1993 (9) TMI 28 - HC - Income Tax

Business Loss, Capital Gains, Carry Forward And Set Off, Income Tax Act, Unabsorbed Depreciation

Summary

Issues:
1. Set off of unabsorbed depreciation against income from other sources.
2. Set off of business loss against long-term capital gains.
3. Determination of whether the assessee carried on business during the relevant year.
4. Adjustment of unabsorbed depreciation against income from other sources despite ceasing business activity.

Analysis:

Issue 1: Set off of unabsorbed depreciation against income from other sources
The case involved the question of whether unabsorbed depreciation from earlier years could be adjusted against the assessee's income from other sources. The High Court referred to relevant statutory provisions and prior case law to conclude that unabsorbed depreciation should be allowed to be carried forward and set off against assessable income of subsequent years. The court held that the assessee was entitled to adjust unabsorbed depreciation against income from other sources, even if the business for which it arose had ceased to exist.

Issue 2: Set off of business loss against long-term capital gains
The court examined whether the assessee was entitled to set off business loss against long-term capital gains. Referring to section 71(2) of the Income-tax Act, the court determined that the assessee could set off such losses against income assessable under the head "Capital gains." The court held that as the assessee carried on business during the relevant year, it was entitled to set off the business loss against its other income, including long-term capital gains.

Issue 3: Determination of whether the assessee carried on business
The court considered whether the assessee carried on business during the relevant year to ascertain the eligibility for set off of business losses. Both the Appellate Assistant Commissioner and the Tribunal concluded that the assessee did carry on business in the year of account. The court relied on this finding to determine that the assessee was indeed engaged in business activities during the relevant period.

Issue 4: Adjustment of unabsorbed depreciation despite ceasing business activity
The court addressed the issue of adjusting unabsorbed depreciation against income from other sources, even though the business for which it originated had ceased to exist. Citing prior case law and statutory provisions, the court held that the assessee was entitled to adjust unabsorbed depreciation against income from other sources, irrespective of the cessation of the business activity.

In conclusion, the High Court answered all questions in favor of the assessee and against the Revenue, thereby disposing of the reference with no order as to costs.