2010 (11) TMI 764 - AT - Income Tax

Set off of losses - Whether the assessing officer should have allowed the set off of losses from 10A unit as against the income assessable as business income from other units - Held that - Since, the project management services performed by the assessee s UK Branch, were services performed in connection with the back office and call center services and therefore the same are fundamental to and form an integral part of the business of the assessee company hence, the income earned by UK Branch is earned from its business operations and as such should be treated as business income and not as income from other sources - as find that electricity rebate is directly connected with the industrial unit and accordingly, the same should be characterized as income from business - Considering the totality of facts and the circumstances of the case, both the incomes are to be considered under the head business income and there is no valid reason to the assessing officer for taxing the same under the head income from other sources - It is pertinent to note that the eligibility for deduction under section 10A of the Act is nothing to do with the taxation of income under the head income from business - Even if the income is not eligible for deduction under section 10A of the Act, it can still be taxed as business income - Thus, agree with the findings of the CIT (A) on the issue that business loss of 10A units should be set off against the business profits of non 10A units - Decided in favour of assessee.

Summary

Issues:
1. Whether income from project management services and electricity rebate should be treated as income from other sources or as income from business?
2. Whether losses from 10A unit can be set off against income assessable as "business income from other units"?

Analysis:

Issue 1:
The appeal questioned the treatment of income from project management services and electricity rebate as income from other sources instead of business income. The assessing officer reopened the assessment due to inclusion of these incomes in the deduction under section 10A. The appellant argued that these incomes were fundamental to the business operations and should be classified as business income. The CIT (A) allowed the appeal, emphasizing that the project management services and electricity rebate were directly connected to the business activities. The Tribunal concurred, citing precedents and held that both incomes should be considered as business income, not income from other sources. The eligibility for deduction under section 10A does not impact the taxation of income under the head 'income from business'.

Issue 2:
Regarding the set off of losses from the 10A unit against business profits of other units, the revenue contended that the loss of the exempted unit could not be set off against non-exempted business income. However, the appellant argued for the set off, supported by case law. The Tribunal agreed with the CIT (A) and the appellant, stating that the business loss of 10A units should be adjusted against the business profits of non-10A units. The Tribunal upheld the decision, emphasizing that the set off was permissible based on the circumstances and legal provisions.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT (A)'s decision on both issues. The judgment highlighted the interconnectedness of income with business activities and the permissibility of setting off losses against business profits under specific circumstances, as supported by legal precedents and provisions.