2011 (5) TMI 354 - AT - Income Tax

Carry forward and set off of loss - Whether the provision of section 72 and 32(2) are attracted on income form syndication charges / financial consultancy - The main contention of the department herein is that the assessee s business of manufacturing of TV sets was not carried on by the assessee and it was closed in the assessment year under consideration - AO has treated the income from syndication charges as income from other sources and declined the benefit of set off of losses - Held that - in order to constitute same business, it is not necessary, as is the view of the Hon ble Supreme Court in CIT v. Prithvi Insurance Co. Ltd. (1966 -TMI - 39923 - SUPREME Court), that the nature of two businesses has to be identical. - In effect, there can be a diverse nature of activities and yet these activities may constitute same business when there is a common management of these business activities, unity of organisation, common employees, common administration, a common fund and a common place of business. - lower authorities were not justified in declining set off of business loss incurred by the assessee out of the income earned from in syndication charges - Decided in favor of assessee.

Issues Involved:
1. Proper opportunity to the assessee.
2. Continuation of the production of electronic goods.
3. Classification of syndication charges.
4. Applicability of sections 72 and 32(2) regarding syndication charges.
5. Determination of total income.

Issue-wise Detailed Analysis:

1. Proper Opportunity to the Assessee:
The assessee contended that the CIT(A) erred in confirming the assessment made under section 143(3) without providing a proper opportunity. However, the judgment does not provide a detailed analysis on this issue, focusing more on the substantive issues related to the nature of income and business continuity.

2. Continuation of the Production of Electronic Goods:
The CIT(A) held that the production of electronic goods by the assessee had ceased. The assessee argued that the business had not closed and provided evidence of ongoing activities, including letters and quotations related to electronic goods. The Tribunal noted that the mere suspension of manufacturing activities due to lack of orders did not equate to a closure of business. The Tribunal emphasized that the business must be deemed to be continuing if there is no material to show complete abandonment or closure.

3. Classification of Syndication Charges:
The CIT(A) classified syndication charges as 'income from other sources,' not business income. The Tribunal disagreed, stating that the syndication income should be considered as business income. The Tribunal referenced the Special Resolution allowing the assessee to carry on financial consultancy services, which included syndication income as part of its business activities.

4. Applicability of Sections 72 and 32(2):
The CIT(A) held that sections 72 and 32(2) were not applicable to syndication charges. The Tribunal found that the business, including financial consultancy services, was composite and ongoing. Therefore, the business losses from previous years could be set off against the syndication income. The Tribunal emphasized that the business in which the loss was incurred must continue to exist, which was the case here.

5. Determination of Total Income:
The Assessing Officer determined the total income at Rs. 15,13,650, rejecting the set-off of losses from the TV manufacturing business against syndication income. The Tribunal found this approach incorrect, stating that the business was composite and ongoing. The Tribunal allowed the set-off of previous losses against the syndication income, thereby reducing the total income.

Conclusion:
The Tribunal allowed the appeal of the assessee, concluding that the business of manufacturing electronic goods and financial consultancy services was composite and ongoing. The syndication income was classified as business income, and previous business losses were allowed to be set off against this income. The Tribunal emphasized the continuity of business and the composite nature of activities, aligning with the legal precedents cited.

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