1987 (12) TMI 64 - AT - Income Tax

Tax Tribunal Upholds Mandatory Set-Off of Income Against Business Loss; No Carry Forward of Exemptions Allowed.

The assessee's appeal was dismissed by the Tribunal and CIT (Appeals), concluding that Sections 84 and 85 of the Income-tax Act did not permit the carry ... Deduction, Dividend From New Industrial Undertaking, Loss Issues Involved:1. Incorrect assessment of dividend income under Section 85.2. Deduction under Section 80M.3. Carry forward of losses and reliefs.4. Set-off of income against business loss under Section 71.5. Determination of loss in the year under consideration.Detailed Analysis:1. Incorrect Assessment of Dividend Income under Section 85:The assessee, a private limited company, claimed that the dividend income of Rs. 4,15,522 received from M/s. Devidayal Tube Industries Ltd., a new industrial undertaking, was exempt under Section 85 read with Section 84 of the Income-tax Act, 1961. The ITO included this dividend income in the total income and adjusted it against the business loss, which was challenged by the assessee. The CIT (Appeals) and the Tribunal both examined the claim. The Tribunal noted that the assessee had not raised the issue of non-set-off of dividend income against business loss before the lower authorities. The Tribunal ultimately refused to address this issue in an appeal against the order under Section 154, and the CIT (Appeals) concluded that the provisions of Sections 84 and 85 did not allow for the carry forward of such exemptions.2. Deduction under Section 80M:The ITO initially referred to Section 80M, which was not applicable to the relevant assessment year. The exemption claimed was actually under Section 85. The CIT (Appeals) directed the ITO to recompute the relief under Section 80M based on the Supreme Court's decision in Cloth Traders. However, the ITO found that the deduction under Section 80M was not adjustable due to the net loss of Rs. 6,08,257 after giving effect to the appellate order. The IAC also concluded that the assessee was not entitled to the benefit of this deduction due to the set-off of business loss against dividend income and the absence of any provision for the carry forward of such deficiency under Section 85.3. Carry Forward of Losses and Reliefs:The assessee contended that the losses and reliefs amounting to Rs. 20,56,666, including the relief under Section 80M of Rs. 2,49,312, were not allowed to be carried forward. The CIT (Appeals) held that Sections 84 and 85 did not provide for any deduction from the total income but rather a rebate from tax liability, which could only be availed if there was positive income. The Tribunal restored the matter to the file of the CIT (A) to examine the assessee's contentions on merits regarding the carry forward of loss, depreciation, etc.4. Set-off of Income against Business Loss under Section 71:The Tribunal observed that the assessee had not claimed before the lower authorities that the dividend income should not be set off against business loss. The Tribunal declined to go into this issue in the appeal against the order under Section 154. The CIT (Appeals) and the Tribunal both noted that Section 71(1) provided for the set-off of a positive income against the loss suffered, and no option was available to the assessee to compel the ITO not to adjust income under one head against loss under another.5. Determination of Loss in the Year under Consideration:The Tribunal accepted the assessee's contention that the question of carry forward of loss, depreciation, etc., should be determined in the year under consideration and not in a subsequent assessment year. The CIT (Appeals) concluded that there was no provision for the carry forward of the deficiency under Section 84, and the assessee's claim for such carry forward was rightly rejected by the ITO. The Tribunal upheld this finding, noting that the scheme of Sections 84 and 85 provided for a rebate from tax liability, which could only be availed if there was a tax liability. The Tribunal emphasized that the provisions of Section 71(1) did not confer any option to the assessee to avoid the set-off of income against business loss.Conclusion:The assessee's appeal was dismissed, with the Tribunal and CIT (Appeals) both concluding that the provisions of Sections 84 and 85 did not allow for the carry forward of exemptions or deductions in the absence of positive income or tax liability. The set-off of income against business loss under Section 71 was mandatory, and no option was available to the assessee to avoid such set-off. The determination of loss, depreciation, etc., was to be done in the year under consideration, and the assessee's claim for carry forward of deficiency under Section 84 was rightly rejected.