1998 (6) TMI 568 - AT - Income Tax

Deduction granted for property, business loss denied due to lack of business activity.

ARTIC Versus ASSISTANT COMMISSIONER OF INCOME-TAX

The Tribunal allowed the deduction of Rs. 7,17,000 under section 50(1)(iii) for the flat in New Bombay but dismissed the claim for the business loss of ... - Issues Involved:1. Deduction of Rs. 7,17,000 while computing capital gains u/s 50 of the Income-tax Act.2. Entitlement to deduction of business loss of Rs. 1,42,720.Summary:Issue 1: Deduction of Rs. 7,17,000 while computing capital gains u/s 50 of the Income-tax ActThe assessee, a partnership firm, sold its Pune property and declared short-term capital gains of Rs. 10,52,735. The Assessing Officer (AO) denied the deduction of Rs. 7,17,000 for a new flat in New Bombay, arguing it was not a business asset and the assessee did not carry on any business during the year. The Commissioner of Income-tax (Appeals) upheld the AO's decision.The Tribunal examined the applicability of section 50 and concluded that the section does not explicitly require the assessee to carry on a business to claim the deduction. The Tribunal highlighted the distinction between business income and capital gains, emphasizing that section 50 pertains to capital gains and not business income. The Tribunal also noted that the concept of 'block of assets' was introduced to simplify record-keeping and did not impose a requirement for the new asset to be used in a business.The Tribunal referred to the Bombay Bench decision in Oceanic Investments Ltd. v. ACIT, supporting the view that the new asset need not be used in a business. The Tribunal also considered the Supreme Court's judgment in CIT v. Express Newspapers Ltd., which distinguished between business income and capital gains.Regarding the AO's contention that the assessee did not acquire the flat during the relevant year, the Tribunal cited the Supreme Court's decision in CIT v. Poddar Cements P. Ltd., which held that legal possession and substantial payment constitute acquisition. The Tribunal concluded that the assessee acquired the flat on 18-3-1995 and was entitled to the deduction of Rs. 7,17,000 under section 50(1)(iii).Issue 2: Entitlement to deduction of business loss of Rs. 1,42,720The assessee claimed a business loss of Rs. 1,42,720, which included telephone charges, electricity charges, interest on term loan, professional fees, bank charges, and municipal taxes. The AO denied the deduction, arguing that the assessee did not carry on any business during the year.The Tribunal examined the facts and concluded that the assessee did not carry on any business during the relevant year. The Tribunal noted that the assessee sold its business assets in the year ended 31-3-1993 and did not engage in any business activity thereafter. The Tribunal rejected the assessee's claim that letting out the New Bombay flat constituted a business, distinguishing it from cases where systematic and organized letting out of properties was considered a business.The Tribunal also found the evidence supporting the assessee's claim of cloth business unconvincing. Consequently, the Tribunal upheld the AO's decision to deny the deduction of the business loss of Rs. 1,42,720.Conclusion:The assessee's appeal was partly allowed, granting the deduction of Rs. 7,17,000 under section 50(1)(iii) for the flat in New Bombay while dismissing the claim for the business loss of Rs. 1,42,720.