2021 (3) TMI 737 - HC - Income Tax

Set off of brought forward of business loss against capital gain arising on sale of business asset used for the purpose of business - Whether the Tribunal was justified in law in not holding that the income arising out of sale of business assets has the character of business income and consequently the income though assessed as capital gain is entitled to set off against the carry forward business loss on the facts and circumstances of the case? - HELD THAT - It is pertinent to note that proviso to Section 72(1)(i) was omitted by Finance Act 1999 with effect from 01.04.2000. Therefore for the Assessment Year in question i.e. 2003-04 the assessee was not required to have carried on the business for the purposes of set off of brought forward business. It is well settled rule of statutory interpretation that intention of statute has to be gathered from the language employed by the legislature which means attention has to be paid to what has been said and what has not been said. Section 72(1) of the Act employs the expression computation under the head profits and gains or profession whereas Section 72(1)(i) does not use the expression under the head. Thus the legislature has consciously left it open that any income from business though classified under any other head can still be entitled to the benefit of set off. In COCANADA RADHASWAMI BANK LTD 1965 (4) TMI 11 - SUPREME COURT the Supreme Court dealt with Section 24(2) of the Act which is parimateria with Section 72 of the Act. Therefore the aforesaid decision applies to the fact situation of the case. In view of aforesaid enunciation of law it is evident that the assessee is entitled to set off brought forward loss against income which has the attributes of business income even though the same is assessable to tax under a head other than profits and gains from business. Therefore the substantial questions of law 1 and 2 are answered in favour of the assessee and against the revenue. Notice issued under section 148 - HELD THAT - No order has been passed under Section 254(1) of the Act and the order answering the reference cannot be termed as an order under Section 254(1) of the Act. Therefore we are not inclined to examine the validity of the proceedings under Section 148 of the Act as on the issue of validity of the aforesaid finding the tribunal has to record its findings. Therefore in our opinion the matter requires to the remitted to the final fact finding authority under the Act for recording the findings on merits with regard to remaining two substantial questions of law. Therefore we do not propose to answer the substantial questions of law Nos.3 and 4.

Summary

Issues Involved:
1. Set off of carry forward business loss against capital gain.
2. Characterization of income arising from the sale of business assets.
3. Validity of notice issued under Section 148 of the Income Tax Act.
4. Non-service of Tribunal order dated 11.12.2008.

Issue-wise Detailed Analysis:

1. Set off of Carry Forward Business Loss Against Capital Gain:
The primary issue was whether the Tribunal was justified in not allowing the set off of carry forward business loss of ?39,99,652/- against capital gain arising on the sale of business assets. The court noted that the assessee had filed the return declaring an income of ?98,27,270/- under 'income from capital gains'. The Assessing Officer disallowed the set off of brought forward business loss against capital gain, which was upheld by the Commissioner of Income Tax (Appeals) and the Tribunal. However, the court highlighted that the proviso to Section 72(1)(i) was omitted by the Finance Act, 1999, and for the assessment year 2003-04, the assessee was not required to carry on the business for the purpose of set off of brought forward business loss. The court emphasized that the legislature consciously left it open that any income from business, though classified under any other head, can still be entitled to the benefit of set off. Therefore, the substantial questions of law 1 and 2 were answered in favor of the assessee.

2. Characterization of Income Arising from Sale of Business Assets:
The second issue was whether the income arising out of the sale of business assets has the character of business income, and consequently, whether it is entitled to set off against the carry forward business loss. The court referred to the Supreme Court's decisions in 'CIT vs. COCANADA RADHASWAMI BANK LTD.' and 'CIT vs. CHUGANDAS AND CO.', which clarified that business income is broken up under different heads only for the purpose of computation of total income. The income does not cease to be the income of the business, and the different heads of income are only the classification prescribed by the Income Tax Act for computation of income. Thus, the assessee was entitled to set off brought forward loss against income which has the attributes of business income, even though the same is assessable to tax under a head other than 'profits and gains from business.'

3. Validity of Notice Issued Under Section 148 of the Income Tax Act:
The third issue was whether the Tribunal was justified in holding that the notice issued under Section 148 was based on sufficient and relevant reasons, and whether the assumption of jurisdiction by the Assessing Officer was in accordance with law. The court noted that the reasons recorded for reopening the assessment did not constitute 'reason to believe' and that misinterpretation of the law would not result in reasons to re-assess. The court did not provide a definitive answer to this issue but remitted the matter to the Tribunal for adjudication afresh on this point.

4. Non-service of Tribunal Order Dated 11.12.2008:
The fourth issue was whether the Tribunal was justified in not serving the copy of the Tribunal order dated 11.12.2008. The court observed that the assessee had not been served with a copy of the order dated 11.12.2008, which was crucial for the disposal of grounds with regard to issues on Section 148. The court remitted the matter to the Tribunal for recording findings on this issue as well.

Conclusion:
The court quashed the findings against the appellant contained in the orders passed by the Tribunal dated 09.12.2011 and 19.01.2012 and remitted the matter to the Tribunal for adjudication afresh on the remaining substantial questions of law (Nos. 3 and 4). The appeal was disposed of accordingly.