. yr. 1990-91. He also held that in any case the loss under the head 'capital gains' is allowable only when there is a transfer of the capital asset within the meaning of Section 45 of the IT Act and there was no such transfer of a capital asset involved and so he denied the deduction for Rs. 7,50,000. The CIT(A) allowed the claim of the assessee on the ground that though it had been written off in the earlier year, the order of the Board for Industrial and Financial Reconstruction (BIFR) in the case of Fort William Co. Ltd., on the basis of which the advance made by the assessee to the said company had been regarded as irrecoverable, was passed on 8th Nov., 1989, i.e. in the year of account relevant for the asst. yr. 1990-91 and so the claim of loss under the head 'capital gains' is allowable for the asst. yr.
1990-91. He further observed as under: "On a consideration of the facts, I am of the opinion that the claim of the appellant has to be allowed. I would agree with the contention of the learned representative that the write off of the loan amounts to a capital loss. As regards the year in which it is to be allowed, I would agree with the learned representative that the correct assessment year is the asst. yr. 1990-91. No doubt, the appellant had written off the loan in its books during the accounting year relevant to the asst. yr. 1989-90. However, in the books of Fort William Co. Ltd., the amount due to the appellant was not written off in that year. It was written off only in the accounting year 1989-90. Since such write off was also accepted by the appellant in this year, the claim of capital loss is rightly allowable in the asst. yr. 1990-91. Accordingly, I would direct the AO to allow the claim." 3. Before us, the learned Departmental Representative conceded that the advance made by the assessee to M/s Fort William Co. Ltd. was a capital asset within the meaning of Section 2(14) of the IT Act, as it is a property of the assessee and does not fall within the exclusionary Sub-clause (i) and (ii) of Section 2(14). He, however, contended that there is no transfer of this asset within the meaning of Section 2(14) of the IT Act so as to render the assessee eligible for the deduction of Rs. 7,50,000 as loss under the head 'capital gains'. The learned counsel for the assessee, on the other hand, mentioned that surplus money of the assessee had been given as a deposit or loan to M/s Fort William Co. Ltd., and the interest income received on the said deposit/advance had been returned in the earlier years for tax purposes and the said company, i.e. Fort William Co. Ltd., became sick and went before BIFR and so the advance became irrecoverable and the amount had been written off by the assessee-company and written back to the P&L a/c by the debtor-company. Therefore, the amount must be regarded as irrecoverable and so it must be allowed as a deduction as a loss under the head 'capital gains'. To a specific query from the Bench as to why it should not be held that there was no transfer of the said capital asset in terms of Section 2(47) of the IT Act in view of the decision of the apex Court in the case of Vania Silk Mills (P) Ltd v. CIT (1991) 191 ITR 647 (SC), the learned counsel pleaded that the said decision of the apex Court is distinguishable and the case of the assessee falls within the ratio of another decision of the apex Court, i.e. in the case of Kartikeya V. Saiabhai v. CIT (1997) 228 ITR 163 (SC), 4. We are of the view that the Revenue deserves to succeed for more than one reason. Firstly, the amount was not written off by the assessee in its books in the year of account relevant for the present assessment year. It was written off in the earlier year when it was claimed only as a trading loss. If there was a transfer within the meaning of Section 2(47) that fell for consideration only in the asst, yr. 1989-90 and not for the present assessment year. The consideration that the amount was written off by the debtor-company in the year of account relevant for the present assessment year, which weighed with the CIT(A), as is evident from the portion of his order extracted by us hereinabove, does not, to our mind, justify the conclusion that the transfer, if at all, took place in the present assessment year, because if the assessee has to be eligible for the deduction of Rs. 7,50,000 as the loss under the head 'capital gains', the said transfer has to be effected by the assessee and not by the other company, To consider the date of transfer, what is relevant is the entry in its books and not the entry in the books of the debtor-company. It could not have been transferred in two years, i.e. both in the asst. yr. 1989-90 and in the asst. yr. 1990-91. For allowing the deduction in the hands of the assessee, we have to go by the entries in its books and not in the books of the debtor. The CIT(A) has also mentioned that the assessee has accepted the write back of the loan in the books of the debtor-company in the year of account relevant for the present assessment year, We do not see how the assessee can accept the write back of a loan due to it in the books of the debtor-company. At any rate, no such evidence of acceptance has been referred to before us.
5. Secondly, the contention of the assessee that the relevant order of the BIFR dt. 8th Nov., 1989, on the basis of which the amount had been written off, falls in the year of account relevant for the asst. yr.
