Summary
This alert is a continuation of our earlier analysis published in respect of Premier Credit Limited v Commissioner of Domestic Taxes (Tax Appeal E1149 of 2024), in which the Tax Appeals Tribunal (TAT) held that the principal element of a loan advanced by a microfinance institution is capital in nature and therefore not deductible as a bad debt.
In that alert, we expressed the view that the Tribunal’s decision was commercially punitive and in conflict with the Tribunal’s own earlier decision in Fourth Generation Capital Limited v Commissioner of Domestic Taxes. We therefore called for appellate clarification from the High Court.
The High Court's judgment in Commissioner of Domestic Taxes v Branch International Limited HCITA E080 of 2025 & HCITA E089 of 2025 (Consolidated) provides that appellate clarification.
The Court has authoritatively confirmed that in a lending business, loan principal constitutes circulating capital, not fixed capital. As such the resulting losses from borrower default are revenue losses deductible under Section 15 of the Income Tax Act.
We analyse this decision and its implications below.
High Court Affirms That Principal Loan Amounts in a Money-Lending Business Are Stock-in-Trade and Thus Deductible as Bad Debts
Download Alert
