1989 (1) TMI 152 - AT - Income Tax

Accounting Year, Assessment Year, Business Income, Business Loss, Capital Gains, Carry Forward And Set Off, Cost Of Acquisition, Market Value, Written Down Value

Issues Involved:

1. Set-off of business loss from the assessment year 1968-69 against income assessable under section 41(2) for the assessment year 1982-83.
2. Computation of capital gains arising on the sale of assets.
3. Additional ground regarding the non-liability of capital gains tax on the sale of assets by the official liquidator.

Issue-wise Detailed Analysis:

1. Set-off of Business Loss:

The primary issue was whether the business loss for the assessment year 1968-69 could be set off against the income assessable under section 41(2) for the assessment year 1982-83 in view of section 41(5) of the Act. The assessee argued that the business loss of Rs. 1,51,987 from the year the business ceased to exist should be set off against the business income arising from the sale of assets under section 41(2). The Income-tax Officer rejected this claim, citing that section 72(3) would override section 41(5), and thus, the loss could not be set off as more than eight years had elapsed. However, the Tribunal found that section 41(2) and section 41(5) are special provisions that do not prescribe an eight-year limitation. It was held that section 41 is a self-contained code, and the set-off under section 41(5) is a special kind of set-off allowed against the special income mentioned in section 41(2). Therefore, the business loss of 1968-69 was allowed to be set off against the income under section 41(2) for the assessment year 1982-83.

2. Computation of Capital Gains:

The next issue was the computation of capital gains arising from the sale of assets. The assessee contended that the value as on 1-1-1964 should be substituted for the cost of acquisition for depreciable assets. The Income-tax Officer, relying on judicial precedents, held that for depreciable assets, the written down value would be taken as the cost of acquisition, while for non-depreciable assets, the value as on 1-1-1964 would be taken. The Tribunal upheld this view, stating that section 50 specifically directs that the written down value be taken as the cost of acquisition for depreciable assets, except in cases covered by sub-section (2). The Tribunal rejected the assessee's submission and sustained the orders of the authorities below, confirming that the written down value should be taken for depreciable assets and the market value as on 1-1-1964 for non-depreciable assets.

3. Additional Ground on Non-liability of Capital Gains Tax:

An additional ground was raised by the assessee, arguing that no capital gains tax should be levied as the property was sold by the official liquidator for the benefit of creditors, and there was no cost of acquisition for the liquidator. The Tribunal did not entertain this ground as it was not raised before any of the authorities below and did not arise out of the order of the Commissioner of Income-tax (Appeals). Additionally, the Tribunal noted that the cited decision related to insolvency proceedings and not to a company under liquidation represented by an official liquidator. The Tribunal referred to the Allahabad High Court decision, which held that a company in liquidation is still subject to income tax assessments. Consequently, the additional ground was rejected.

Conclusion:

The appeal was partly allowed. The Tribunal allowed the set-off of the business loss from 1968-69 against the income under section 41(2) for the assessment year 1982-83 but upheld the computation of capital gains as determined by the Income-tax Officer and rejected the additional ground raised by the assessee.

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