1990-91, does not also seem to be of much relevance because there is nothing in the said order which authorises the assessee to write off the amount of Rs. 7,50,000. On the other hand, going by the said order, it appears to us that it is not proved that the loan in question has become irrecoverable. In para 6 of the said order, a copy of which had been filed before us, it has been observed as under: "At the request of Shri B.D. Bangur it was agreed that interest, if any, payable to the pressing creditors/unsecured loan from outside the group companies, etc. shall be payable after the rehabilitation period of the scheme." 6. From the above, it appears to us that under the scheme framed by BIFR, the interest on the loans of other creditors of M/s Fort William Co. Ltd., which includes the assessee-company, is payable only after the rehabilitation period. In other words, the payment of interest is only postponed. There is nothing in the order about the liquidation of the loan as such. When the interest is held to be payable, though postponed, there is no reason to think that the loans to the creditors were liquidated or held not to be payable. So, there is no factual basis for the conclusion that the amount had become irrecoverable. The learned counsel for the assessee pleaded before us that there was no dispute before the AO about the irrecoverability of the loan and so suggested, though only faintly, that the Tribunal should not go into this aspect of the matter. We are not in agreement with this suggestion. When the issue before the Tribunal is deductibility of the amount of Rs. 7,50,000, we are of the view that the Tribunal, as a fact-finding body, is also entitled to go into the question whether there is any evidence in support of its claim that the amount had actually become irrecoverable warranting its write off. We are of the view that no such evidence is available on file, and on this ground also the write off of the amount is unwarranted and so we are of the view that there is no transfer of the capital asset within the meaning of Section 2(47) of the IT Act.
7. The next question is to consider the effect of a mere write off of a debt in the books of accounts of the assessee and whether such write off amounts to a transfer. Simply because a debt is written off in the books, it does not follow that the assessee has no right to recover it or that the concerned debtor has no liability to pay it. Even after the amount is written off, an assessee can file a suit for recovery. For this proposition we may refer to the decision of the Hon'ble Bombay High Court in the case of Jadavji Narsidas and Co. v. CIT (1963) 47 ITR 411 (Bom) where in fact an assessee did file a suit for recovery of debt after its write off in its books and the Hon'ble Bombay High Court held that the debt did not become bad in spite of its write off because of its subsequent recovery consequent to the suit. When the right to recover a debt still vests in the creditor notwithstanding its write off in its books, it seems that there is no transfer within the meaning of Section 2(47) of the IT Act, as nothing is parted by the assessee in favour of any person simply because of the write off..
8. Now, the question remains whether, assuming that the amount had become irrecoverable, the write off of the amount amounts to a transfer of the capital asset within the meaning of Section 2(47) of the IT Act.
We are of the view that even assuming that the amount had become irrecoverable, the write off of the loan does not amount to a transfer of the loan within the meaning of Section 2(47) of the IT Act. For a transfer within the meaning of Section 2(47), there are two primary requirements: (i) the asset should remain after the transfer, and (ii) there should be a transferee. If a debt is written off, it cannot be regarded as a transfer in favour of the debtor-company. The meaning of a write off of a debt in accounting terms is not that it is transferred in favour of the debtor-company; it only means at the most, that it is regarded by the creditor as irrecoverable or as extinguished. All cases of extinguishments of rights in a capital asset are not cases of transfer within the meaning of Section 2(47), as held by the apex Court in the case of Vania Silk Mills (P) Ltd. (supra). In this case, the apex Court was considering the liability to capital gains tax in a case where machinery was destroyed by fire and insurance amounts were received in excess of the cost of machinery. The apex Court held that extinguishment of rights on account of destruction or loss of an asset is not transfer within the meaning of Section 2(47) on two grounds.
Firstly, in such a case there is no transferee and secondly there is no asset existing after the transfer. We are of the view that the case of write off of a debt/loan squarely falls within the ratio of this decision.
In the case of write off, there is no transferee, as held by us hereinabove, and the debt survives the write off. We are also of the view that the decision of the apex Court in the case of Kartikeya V.Sarabhai (supra) cited by the learned counsel for the assessee is distinguishable and is not of any assistance of the assessee. In this case, the apex Court was considering the capital gains arising on the reduction of the face value of shares held by the assessee. Such reduction has been held to be extinguishment of rights within the meaning of Section 2(47). This is because in the case of reduction in the face value of shares, the shares subsist after the reduction and there is a transfer in favour of the company to which the shares belong. For the above reasons, we are of the view that the assessee is not entitled for the deduction of Rs. 7,50,000 as a loss under the head 'capital gains'. We accordingly set aside the order of the CIT(A) on this issue and restore that of the AO.9. Before we close the matter, we may mention that the CIT(A) referred only to capital loss and not the loss under the head 'capital gains'.
Both the parties before us, however, interpreted the order of the CIT(A) as allowing the claim of the assessee under the head 'capital gains' and this is how we also proceeded in this order.