Section 72 — Income earned by the assessee in the
relevant year on sale of factory building, plant and machinery, although
not taxable as profits and gains of business or profession, is an
income in the nature of income of business though assessed as capital
gains u/s.50 and, therefore, assessee is entitled to set-off of brought
forward business losses against the said capital gains.
Facts: For
the relevant assessment year, the assessee set off brought forward
business loss against shortterm capital gains arising on sale of factory
building and plant and machinery assessable u/s.50. The AO declined to
accept the assessee’s claim. The CIT(A) upheld the stand of the AO.
Held: The
Tribunal, relying on the decision of the Supreme Court in the case of
CIT v. Cocanada Radhaswami Bank Ltd., (1965) 57 ITR 306 (SC), upheld the
assessee’s claim. The Tribunal noted as under:
1. Section 72
provides that where, for any assessment year, the net result of the
computation under the head ‘Profits and gains of business or profession’
is a loss to the assessee, not being a loss sustained in a speculation
business, and such loss cannot be or is not wholly set off against
income under any head of income in accordance with the provisions of
section 71, so much of the loss as has not been so set off is to be
carried forward to the following assessment year and is allowable for
being set off ‘against the profits, if any, of that business or
profession carried on by him and assessable for that assessment year’.
2.
Therefore, for setting off the income, while the loss to be carried
forward has to be under the head ‘Profits and gains of business or
profession,’ the gains against which such loss can be set off, has to be
profits of ‘any business or profession carried on by him and assessable
in that assessment year’.
3. In other words, there is no
requirement of the gains being taxable under the head ‘Profits and gains
of business or profession’ and thus, as long as gains are ‘of any
business or profession carried on by the assessee and assessable to tax
for that assessment year’ the same can be set off against loss under the
head profits and gains of business or profession carried forward from
earlier years. The income earned in the relevant year, although not
taxable as ‘profits and gains from business or profession’, was an
income in the nature of income of business nevertheless.
4. The
assessee was, therefore, justified in claiming the set-off of business
losses against the income of capital gains assessable u/s.50.
