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TMI Blog2010 (8) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... this ground rejected. Depreciation on land – land is a non depreciable asset - non-exclusion of the value of land for the purpose of grant of depreciation is against the statutory provision and the case decided thereunder. - No force in the argument that the value of land could not be ascertained because of composite purchase deed as the same could have been ascertained by obtaining valuation of either the land or the building – revision of order on this ground upheld Rental income as business income - the submission of the assessee is that it had been running its business from the premises since 1998-99. - There are not enough facts before us to come to the conclusion as to whether the income is taxable as business income or under the head “income from house property” – revision of order on this ground upheld - 819 (DELHI) OF 2009 - - - Dated:- 13-8-2010 - C.L. SETHI, K.G. BANSAL, JJ. C.S. Aggarwal and Gautam Jain for the Appellant . Ms. Reena Singh Puri for the Respondent . Order Per K.G. Bansal, Accountant Member. This appeal of the assessee emanates from the order of Commissioner of Income-tax, Delhi-VI, New Delhi, passed on 2-1-2009 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are that the return of income declaring loss of Rs. 1,25,080 was filed on 21-9-2005. The statement of income showed the business income at nil. The computation of business income is reproduced below: Rs . Income from business 38,68,786.00 Add: Loss on sale of fixed assets as per Companies Act 1,76,374.00 40,45,160.00 Less: Profit on sale of agricultural land for separate consideration 1,353.00 40,43,797.00 Less: Profit on sale of building for separate consideration 39,37,187.00 1,06,610.00 Add: Profit on sale of building u/s 41(2) Rs. -Saleconsideration of B-26, Shivalik,N. Delhi 54,50,000 Less: WDV as per Income-tax Act 10,24,306 I 44,25,694 -Actual cost of building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, the revisionary order was passed on 2-1-2009, in which the assessment order was cancelled and the Assessing Officer was directed to frame a fresh assessment by taking into account the issues mentioned in the revisionary order. In the impugned order, the ld. Commissioner of Income-tax inter alia held the order to be erroneous and prejudicial to the interest of revenue in respect of taxation of profits arising on sale of depreciable assets, taxation of rental income as business income, setting off of speculation losses against business income and grant of depreciation on land. Aggrieved by this order, the assessee is in appeal before us. 3. In the course of hearing, the ld. counsel for the assessee, Shri C.S. Aggarwal, Senior Advocate, filed synopsis and also explained the case of the assessee. The ld. CIT, DR, Smt. Reena Singh Puri furnished the reply. Thereafter, the ld. counsel, Shri C.S. Aggarwal, Senior Advocate, left for High Court after stating the rejoinder on behalf of the assessee shall be furnished by Shri Gautam Jain, Advocate. However, after the reply from the ld. DR, Shri Jain sought adjournment to file the rejoinder. The same was filed by way of written submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature, although taxable under the head capital gain , brought forward business loss can be set off against such income. 4.2 In this connection, he relied on the decision of Hon ble Supreme Court in the case of CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306. In that case, the assessee was carrying on banking business and as a part of the business it held securities as trading assets. In the previous year relevant to assessment year 1949-50, it incurred business loss of Rs. 64,400 and earned interest on securities amounting to Rs. 8,488, thus, the net loss amounted to Rs. 55,912. For three succeeding years, the Income-tax Officer allowed this loss to be set off against the business income, but refused to set it off against the income computed under the head interest on securities. The Hon ble Court held that the assessee was entitled to set-off loss of Rs. 55,912, brought forward from assessment year 1949-50, against the income computed under the head interest on securities in the succeeding year. It was mentioned that the securities were held as trading assets and, therefore, the interest has the character of business income notwithstanding the fact that under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) Whether, on the facts and in the circumstances of the case, the sum of Rs. 11,257 being a claim for loss on sale of assets on which depreciation was allowable in earlier years is allowable under section 10(2)( vii ) in computing the total income of the assessee? (2) Whether, on the facts and in the circumstances of the case, dividend income was to be taken as income, profits and gains of business of the company and set off against losses brought forward from earlier years under section 24(2)? The facts are that the assessee owned a coal mine and it entered into an agreement for its