2002 (8) TMI 31 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the business loss brought forward from earlier years should be set off towards the dividend income? - The adjustment of the carried forward loss under the 1922 Act as also under the 1961 Act is against the profits and gains of business or profession. Neither Act while referring to that adjustment refers to the heads of income. - the amount of dividend would form part of the income from the business of the assessee if the shares were a part of the assessee s trading asset even when the dividend received on those shares had been computed as being part of the assessee s income under the head Other sources . - business loss carried forward from earlier years can be set off against the dividend income derived from the shares held as stockin-trade . - The question referred to us is answered in favour of the assessee and against the Revenue.

Summary

Issues:
1. Whether carried forward business losses can be set off against dividend income derived from shares held as stock-in-trade.

Analysis:
The judgment pertains to the assessment years 1980-81 and 1981-82 and revolves around the question of setting off carried forward business losses against dividend income. Initially, the Assessing Officer and the appellate authority rejected the assessee's claim to set off losses against dividend income derived from shares held as stock-in-trade. However, the Tribunal ruled in favor of the assessee, allowing the set off of losses from previous years against dividend income.

The crux of the issue lies in the interpretation of relevant sections of the Income-tax Acts of 1922 and 1961. Section 24(2) of the 1922 Act allows for the carry forward of losses to subsequent years and their set off against profits and gains of business or profession. Similarly, Section 72(1) of the 1961 Act permits the carry forward of losses to be set off against profits and gains of business or profession in later assessment years.

The judgment references the case of Western States Trading Co. P. Ltd. [1971] 80 ITR 21, where the Supreme Court held that dividend income from shares held as trading assets can be set off against business losses. The court emphasized that the adjustment of carried forward losses is against profits and gains of business or profession, irrespective of the heads of income. Therefore, the dividend income should be considered part of the business income if the shares are part of the trading assets.

In conclusion, the High Court held in favor of the assessee, stating that business losses carried forward from earlier years can indeed be set off against dividend income derived from shares held as stock-in-trade. The judgment aligns with the principles established by the Supreme Court and the provisions of the Income-tax Acts.