The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has held that loss arising on investment in a subsidiary is to be treated as business loss where the investment is made for business purposes.

The assessee, Alembic Pharmaceuticals Ltd., manufactures and sells pharmaceutical products in India and overseas. It had invested in its subsidiary as part of its business operations. During the year, it incurred a loss on this investment and claimed it as a business loss.

The Assessing Officer treated the loss as capital in nature, holding that investment in shares is a capital asset and the resulting loss cannot be allowed as business loss.

The assessee went in appeal, stating that the investment was not a mere capital investment but was made to support its business activities. It explained that the subsidiary was closely linked to its operations

The Revenue, however, argued that the investment was in the form of shares and therefore the loss should be treated as capital in nature.

The Tribunal, comprising T.R. Senthil Kumar (Judicial Member) and Dr. B.R.R. Kumar (Vice President), examined the purpose behind the investment. It noted that the investment in the subsidiary was connected with the assessee’s business and not in the nature of a standalone capital investment. Relying on CIT v. Colgate Palmolive (India) Ltd., the Tribunal held that loss arising from such investment is allowable as business loss.

On this basis, the Tribunal did not accept the Revenue’s view. The claim was accordingly allowed.

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