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Issues involved: Dispute regarding setting off of brought forward business loss and unabsorbed depreciation against short term capital gain u/s 50 of the Income Tax Act.
Summary: Issue 1: Setting off of brought forward business loss and unabsorbed depreciation against short term capital gain The appeal by the revenue was against the order of CIT(A) for the assessment year 2006-07, specifically concerning the setting off of brought forward business loss and unabsorbed depreciation against short term capital gain u/s 50 of the Income Tax Act. The assessee had business income set off against brought forward business loss and unabsorbed depreciation, resulting in a net business loss for the year. The AO disallowed the claim, but CIT(A) referred to relevant case law and allowed the set off. The dispute was whether the short term capital gain should be treated as business income for the purpose of set off. The Tribunal, following precedent, held that the nature of gain from the sale of depreciable assets deemed as short term capital gain under section 50 should be considered as business income, allowing the set off of unabsorbed depreciation and business loss against it. Issue 2: Interpretation of legal provisions The Tribunal examined the nature of income of deemed short term capital gain under section 50 of the IT Act. Referring to relevant case law, it was established that gain arising from the sale of depreciable assets, though taxed as short term capital gain, should be treated as part of business income. The Tribunal held that unabsorbed depreciation and business loss should be set off against short term capital gain arising from depreciable assets. The decision of a Special Bench of the Tribunal on a different issue did not conflict with this interpretation, as it related to the application of provisions for different assessment years. In this case, the set off was considered against business income, aligning with the Tribunal's decision. Result: The appeal of the revenue was dismissed, and the set off of brought forward business loss and unabsorbed depreciation against short term capital gain was allowed based on the nature of the income from the sale of depreciable assets.
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