Facts
The taxpayer is engaged in the business of manufacture/ production of Iron and Steel.
In reassessment proceedings for the Assessment Year (“AY”) 2003-04, the Assessing Officer (“AO”) observed that the taxpayer having sold the land along with the building and bore well used for the business, had set-off long term capital gains against the brought forward business loss and unabsorbed depreciation.
The AO held that the brought forward business loss cannot be set-off against the long term capital gains by relying on the decision of Supreme Court (“SC”) in the case of Killick Nixon & Co.1
Aggrieved by the order of the AO, taxpayer filed an appeal before the Commissioner of Income Tax (Appeals) (“CIT(A)”) who upheld the order of the AO.
Aggrieved by the order of the CIT(A), the taxpayer filed an appeal before the Hon‟ble Income Tax Appellate Tribunal (Bangalore) (“Tribunal”).
The issue was referred to the Special Bench (“SB”) of the Bangalore Tribunal in light of its own ruling in the case of Steelcon Industries (P) Ltd.2 wherein it had not considered the SC decision in Express Newspaper Ltd3.
Issue before the Tribunal (SB)
Whether the carried forward business loss can be set-off against the long term capital gain arising on sale of asset used for business?
Observations and Ruling of the Tribunal (SB)
The term „profits and gains of any business and profession‟ as mentioned in clause (i) of sub-section (1) of Section 72 of the ITA refers to the income earned from any business carried on by the taxpayer. It is only the business loss that can be carried forward u/s 72 of the Act and it can also be set off only against the business income of the assessee, be it from the same business or from any other business.
The land, building and bore well sold by the taxpayer were used by the taxpayer for its business purposes. These assets were fixed assets and not the business assets of the taxpayer.
The assets sold were capital assets and the capital receipts are not taxable nor are the capital payments deductible from the income of a taxpayer. The capital is to be used for the purpose of carrying on the business of the assessee and it shall remain in the business of the taxpayer till it is either converted into stock-in-trade or is disposed off.
Hence the transfer of such capital assets cannot be considered as the business income for the purpose of setting-off the carried forward business losses.
The decisions of Supreme Court in the case of United Commercial Bank Ltd4 and Cocanada Radhaswami Bank Ltd5 were distinguishable as they were in the business of dealing in securities and hence, these securities were trading assets. Therefore, the income therefrom though to be computed under the head “income from securities” did not lose the character of “business income”.
Conclusion
Business loss which has been carried forward cannot be set-off against the long term capital gains arising from the sale of land used for business.
Source: M/s Nandi Steels Limited vs. Asst. CIT (ITA No. 546/Bang/2008) Bangalore Special Bench of the Tribunal dated 09
The taxpayer is engaged in the business of manufacture/ production of Iron and Steel.
In reassessment proceedings for the Assessment Year (“AY”) 2003-04, the Assessing Officer (“AO”) observed that the taxpayer having sold the land along with the building and bore well used for the business, had set-off long term capital gains against the brought forward business loss and unabsorbed depreciation.
The AO held that the brought forward business loss cannot be set-off against the long term capital gains by relying on the decision of Supreme Court (“SC”) in the case of Killick Nixon & Co.1
Aggrieved by the order of the AO, taxpayer filed an appeal before the Commissioner of Income Tax (Appeals) (“CIT(A)”) who upheld the order of the AO.
Aggrieved by the order of the CIT(A), the taxpayer filed an appeal before the Hon‟ble Income Tax Appellate Tribunal (Bangalore) (“Tribunal”).
The issue was referred to the Special Bench (“SB”) of the Bangalore Tribunal in light of its own ruling in the case of Steelcon Industries (P) Ltd.2 wherein it had not considered the SC decision in Express Newspaper Ltd3.
Issue before the Tribunal (SB)
Whether the carried forward business loss can be set-off against the long term capital gain arising on sale of asset used for business?
Observations and Ruling of the Tribunal (SB)
The term „profits and gains of any business and profession‟ as mentioned in clause (i) of sub-section (1) of Section 72 of the ITA refers to the income earned from any business carried on by the taxpayer. It is only the business loss that can be carried forward u/s 72 of the Act and it can also be set off only against the business income of the assessee, be it from the same business or from any other business.
The land, building and bore well sold by the taxpayer were used by the taxpayer for its business purposes. These assets were fixed assets and not the business assets of the taxpayer.
The assets sold were capital assets and the capital receipts are not taxable nor are the capital payments deductible from the income of a taxpayer. The capital is to be used for the purpose of carrying on the business of the assessee and it shall remain in the business of the taxpayer till it is either converted into stock-in-trade or is disposed off.
Hence the transfer of such capital assets cannot be considered as the business income for the purpose of setting-off the carried forward business losses.
The decisions of Supreme Court in the case of United Commercial Bank Ltd4 and Cocanada Radhaswami Bank Ltd5 were distinguishable as they were in the business of dealing in securities and hence, these securities were trading assets. Therefore, the income therefrom though to be computed under the head “income from securities” did not lose the character of “business income”.
Conclusion
Business loss which has been carried forward cannot be set-off against the long term capital gains arising from the sale of land used for business.
Source: M/s Nandi Steels Limited vs. Asst. CIT (ITA No. 546/Bang/2008) Bangalore Special Bench of the Tribunal dated 09
1 comment:
Enterprise loss which has been taken ahead cannot be set-off against the future investment profits that comes from the purchase of area used for business.
Businesses for Sale
Post a Comment