TaxTMI 
TaxTMI 
2011 (5) TMI 354
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.... the syndication charges do not represent income from the business activity of the assessee herein and further erred in holding that the said income is to be added separately. The CIT(A) ought to have appreciated the fact that such income is a part and parcel of one business activity. 5. The CIT(A) erred in holding that the provisions of section 72 and section 32(2) are not applicable with regard to the income derived from the syndication charges. 6. The CIT(A) erred in confirming the assessment made by the Assessing Officer determining the total income at Rs. 15,13,650 as against the loss admitted of Rs. 2,48,534. 3. Brief facts of the case are that the assessee filed return of income admitting a loss of Rs. 2,48,534 on 30-11-1998. The assessee was in the business of manufacture and sale of TVs which had stopped in April, 1995. During the current year the company admitted income of Rs. 16,17,154 under the head 'income from other sources' which includes Rs. 12,06,778 being syndication charges received and Rs. 4,10,370 being waiver of interest by the bank. From the total income of Rs. 16,17,154 the assessee reduced an amount of Rs. 1,05,263 on account of decrease in value o....
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....file of the CIT(A) with the following observations: "20. However, since the CIT(A), as stated above has not adjudicated the grounds raised by the (sic) in the appeal before him, we are of the view that in the interests of justice, the matter should go back to the file of the CIT(A) and accordingly we set aside the ground of the CIT(A) on this account and restore the matter to the file of the CIT(A), who shall decide the same, including the grounds raised by the assessee before us, afresh in accordance with law after providing reasonable opportunity of being heard to the assessee. Accordingly, the grounds No. 1,2,4, and 6 taken by the assessee before us are partly allowed for statistical purposes." 5. Consequently, the CIT(A) passed the impugned order holding that there is absolutely no commonality between the syndication income shown by the assessee and the closed down business of TV manufacture. With regard to the closed down business, the staff have been retrenched, the machines were lying idle and there was absolutely no activity going on, whatsoever. On the other hand, after two years of closing down of business the assessee suddenly states that it had helped the APSEB to....
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....s which to prove the existence of assessee business during the assessment year : 1. Letter from Electronics Trade and Technology Development Corporation Ltd. (Govt. Enterprises) dated 28-12-1999 (PB 7-9) 2. Letter dated 6-1-2000 from Chief Manager, ET&T, Secunderabad for appointment of the assessee as authorised service centre. (PB 10) 3. Quotation dated 4-1-2000 for supply of Colour and Black & White TVs for Anganwadi Centres/Model Anganwadi Centres addressed to Shri M.G. Sreenivas, IAS, Project Coordinator World Bank, ICDS Project, Vengalrao Nagar, Hyderabad, (PB 11 & 12) 4. Confirmation letters of the parties regarding the servicing and repair work carried out by the assessee. (PB 13-16). 8. Further, he submitted that the business of the assessee was not closed during the assessment year under consideration. There was a lull in the business activities of the assessee as the assessee could not receive orders from Government for supply of TVs in the recent past. Even now the assessee is capable of manufacturing the electronics good. The assessee was mostly catering to the needs of the Govern....
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....ous Government Agencies. Therefore, it is keeping the premises in its possession with all the equipments. However, the assessee could not obtain orders from the Government agencies for supply of TV sets. Therefore, it did not manufacture any TV sets during the previous year. It cannot, therefore, be said that the business of electronic goods is closed. 11. He submitted that the Assessing Officer wrongly mentioned about the retrenchment of the workers. In this respect, he submitted that as the company did not obtain Government Orders for supply of TVs, the workers were retrenched. They can be appointed; the moment Government places orders for supply of TV sets. The management was of the view that the workers can also be engaged on piece work basis particularly in view of the uncertainty of the orders from Government. However, there is one employee who can attend to the repair work. The MD himself is qualified engineer and can participate in the manufacturing activity and the activity of repairs and replacements. Therefore, the retrenchment of workers cannot lead to the conclusion that the assessee closed its business activity. This fact may be appreciated that no prudent business....
