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TMI Blog2018 (10) TMI 1397X X X X Extracts X X X X X X X X Extracts X X X X ..... T Vs. M/s. Hickson & Dadajee Pvt. Ltd.[2017 (3) TMI 274 - BOMBAY HIGH COURT]. Since the issue has been settled by the Hon’ble Bombay High Court, we find no merit in the order of CIT(A) in relying on another decision of Mumbai Bench of Tribunal and holding the issue to be against the assessee. Unabsorbed depreciation which has been carried forward from preceding year is to be set off against the income shown by assessee under the head ‘short term capital gain’ under section 50 of the Act. Set off of adjustment on account of brought forward business loss which was not claimed in the return of income - Held that:- Referring to ratio laid down in CIT Vs. Pruthvi Brokers & Shareholders Pvt. Ltd. [2012 (7) TMI 158 - BOMBAY HIGH COURT] wherein it has been held that any claim can be made before appellate authorities, which need to be adjudicated while determining income of assessee. We find merit in the plea of assessee in this regard and hold that business loss carried forward from earlier year of ₹ 8,65,154/- needs to be adjusted against income assessed under the head ‘short term capital gain’ under section 50 of the Act. Similarly, current year business loss is to be set off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The issue which is raised in the present appeal filed by assessee is against claim of set off of current year s business loss of ₹ 15,265/- and brought forward depreciation loss of ₹ 17,37,830/- and brought forward business loss of ₹ 8,65,154/- against current year s short term capital gain arising on sale of business asset i.e. party hall. 4. The learned Authorized Representative for the assessee at the outset pointed out that the issue raised in present appeal is squarely covered in favour of assessee. 5. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below. 6. We have heard the rival contentions and perused the record. The assessee during the year under consideration had filed return of income declaring total income of 83,32,660/-. The case of assessee was picked up for scrutiny. The Assessing Officer noted that assessee had shown short term capital gain of ₹ 1,00,85,753/-, against which it has set off brought forward depreciation loss of ₹ 17,53,095/-. The Assessing Officer noted that business losses of earlier year could not be set off against capital gain as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et as short-term capital asset. Section 50 does not convert a long-term capital asset into a short-term capital asset. Though section 50 was enacted with the object of denying multiple benefits to owners of depreciable assets, yet that restriction was limited to the computation of capital gains and not the exemption provisions. Thus, the Hon ble High Court held that exemption under section 54E cannot be denied to the assessee on account of the fiction created in section 50. The relevant observation of the Hon ble High Court from para 22 to 26 read as under : 22. Under the machinery sections the capital gains are computed by deducting from the consideration received on transfer of a capital asset, the cost of acquisition, the cost of improvement and the expenditure incurred in connection with the transfer. The meaning of the expressions cost of improvement and cost of acquisition used in sections 48 and 49 are given in section 55. As the depreciable capital assets have also availed of depreciation allowance under section 32, section 50 provides for a special procedure for computation of capital gains in the case of depreciable assets. Section 50(1) deals with the cases wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of section 50 is restricted only to the mode of computation of capital gains contained in sections 48 and 49. Secondly, it is well established in law that a fiction created by the Legislature has to be confined to the purpose for which it is created. In this connection, we may refer to the decision of the apex court in the case of State Bank of India v. D. Hanumantha Rao reported in [1998] 6 SCC 183. In that case, the Service Rules framed by the bank provided for granting extension of service to those appointed prior to July 19, 1969. The respondent therein who had joined the bank on July 1, 1972, claimed extension of service because he was deemed to be appointed in the bank with effect from October 26, 1965, for the purpose of seniority, pay and pension on account of his past service in the army as Short Service Commissioned Officer. In that context, the apex court has held that the legal fiction created for the limited purpose of seniority, pay and pension cannot be extended for other purposes. Applying the ratio of the said judgment, we are of the opinion, that the fiction created under section 50 is confined to the computation of capital gains only and cannot be extended b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since the Hon ble High Court has already held that provisions of section 50 makes it explicitly clear that the deemed fiction created in sub-section (1) and (2) is restricted only to the mode of computation of capital gains contained in section 48 and 49 and that the legal fiction is to deem the capital gain as short term capital gain and not to deem the asset as short term capital asset and accordingly has held that the exemption u/s.54E could not be denied to the assessee on account of the deeming fiction created in section 50, therefore, in view of the above ratio laid down by the Hon ble High Court the decision of the Bangalore Special Bench of the Tribunal is not applicable to the facts of the present case. The assessee in our opinion is entitled to set off the brought forward business loss from the deemed short term capital gain. Therefore, the order of the CIT(A) is upheld and the ground rasied by the revenue is dismissed. 8. In the facts of present case, the issue raised is with regard to computation of short term capital gains and its adjustment against brought forward depreciation loss and / or business loss. The said short term capital gain arises on sale of busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n allowance allowed in the following year but also says that in the absence of such allowance, the carried forward depreciation allowance shall be the allowance for that year, it means that in the following year the assessee need not carry on any business or profession for availing the benefit of sub-section (2) of Section 32. We are inclined to adopt the second of the above two views having regard to the decisions of this Court in Jaipuria China Clay Mines (P) Limited and Rajapalayam Mills Limited. We have extracted the relevant observations from both the judgments hereinabove, which say that the unabsorbed depreciation allowance has not only to be set off against other heads of income in the relevant previous year but where it is carried forward, it stands on exactly the same footing as the current depreciation . 10. In other words, we hold that unabsorbed depreciation which has been carried forward from preceding year is to be set off against the income shown by assessee under the head short term capital gain under section 50 of the Act. 11. Now, coming to the second claim of assessee i.e. set off of adjustment on account of brought forward business loss of ₹ 8, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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