2013 (2) TMI 212 - HC - Income Tax

Re computation of income - first sett-off the carry forward speculative losses against the speculative profit and then set-off the business losses to the extent of the balance speculation profit and other income - Held that - There is no merit in the appeal and no substantial question of law arises. Circular No.23D of 1960 dated 12.9.1960 of the CBDT which conceded that speculation losses carried forward from previous years may be first set off against the speculation profits before being set off against any other current profits, if that procedure is more beneficial to the assessee There is no dispute that the circular (supra) has not been withdrawn and therefore would still govern the treatment to be given to the brought forward speculation losses though it was issued under the 1922 Act. It is not the case of the revenue that the provisions of section 24 of the old Act and section 73 of the new Act are materially different and therefore the circular can have no application under the new Act. The order of the Tribunal is in conformity with the legal position that beneficial circulars issued by the CBDT are binding on the income tax authorities see Navnit Lal Zaveri vs. K.K.Sen (1964 (10) TMI 16 - SUPREME COURT) - appeal dismissed as without merit.

Summary

Issues:
1. Interpretation of provisions for setting off speculation losses against speculation profits.
2. Validity of the method adopted by the Assessing Officer for adjusting brought forward speculation losses.
3. Applicability and binding nature of CBDT circulars on income tax authorities.

Interpretation of provisions for setting off speculation losses against speculation profits:
The appeal dealt with the question of law regarding the correctness of the ITAT's decision in affirming the CIT(A)'s order directing the AO to re-compute the assessee's income by setting off carry forward speculative losses against speculative profit and then against business losses. The CIT(A) had directed the AO to allow the set off of speculation losses from previous years against the speculation profits for the current year, which was challenged by the revenue. The Tribunal upheld the CIT(A)'s approach, citing relevant precedents and the CBDT circular, stating that speculation losses must be adjusted against speculation profits before allowing other losses to be set off. The Tribunal found no infirmity in the CIT(A)'s order and upheld it, emphasizing the binding nature of beneficial CBDT circulars on income tax authorities.

Validity of the method adopted by the Assessing Officer for adjusting brought forward speculation losses:
The Assessing Officer initially disallowed the set off of brought forward speculation losses against the current year's speculation profit, citing lack of details in earlier assessment orders and share trading particulars. The AO adjusted the losses against all businesses' profits before setting off brought forward speculation losses, which was disadvantageous to the assessee. The CIT(A) and Tribunal both found the assessee's method of adjusting brought forward speculation losses against speculation profits more beneficial, in line with relevant judgments and the CBDT circular. The Tribunal held that circulars relaxing provisions are binding on income tax authorities, and the method adopted by the AO was not found to be more advantageous to the assessee.

Applicability and binding nature of CBDT circulars on income tax authorities:
The High Court dismissed the revenue's appeal, stating that no substantial question of law arose. The Court emphasized that beneficial CBDT circulars are binding on income tax authorities, even if issued under previous acts, as long as they have not been withdrawn and continue to govern the treatment of brought forward speculation losses. The Court highlighted the well-settled position that such circulars are binding on the AO and others executing the Income Tax Act, as per Supreme Court judgments. The Court found the Tribunal's decision in conformity with legal principles and concluded that the appeal lacked merit, leading to its dismissal without costs.