Business succession and tax deductions: predecessor cannot claim loss set-off or carry forward depreciation after transfer of the business.
On business succession, the predecessor could not claim set-off of business loss under Section 24 because Section 26(2) operates mandatorily and the successor alone is treated as the assessee for the transferred business. The Court rejected reliance on hardship or absence of profits, holding that the plain words of the provision control the assessment position. The predecessor also could not carry forward unabsorbed depreciation for the transferred business, since that benefit belongs only to the person continuing to derive profits from the business concerned. Both claims were rejected against the assessee.
Issues: (i) Whether, on succession of a business, the predecessor assessee could claim set-off of the business loss under Section 24; (ii) Whether the predecessor assessee could carry forward unabsorbed depreciation in respect of the transferred business.
Issue (i): Whether, on succession of a business, the predecessor assessee could claim set-off of the business loss under Section 24.
Analysis: Section 26(2) was held to operate in mandatory terms where there is succession in business. The assessment must be made on the successor, who is treated as the assessee for the business in question. Once the successor alone is the assessee, the predecessor cannot invoke Section 24 in relation to the transferred business. The Court rejected the argument that the absence of profits or hardship to the predecessor could control the plain words of the provision.
Conclusion: The claim for set-off of the loss was rejected and the answer was in the negative, against the assessee.
Issue (ii): Whether the predecessor assessee could carry forward unabsorbed depreciation in respect of the transferred business.
Analysis: The right to carry forward depreciation under Section 10(2)(vi), proviso (b), was held to belong only to the person who continues to derive profits from the business concerned. Since the business had been transferred and the predecessor ceased to be the assessee for that business, the benefit of past depreciation could not be claimed by the predecessor after succession.
Conclusion: The claim to carry forward depreciation was rejected and the answer was in the negative, against the assessee.
Final Conclusion: On a proper construction of the succession provision, the successor alone was the assessable person for the transferred business, and the assessee was not entitled to the claimed set-off or depreciation benefit.
Ratio Decidendi: Where a taxing provision mandates assessment on the successor upon business succession, the predecessor cannot claim business-loss set-off or carry forward depreciation in relation to the transferred business.
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AI Drafter ✕
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