sale on 29-11-1954. The same was to be completed within one year from the date of execution of the agreement. Pending completion of sale or delivery, the assessee was to carry on the business on behalf of purchaser from 1-9-1954. The price of the coal mine was fixed at Rs. 3.50 lakh and the book value of the assets was Rs. 4,80,290. The assessee claimed a loss of Rs. 70,290, which was disallowed by the Assessing Officer on the ground that the assessee did not carry on any business in the relevant previous year. After making some adjustments, he determined the loss at Rs. 11,257. This loss was dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1988-89, the sale proceeds would have definitely been income under section 41(2) as balancing charge. By analogy, the department taxed the amount under section 41(1). The Hon ble Court came to the conclusion that depreciation is neither a loss, an expenditure or a trading liability referred to in section 41(1). Therefore, the provisions of this section could not be employed to tax the sale proceeds. Further, the concept of block of assets was introduced w.e.f. 1-4-1988 when section 41(2) stood deleted. However, even after 1-4-1988, the proviso to section 32(1)( ii ) continued till1-4-1996. Thereafter, asset below Rs. 5,000 also came within the concept of block of assets . 4.4 Reliance was also placed on the order of D Bench of Delhi Tribunal in the case of Ankay Khanna Management Consultants (P.) Ltd. v. ITO [IT Appeal No. 3720 (Delhi) of 2003 dated1-6-2009. The argument of the ld. counsel for the assessee in that case was that the provision contained in section 71(2) is clear which allows the set-off of business loss in the form of unabsorbed depreciation against income under the head capital gains . It was mentioned that the ld. DR could not canvass any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of revenue, unless the view taken by the Income-tax Officer is sustainable in law. According to the learned Additional Solicitor General, on an interpretation of the provision of section 80HHC(3) as it then stood the view taken by the Assessing Officer was unsustainable in law and, therefore, the Commissioner was right in invoking section 263 of the Income-tax Act. In this connection, he has further submitted that in fact the 2005 amendment which is clarificatory and retrospective in nature itself indicates that the view taken by the Assessing Officer at the relevant time was unsustainable in law. We find no merit in the said contentions. Firstly, it is not in dispute that when the order of the Commissioner was passed there were two views on the word profits in that section. The problem with section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover, the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation in a particular year under the head Profits and gains of business or profession is a loss, which cannot be wholly set off under any other head of income in accordance with the provisions contained in section 71, so much of the loss, as has not been set-off, shall be carried forward and set-off against the profits and gains, if any of any business or profession carried on and assessable for that assessment year. It was her case that the carried forward loss computed under the head profits and gains of business is to be dealt with under this section and the words employed in clause ( i ) are profits and gains . These words should be given the same meaning as given to the words Profits and gains of business or profession employed in the main sub-section (1). 5.3 It was submitted that the sale and purchase of land and building is not the business of the assessee. The instant transaction is a one off transaction, which cannot be equated with the business notwithstanding the fact that the asset was acquired as fixed assets for carrying on the business. All the assets of the undertaking have been sold. Such sale cannot be said to be a transaction undertaken in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the business. The case of CIT v. Excellent Commercial Enterprises Investments Ltd. [2006] 282 ITR 423 (Delhi), has been cited in support of the proposition that income received from shares held as stock-in-trade will be business income. Reliance has also been placed on the decision of Income-tax Appellate Tribunal, Visakhapatnam Bench, in the case of Sri Padmavathi Sreenivasa Cotton Ginning Pressing Factory v. Dy. CIT [2009] 125 TTJ (Visakha.) 