In the case of L.P. Investment Ltd. vs. Income-tax Officer (77ITD1) the assessee sold 50% interest in a property to an interested person for a sum of Rs. 4,25,000. The assessee realized Rs.225000 and for the balance the Board of Directors further resolved to realise Rs. 2 lacs in 10 equal annual installments of Rs. 20,000 each. The buyer of the property in the meantime expired. Thus the board resolution was not complied with and the assessee commuted the said amount of Rs. 2 lacs by accepting Rs. 1,10,000 from the legal heirs in settlement of the debt and claimed business loss for the balance sum of Rs.90000.
The matter in this case was referred to the third member due to difference of opinion among the regular members of the Amritsar Bench. The President held that the loss cannot be said to arise during the previous year. Even if it is admitted that the transaction is a normal business transaction, then the loss can only be considered on the basis of the terms of payment as per the Resolution of the Board and that will arise only at the end of the 10 years period when the final installment is due.
This ruling will also have significance in cases of assignment of liabilities and debts.