In a recent case, the Delhi High Court dismissed the appeal against Clix Finance concerning the capital nature of loan portfolio sale receipts.
The appeal was filed by the Principal Commissioner of Income Tax against the order of the Income Tax Appellate Tribunal (ITAT) in favor of the assessee, Clix Finance India Pvt. Ltd.
The issue raised before the court was whether the ITAT was correct in law in deleting the addition of Rs. 103,87,99,712/-, corresponding to the loss on the sale of loans, by not considering that the right to receive money is a capital right, as the assessee is not in the business of trading loan portfolios.
The loan portfolio was sold by the respondent/assessee in favor of Shriram Transport Finance Company Limited. During the DRP consideration, it was held that the sale of debts had not materialized in totality in the relevant year, and therefore, the claimed loss on this account is not crystallized in the relevant year.
During the appeal proceedings, the tribunal observed that the transaction took place during the year under consideration, and the loss crystallized in that year, entitling the assessee to claim a loss of Rs. 103.87 crores in the same year.
For the assessment year 2010-11, the tribunal considered that the issue was covered in 2004-05. On that assessment year, the tribunal concluded that the assessee’s right to receive money from its debtors, on account of financing of assets, accrued in the ordinary course of business and was not in the nature of a ‘capital’ receipt.
Regarding the question of whether the liability had actually crystallized during the relevant period, the Tribunal, based on an analysis of the assignment agreement between the respondent/assessee and Shriram, determined that the liability did arise during that period.
After analyzing the facts and arguments of both parties, a division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia upheld the tribunal’s order and observed that they were not inclined to entertain the appeal.
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