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2025 (1) TMI 1479 - AT - Income TaxBrought forward business loss set off against deemed short term capital gain taxable u/s 50 - assessee had transferred certain capital asset forming part of a block of depreciable assets and derived capital gain - HELD THAT - Hon ble Jurisdictional High Court has decided identical issue in favour of the assessee in case of PCIT vs. Alcon Developers 2021 (2) TMI 284 - BOMBAY HIGH COURT this Court has accepted the position that it is not the requirement of section 72 of the said Act that such gain or profit must be taxable only under the head of profits and gains of business or profession . The carry forward business losses would therefore be set off against the short-term capital gains on the sale of building plant and machinery. This is yet another reason not to accept the submissions of revenue and to answer the substantial questions of law against the Revenue and in favour of the assessee. Special Leave Petition (SLP) filed by the Revenue 2022 (7) TMI 1574 - SC ORDER against the aforesaid decision of the Hon ble Jurisdictional High Court has been dismissed by the Hon ble Supreme Court of course due to low tax effect. Identical issue has been decided in favour of the assessee by the Coordinate Bench in case of Digital Electronics Ltd. 2010 (10) TMI 722 - ITAT MUMBAI and the decision has been upheld by the Hon ble Jurisdictional High Court 2017 (3) TMI 274 - BOMBAY HIGH COURT Thus we direct the AO to allow assessee s claim of set off of carried forward business loss against the deemed short term capital gain computed u/s. 50 of the Act. Assessee appeal allowed.
ISSUES PRESENTED and CONSIDERED
The core legal issue considered in this appeal is whether brought forward business loss can be set off against deemed short-term capital gain taxable under Section 50 of the Income Tax Act, 1961. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The primary legal framework involves Section 50 of the Income Tax Act, 1961, which deals with the taxation of capital gains arising from the transfer of depreciable assets. Additionally, Section 72 of the Act is relevant as it governs the set-off and carry forward of business losses. The precedents cited include the decision of the Hon'ble Jurisdictional High Court in PCIT vs. Alcon Developers and the decision in Digital Electronics Ltd. vs. Addl. Commissioner of Income Tax. Court's Interpretation and Reasoning The Tribunal considered the interpretation of Section 72, which allows the set-off of brought forward business losses against profits and gains of business or profession. The Tribunal noted that the Jurisdictional High Court, in the case of PCIT vs. Alcon Developers, had interpreted this provision to allow the set-off of business losses against short-term capital gains, even when such gains are computed under Section 50 of the Act. The reasoning was that Section 72 does not explicitly restrict the set-off to only business income, thus allowing flexibility in offsetting business losses against other heads of income. Key Evidence and Findings The Tribunal relied on the judicial precedents provided by the assessee, particularly the decisions of the Hon'ble Jurisdictional High Court and the ITAT in similar cases. The Tribunal observed that these precedents consistently favored the assessee's interpretation of the law, allowing the set-off of business losses against capital gains. Application of Law to Facts Applying the legal principles established in the cited precedents, the Tribunal found that the assessee was entitled to set off the brought forward business loss against the deemed short-term capital gain computed under Section 50. The Tribunal emphasized that the precedents clearly supported the assessee's position, and there was no legal basis to deny the set-off. Treatment of Competing Arguments The Revenue's argument, based on a restrictive interpretation of Section 72, was considered but ultimately rejected. The Tribunal noted that the Hon'ble Jurisdictional High Court had already addressed and dismissed similar arguments in previous cases, thereby setting a binding precedent. The Tribunal also noted the dismissal of the Special Leave Petition by the Hon'ble Supreme Court, which further reinforced the validity of the High Court's interpretation. Conclusions The Tribunal concluded that the assessee's claim for setting off the carried forward business loss against the deemed short-term capital gain was valid and should be allowed. The Tribunal directed the Assessing Officer to implement this set-off in accordance with the established legal precedents. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning The Tribunal referenced the High Court's observation: "It is not the requirement of section 72 of the said Act that such gain or profit must be taxable only under the head of 'profits and gains of business or profession'. The carry forward business losses would therefore be set off against the short-term capital gains on the sale of building, plant, and machinery." Core Principles Established The judgment reinforced the principle that Section 72 of the Income Tax Act does not restrict the set-off of business losses solely to business income, thereby allowing such losses to be offset against capital gains calculated under Section 50. Final Determinations on Each Issue The Tribunal determined that the assessee is entitled to set off the brought forward business loss against the deemed short-term capital gain under Section 50, as per the legal precedents and the interpretation of the relevant statutory provisions. The appeal was allowed in favor of the assessee.
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