2017 (3) TMI 274 - HC - Income Tax

Tribunal grants relief to assessee on carry forward business losses vs. capital gains, depreciation set off

Commissioner of Income Tax-5 Versus M/s. Hickson & Dadajee Pvt. Ltd.

The Tribunal allowed the respondent assessee's appeal concerning the set off of brought forward business losses against deemed short term capital gains ... Set off of brought forward business loss against deemed short term capital gains arising from sale of building and plant and machinery - Held that:- Tribunal correctly allowed the appeal of the assessee following the decision in Digital Electronics Ltd. v/s. Additional Commissioner of Income Tax [2010 (10) TMI 722 - ITAT, Mumbai] wherein held that under Section 72 of the Act, the loss under the head 'profits and gains of business or profession' can be carried forward and the same can be set off against profits of any business or profession. It is not the requirement of Section 72 of the Act that such gain or profit must be taxable under the head 'profit and gains of business or profession'. Thus carry forward business loss was set off against short term capital gains on sale of building. Set of brought forward unabsorbed depreciation - depreciation available to the assessee on the first day of April 2002 for the Assessment Year 2002-03 without the restriction of 8 years carry forward which was during the Assessment Years 1997-98 to 2001-02 allowed by ITAT - Held that:- Restriction of eight years as existing between Assessment Year 1997-98 upto 2001-02 to carry forward and set off the unabsorbed depreciation has been dispensed with effect from Assessment Year 2002-03. Consequently the unabsorbed depreciation as available on 1st April, 2001 will be allowable from the Assessment Year 200203 onwards. In the above view, as the issue stands concluded in favour of the respondent assessee by the decision of this Court in Hindustan Unilever Ltd. (2016 (7) TMI 1245 - BOMBAY HIGH COURT). Issues:1. Set off of brought forward business loss against deemed short term capital gains.2. Set off of brought forward unabsorbed depreciation without the restriction of 8 years carry forward.Analysis:Issue 1: Set off of brought forward business loss against deemed short term capital gainsThe Tribunal allowed the appeal of the respondent assessee regarding the set off of brought forward business losses against deemed short term capital gains arising from the sale of building, plant, and machinery. This decision was based on the interpretation of Section 72 of the Income Tax Act, which allows the carry forward of losses under the head 'profits and gains of business or profession' to be set off against profits of any business or profession, without the requirement that such gains or profits must be taxable under the same head. The Tribunal relied on the decision in Digital Electronics Ltd. v/s. Additional Commissioner of Income Tax 49 SOT 65 to support this interpretation. The Revenue accepted the decision in Digital Electronics Ltd., and no distinguishing features were presented to justify a different view. Consequently, the question of law regarding this issue was not entertained, and the appeal was dismissed.Issue 2: Set off of brought forward unabsorbed depreciation without the restriction of 8 years carry forwardThe impugned order allowed the respondent assessee's appeal on this issue by following the decision of the Gujarat High Court in General Motors India (P.) Ltd. v/s. Dy. CIT 354 ITR 244. The Court also considered the decision in CIT v/s. Hindustan Unilever Ltd. (2016) 72 taxman.com 325, where the Tribunal's view, based on the Gujarat High Court decision, was upheld. The Circular no.14 of 2001 dated 22nd November, 2001 clarified that the restriction of eight years for carrying forward and setting off unabsorbed depreciation was dispensed with effect from Assessment Year 2002-03. Therefore, the unabsorbed depreciation available on 1st April, 2001 would be allowable from the Assessment Year 2002-03 onwards. As the issue was already decided in favor of the respondent assessee by the decision in Hindustan Unilever Ltd., the question of law proposed did not arise, and thus was not entertained. The appeal was ultimately dismissed with no order as to costs.