High Court Upholds ITAT Order on Taxability of Deemed Income under Income-tax Act

The High Court dismissed the Revenue's appeal against the ITAT order regarding the taxability of deemed income under the Income-tax Act, 1961 for AY 2014-15. The court held that the provisions of Section 115BBE, as amended by the Finance Bill 2016, cannot be applied retrospectively. It was clarified that set off of loss against income determined under Section 115BBE was permissible until AY 2016-17 according to a CBDT circular. The Court ruled in favor of the assessee, allowing the set off of losses against the deemed income and rejecting the Revenue's contention.

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Issues:
Appeal against ITAT order dismissing Revenue's appeal regarding deemed income taxability under Income-tax Act, 1961 for AY 2014-15; Interpretation of Section 115BBE applicability for set off of loss against deemed income; Applicability of amendments made by Finance Bill 2016; CBDT circular clarification regarding set off of loss against income determined under Section 115BBE till AY 2016-17.

Analysis:
The appeal before the High Court was against the order of the Income-tax Appellate Tribunal (ITAT) which had dismissed the Revenue's appeal regarding the taxability of deemed income under the Income-tax Act, 1961 for the Assessment Year 2014-15. The Commissioner of Income-tax (Appeals) had held that the deemed income of the assessee is chargeable to tax under the head 'Income from Other Sources' and allowed set off of current year business loss and brought forward business loss against it. The CIT(A) rejected the assessee's contention that the sums are taxable as income from business or profession and held that the amendment made by Finance Bill 2016 to the provisions of Section 115BBE cannot be applied retrospectively.

The appellant contended that the ITAT erred in holding that the provisions of Section 115BBE providing no set off of loss against deemed income are not applicable to AY 2014-15, and allowing set off of loss to the assessee was unjustified. On the other hand, the respondent's counsel argued that the amended provisions of Section 115BBE cannot be applied to AY 2014-15 and are applicable only from AY 2017-18 onwards. The CBDT's circular clarified that the term 'set off any loss' inserted by Finance Act, 2016 from 1.4.17 allows an assessee to claim set off of loss against income under Section 115BBE till AY 2016-17.

The High Court considered the submissions and the material on record. It observed that the provisions of Section 115BBE, as they existed before the amendment, did not disallow set off of losses against the income referred to in the section. The amendment was made to dispel uncertainty and cannot be applied retrospectively. The CBDT's circular further confirmed that an assessee can claim set off of loss against income determined under Section 115BBE till AY 2016-17. The Court held that the Revenue's contention regarding disallowance of set off of loss cannot be accepted.

No other grounds were pressed by the appellant before the Court. Consequently, the appeal preferred by the Revenue was dismissed, and no order as to costs was given.

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