1987 (9) TMI 113 - AT - Income Tax

Tribunal Upholds Business Loss Carry Forward for Assessee

The Tribunal ruled in favor of the assessee in a case concerning the assessment year 1982-83 under the Income-tax Act. The dispute centered on the carry ... Losses, Carry Forward And Set Off Of Business Loss Issues:1. Assessment of business income and carry forward of losses for the assessment year 1982-83.2. Interpretation of provisions under sec. 72(1) of the Income-tax Act regarding carry forward of business losses.3. Determination of continuity in the business activity for the purpose of setting off losses.Analysis:1. The appeal pertains to the assessment year 1982-83 challenging the order passed by the CIT under sec. 263 of the Income-tax Act. The dispute revolves around the computation of business income and the carry forward of losses by the assessee. The CIT contended that the business losses from earlier years could not be set off against the income for the current year as the nature of business had changed. The ITO allowed the carry forward of losses, but the CIT disagreed, leading to the appeal.2. The Commissioner argued that the business losses claimed by the assessee were related to a contract business of construction of buildings, which was discontinued in the assessment year 1982-83. The Commissioner relied on sec. 72(1)(i) to assert that since the original business activity had ceased, the losses could not be carried forward. The Commissioner directed the disallowance of the set off of losses from previous years.3. The assessee contended that the business conducted in the current year was similar to the earlier years, involving construction work on a contract basis. The assessee provided a detailed list of construction projects undertaken over several years, emphasizing the continuity in the nature of the business. The assessee argued that even though the current year's work was for a project initiated by the spouse, it still constituted the same business activity.4. The Tribunal examined the agreement between the assessee and her spouse for construction work and concluded that the business activity continued uninterrupted. The agreement outlined the terms for construction supervision, indicating that the assessee was engaged in contract work for building construction. The Tribunal highlighted that the reimbursement of expenses by the spouse did not alter the fundamental nature of the business as contract-based construction. The Tribunal rejected the notion that the business had changed or ceased, affirming that the income derived was from the same business as in previous years.5. The Tribunal clarified that the fixed amount received by the assessee, termed as 'supervision charges,' was essentially profit from the contract business. Despite the reimbursement of expenses and the nature of payment, the Tribunal determined that the business essence remained consistent. The Tribunal differentiated between agency work and contract business, asserting that the assessee continued to operate in the same domain of construction contracts. Consequently, the Tribunal set aside the CIT's order and upheld the ITO's assessment, allowing the appeal in favor of the assessee.