The Commissioner Of Income Tax – 3, …Appellantmumbai v. Galiakot Containers Pvt. Ltd. Mumbai

Digitally signedJITENDRAby JITENDRASHANKARSHANKARNIJASURENIJASUREDate: 2021.09.2117:12:33 +0530 351-itxa-1349-2008.doc jsn IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO. 1349 OF 2008 The Commissioner of Income Tax – 3, …AppellantMumbai Versus Galiakot Containers Pvt. Ltd. Mumbai …Respondents ---------- Mr. Sham V. Walve, with Mr. Pritish Chatterjee for Appellant.Ms. Arati Vissanji for Respondents. ---------- CORAM :K.R. SHRIRAM & R.I. CHAGLA, JJ. DATE : 13 SEPTEMBER, 2021. ORDER : 1.This is an Appeal under Section 260 A of the Income TaxAct, 1961 (“the Act”) filed by the Revenue impugning an order dated14th May, 2008 passed by the Income Tax Appellate Tribunal for AY2002-03. Respondents had filed return of income declaring totalincome under Minimum Alternate Tax (MAT) at Rs.17,88,797/-. Thereturn was processed under Section 143 (1) on 8th April, 2004accepting the return of income. The case was reopened on 13th June,2005 after recording reasons for re-opening that the assessee had setoff unabsorbed business loss against capital gain. Assessee vide its 351-itxa-1349-2008.doc letter dated 30th June, 2005 had objected to the reopening. Finallyafter granting a personal hearing and hearing the assessee theAssessment Officer has passed an order dated 7th December, 2006disallowing the set off against short term capital gains by assessee ofthe earlier years’ unabsorbed depreciation and carry forward abusiness loss against capital gain. The assessee had sold block ofassets, i.e., buildings / development, factory building, and plant andmachinery and had shown short term capital gain ofRs.1,55,63,915/-. The assessee also sold immovable property, i.e.,land and the long term capital gain shown is Rs.72,70,784/-. Whilecomputing the total income assessee had set off the earlier yearsunabsorbed depreciation and carry forward of business loss againstthis capital gain. The Assessment Officer had allowed set off ofunabsorted depreciation against short term capital gain as anadmissible adjustment but disallowed set off of carry forward ofbusiness loss against either short term capital gain or long termcapital gain. 2.Aggrieved by this order of the Assessment Officer,Respondents preferred an appeal under Section 246 A (1) (B) of theAct before the CIT (Appeals). CIT (Appeals) passed an order dated 351-itxa-1349-2008.doc 26th November, 2007 dismissing the appeal. According to CIT(Appeals) the capital gains cannot be set off only against the businessincome in view of the provisions of Section 72 and the capital gainsby selling fixed assets cannot be part of business income. Against thisorder, Respondents filed an appeal before ITAT (“Tribunal”), wheretwo questions of law were framed. We are only concerned with thesecond question since, the Tribunal answered the first question infavour of revenue and assessee has not challenged that finding. Thesecond question was:- 2. On the facts and in the circumstances of the case,and in law, the learned CIT(A) erred in confirmingthe learned Assessing Officer’s action of notallowing set off under Section 72(1) of theunabsorbed brought forward business loss againstthe deemed short term capital gain assessed underSection 50 in so far as such gain represented therecoupment of depreciation allowed in the past,and, therefore, its true nature and character wasthat of the business income, notwithstanding itsassessment under a different head on deemingbasis. Your appellant, therefore, prays that the setoff of brought forward business loss be allowedagainst the deemed short term capital gain assessedunder Section 50. The Tribunal decided this question in favour of assessee because what was sold by assessee was a business asset. The answer of ITAT to the second question is challenged by therevenue in this appeal. 3. The Appeal came to be admitted on 28th January, 2009on the question No. (A), which reads as follows:- The Tribunal decided this question in favour of assessee because what was sold by assessee was a business asset. The answer of ITAT to the second question is challenged by therevenue in this appeal. 3. The Appeal came to be admitted on 28th January, 2009on the question No. (A), which reads as follows:- (A) Whether on the facts and in the circumstance of thecase and in law the Hon’ble Tribunal was justified inallowing the set-off of brought forward business loss u/s.72(1) of the Income-tax Act, 1961 against the deemedshort-term capital gain assessed u/s.50 of the Income-taxAct, 1961? 4. Section 72 sub section 1 of the Act reads as under:- “72(1) Where for any assessment year, the netresult of the computation under the head “Profitsand gains of business or profession “ is a loss tothe assessee, not being a loss sustained in aspeculation business, and such loss cannot be or isnot wholly set off against income under any headof income in accordance with the provisions ofsection 71, so much of the loss as has not been soset off or, where he has no income under any otherhead, the whole loss shall, subject to the otherprovisions of this Chapter, be carried forward tothe following assessment year, and – (i) it shall be set off against the profits and gains,if any, of any business or profession carried on byhim and assessable for that assessment year; 351-itxa-1349-2008.doc (ii) if the loss cannot be wholly so set off, theamount of loss not so set off shall be carriedforward to the following assessment year and soon: Provided …..” Sub section (1) of Section 72, therefore provides thatwhere for any assessment year, the net result of the computationunder the head “profits and gains of business or profession” is aloss to the assessee, it shall be set off against the profits and gains,if any, of any business or profession carried on by him andassessable for that assessment year. Section 72(1) of the Actemploys the expression “computation under the head profits andgains of business or profession”, whereas, Section 72(1) (i) doesnot use the said expression but it says “against profits and gains, ifany of any business or profession”. Therefore, what is required tobe seen is whether profits and gains against which the loss issought to be set off was part of the business activity of theassessee or business asset of the assessee. Admittedly, in this casethe assessee had sold block of assets, i.e., buildings /development, factory building, plant and machinery and hadshown short term capital gain of Rs.1,55,63,915/- plus long termcapital gain of Rs.72,70,984/- by sale of immovable property. The 351-itxa-1349-2008.doc assessee was in the business of manufacturing metal containersand the computations of gain was under a different headnevertheless the profit or gain on sale of depreciable assets toextent of recoupment of depreciation is nothing but businessincome in substance. The assessee is entitled to set off broughtforward loss against income which has the attributes of businessincome even though the same is assessible to tax under headother than profit and gain from business. We find support for thisview from Principal Commissioner of Income Tax Vs. AlconDevelopers1 and Nandi Steels Ltd. Vs. Assistant Commissioner of2Income Tax, Circle -12(2), Bangalore. 5.Therefore, in our view the Tribunal was correct inanswering the question in favour of assessee and against theAppellant. The substantial question of law is answered accordingly. 6. Appeal disposed. [R.I. CHAGLA J.] [K.R. SHRIRAM, J.] 1(2021) 432 ITR 277 (Bom) 2(2021) 128 taxmann.com 267 (Karnataka)