2016 (4) TMI 647 - AT - Income Tax

Assessment of amount received on sale of premises as Short Term Capital Gain (STCG) - assessee declared STCG on sale of property u/s 50 - claim of the assessee is that the entire amount of STCG should be considered as business income and accordingly set off of brought forward business loss should be allowed against it. - Held that - In the instant case, the sale proceeds realized over and above the cost of asset, in our view, cannot be categorized as business income under commercial principles; rather it represents capital receipt realized on sale of a capital asset as per the commercial principles. Hence, in our view, the assessing officer was justified in restricting the claim to the extent of ₹ 81,32,684/-. Accordingly, we uphold the order of Ld CIT(A) on this issue. - Decided against assessee

Summary

Issues:
1. Classification of amount received on sale of premises as Short Term Capital Gain (STCG).
2. Claim for deduction of loan amount as cost of transfer.
3. Set off of brought forward business loss against STCG.

Issue 1: Classification of amount received on sale of premises as STCG:
The appeal addressed the issue of confirming the assessment of the amount received on the sale of premises as Short Term Capital Gain (STCG). The assessee claimed depreciation on the property sold and declared STCG on the sale under section 50 of the Act. The Assessing Officer (AO) held that the assessee derived income from the sale of the asset as it satisfied the loan payable to M/s Kenilworth Investments Limited. The AO allowed set off of current year's business loss, brought forward depreciation, and brought forward business loss against the STCG.

Issue 2: Claim for deduction of loan amount as cost of transfer:
The assessee contended that the loan amount borrowed should be considered as the cost of transfer as it was linked to the auction of the property. The argument was based on the encumbrance attached to the property due to the loan. However, the tribunal found that the loan amount was an independent transaction unrelated to the property and could not be considered as an encumbrance. Therefore, the claim for deduction of the loan amount as the cost of transfer was rejected.

Issue 3: Set off of brought forward business loss against STCG:
The assessee argued that the sale proceeds should be considered as business income and sought to set off brought forward business losses against the STCG. The tribunal analyzed relevant case laws and provisions under the Act. It was observed that the sale proceeds, in this case, did not qualify as business income under commercial principles but were deemed capital receipt from the sale of a capital asset. Consequently, the tribunal upheld the AO's decision to restrict the claim for set off of business losses to a specific amount.

In conclusion, the tribunal dismissed the appeal filed by the assessee, upholding the classification of the amount received on the sale of premises as STCG, rejecting the claim for deduction of the loan amount as the cost of transfer, and limiting the set off of brought forward business losses against the STCG to a specific amount.