411 i.e., after passing the revisionary order on 2-1-2009. Placing reliance on this case is against the decision of Hon ble Supreme Court in the case of Max India Ltd. ( supra ) which has been relied upon by the ld. Senior Advocate. The Tribunal held that unabsorbed depreciation of earlier years becomes the depreciation of this year, which can be set-off against other income as provided in the Act. 7. We have considered the facts of the case and submissions made before us. The facts of the case are that the assessee claimed set-off of profit earned on transfer of depreciable assets, amounting to Rs. 34.40 lakh, against brought forward business losses of earlier years. The computation of the profit on sale of assets, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed assets. The case of the ld. DR in this behalf is that the sale of such asset is a one-off transaction, which has not been undertaken in the course of business of the assessee. The gains arise from transfer of a capital asset, although such capital asset was used for the purpose of business. Therefore, the very nature of the gain is different from business profit and it is in the nature of surplus realized on sale of a capital asset. We find that this argument is correct in view of the decision in the case of Cocanada Radhaswami Bank Ltd. ( supra ) and the cases subsequently decided about the nature of income for the purpose of set-off. The assessee sought to rely on the decision in the case of Sri Padmavati Sreenivasa Cotton Ginning Pressing Factory ( supra ), which has been rendered after passing of the revisionary order. Therefore, this case cannot be taken into consideration in the light of decision in the case of Max India Ltd. ( supra ). Nonetheless, the decision is that unabsorbed depreciation brought forward from earlier years becomes current year s depreciation. Therefore, it can be set-off against short-term capital gains computed under section 50. However, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word used in clause ( i ) is applicable only in respect of profits of business and not to profits arising on transfer of a capital asset. 7.2 Coming to the applicability of section 263, there is no possibility of taking different views in this matter. The finding of the ld. CIT is that the Assessing Officer simply ignored the issue involved despite there being a specific query raised by his predecessor. We find that the Assessing Officer has not examined the nature of the income. He was not sure whether the submissions of the assessee were correct as such submissions only appeared to be correct to him. In view thereof, the order is erroneous as it is not based upon appreciation of facts and law in the matter and, in fact, is contrary to the decisions discussed above. It has also caused prejudice to the interests of the revenue as there has been loss of revenue. The ld. CIT has merely restored the matter to the Assessing Officer to decide the matter afresh after hearing the assessee. We do not find any fault with his finding. Therefore, it is held that the ld. CIT was right in holding the order to be erroneous and prejudicial to the interests of revenue on this ground. 8. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as business losses and not speculative losses. This position cannot be changed unless earlier orders are upset. What can be seen in this year is whether the losses can be set-off as per statutory provision and nothing further. Therefore, we are of the view that the ld. CIT erred in holding the order to be erroneous and prejudicial to the interests of revenue on this ground. 9. The third ground on which the assessment order was held to be erroneous and prejudicial to the interests of revenue is regarding grant of depreciation on land. 9.1 In this connection, it is mentioned in the revisionary order that the building and appurtenant land was purchased by way of three separate deeds at aggregate cost of Rs. 21.10 lakh. The deeds reveal that the building was purchased along with proportionate land beneath the building. However, the assessee claimed the deduction of depreciation on the whole of the value of Rs. 21.10 lakh. Thus, the value of land was not excluded for the purpose of computation of depreciation on building. 9.2 The argument of the ld. counsel is that a composite agreement for purchase of land and building was made and, therefore, it is not feasible to ascertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the premises since 1998-99. However, the issue regarding taxation of the income under the correct head has not been explained. It has also been mentioned that each year is an independent year and even if the income has been incorrectly assessed in past, it will not justify to continue with the incorrect head of income. 10.2 We have considered the facts of the case and submissions made before us. There are not enough facts before us to come to the conclusion as to whether the income is taxable as business income or under the head income from house property . If the rent has been received qua the owner, the income is normally taxable under the head income from house property . However, if assets, not required for business, are temporarily given on rent, the income would be business income. In view of the fact that there are not sufficient facts brought on record by the ld. CIT, it is held that the assessment order cannot be said to be erroneous and prejudicial to the interests of revenue. Further, assessments made in past show that view taken by the Assessing Officer is a possible view. Therefore, the order cannot be said to be erroneous and prejudicial to the interests of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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