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.... by commission agents on behalf of their constituents and recover the same from the latter in due course and such payments were necessary for the purpose of carrying on commission agency business. Hence, the loss suffered by the assessee on account of such payments could not be said to be in the course of speculative business, but was a loss arising from commission agency business. Further, the assessee was maintaining one set of account books for both commission agency and money lending business. There was interlacing and intermingling of funds and one activity could not be separated from the other. Therefore, the assessee was entitled to a deduction of the aforesaid loss from its business income during the assessment year 1962-63, notwithstanding stoppage of commission agency business during the relevant year. 15. He submitted that the evidence produced by the assessee clearly shows that the assessee has carried on its business activities during the assessment year under consideration. The income earned by the assessee by way of collecting syndication charges is a business activities and loss of earlier year to be set off against its income. 16. On the other hand, the learn....
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....987] 165 ITR 631 (Cal.) wherein held that the assessee had not challenged the finding of the Tribunal that the income from letting out the godowns was income from house property and that finding had become final. The direction of the Tribunal allowing the assessee to set off its carried over business losses against rental income from the godown was erroneous. The assessee was not entitled to set off business losses carried forward from earlier years against rental income from the godowns for the assessment year 1971-72. 6. Malabar Agricultural Co. Ltd. v. CIT [1998] 229 ITR 548 (Ker) wherein held that the factual position was clear that there was no business activity of any kind during the year in question. Hence, the losses carried forward from the earlier years and unabsorbed depreciation from the business of growing and manufacturing tea could not be set off against the income of the current previous year. 17. We have heard both the parties and perused the materials available on record. We have also carefully gone through the case law cited by the rival parties. The main contention of the department herein is that the assessee's business of manufacturing....
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....s nothing on record to show that he completely abandoned or closed the business forever. On the other hand, his books of account revealed that he was meeting the establishment charges and interest payment as detailed in the accounts in the year of account,' that the loss in areca nut business, in which admittedly no activity was carried out during the relevant previous year, was to be set off against the assessee's business income in the year, as the business must be deemed to be continuing. In the light of this legal position, it would follow that unless there is some material on record to show that the assessee has completely abandoned the TV manufacturing activity, even if that can be treated as distinct business by itself, merely because no manufacturing of TV sets in the relevant previous year cannot be reason enough to come to conclusion that the losses incurred by the assessee in that business in the earlier years are not entitled to be set off against the assessee's income from syndication charges in the assessment year under consideration. Further, the assessee has sold the TV sets on 3 years warranty and it is duty bound to carry on repairs during the period of warranty f....
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....is carried forward is of course much narrower an issue. However, the restriction placed by the proviso to section 72(1)(i), lays down the condition that the business in which loss was actually incurred must be continued to be carried on by the assessee in the relevant previous year also. In effect, whether the loss brought forward is set off against the assessee's income from the same business or any other business, the only material condition is that the business in which the loss was actually incurred must not have been closed down. The law requires that in order to set off the past losses, the business where loss was suffered legal connotations from the expression 'business', must be continued by the assessee but it is sufficient that the business, in which the loss was incurred, should continue to have existence in order to claim the set off. The assessee's activities in the earlier years admittedly that of manufacturing TV sets. Later, due to lull in this line of business, the assessee was not able to procure orders for TV sets. However, the assessee has continued to maintain raw materials and consumables to carry on the repair work of TV sets. In mean time, assessee has ma....
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....y to this finding, it follows that the business carried on by the assessee was a composite business and since some activities of this composite business were beyond dispute, carried out in the relevant previous year, the Assessing Officer indeed in error in holding that the business in which losses were incurred in earlier years was not in existence in the relevant previous year. We may also mention that the Hon'ble Calcutta High Court in the case of CIT v. Produce Exchange Corpn. Ltd. [1963] 50 ITR 308 held, that the "essential matter to be considered in determining whether the two business carried on by the assessee constitute the same business, is about the nature of the two business, the manner in which they are conducted being a secondary consideration". They observed that unity of control or management, the employment of the same or common finance, the user of the same business premises and the record of the transactions in the same set of books of account are matters to be considered only when it is found that the two businesses are of the same nature. However, in appeal, this judgment was reversed by the Hon'ble Supreme Court in the case of Produce Exchange Corpn. Ltd. (sup....