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In the case of Greaves Ltd. Vs. Commissioner of Income-tax (251ITR190) Greaves International Ltd., under a deed of assignment
assigned doubtful debts/advances of Rs. 68,70,943.27 for a price of Rs. 21,33,987 to its sister concern, Greaves Cotton Ltd. The amount of Rs. 21,33,987 was the recoverable amount out of the total doubtful loans and advances of Rs. 68,70,943.27. The assessee-Greaves International Ltd. claimed deduction in respect of the bad debts, which, according to the surveyor’s report, were not recoverable. This was not allowed as bad debts both by the assessing officer and Commissioner (A) on the ground that the loss resulting from such transaction is directly from sale of the debts/advances hence not a bad debt.

As regard alternative claim for business loss the Bombay High Court upheld the finding of the Commissioner (A) that the said write-offs do not qualify as bad debts but is a loss on sale of the assessee’s rights in the shape of debts/advances. The Court further held that it was a sale of the assessee’s rights. There was no basis found to show as to how the loans and advances constituted trading assets. It was found that the assessee was a trader in goods and there was nothing to indicate that the assessee used to lend monies in the course of its business.

Hence in every case of assignment of a debt/advance it is desired to justify that the assignor of such debt claiming such deduction of the difference amount is a finance/investment company.

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