India: Loss from permanent diminution in value of investment in U.S. subsidiary allowable as business expenditure

Taxpayer had made an investment in its subsidiary company in order to expand its business with a view to earn higher profit

Value of investment in U.S. subsidiary allowable as business expenditure

The Rajasthan High Court agreed with the taxpayer that it was allowed to claim a business loss flowing from a permanent diminution in the value of an investment made in the equity shares in a subsidiary located in the United States.

The taxpayer had claimed the business loss. The Assessing Officer, however, disallowed the loss on the basis that the expenditure could not be considered as a revenue expenditure under Section 36 of the Indian tax law and, alternatively, could not qualify as a bad debt under Section 37.

The lower tribunal disagreed with the Assessing Officer’s position, and on appeal, the High Court affirmed and allowed the taxpayer’s claim of business expenditure. The High Court observed that the taxpayer had made an investment in its subsidiary company in order to expand its business with a view to earn higher profit. The investment was, thus, driven by business expediency.

The case is: Vaibhav Global Ltd.

Read a March 2022 report [PDF 333 KB] prepared by the KPMG member firm in India

 

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