1983 (1) TMI 126 - AT - Income Tax

Summary

Issues:
- Setting off of business loss against income from speculation business.

Analysis:
The appeal involved a challenge by the assessee against the order of the Commissioner (Appeals) upholding the rejection of the claim for setting off business loss against income from speculation business. The assessee argued that speculation business was a distinct business and should be allowed to set off against brought forward business losses. The ITO and Commissioner (Appeals) based their decisions on Explanation 2 to section 28 of the Income-tax Act, which deems speculation business as separate from any other business. The Commissioner (Appeals) declined to interfere with the ITO's decision, leading to the appeal by the assessee.

The Commissioner (Appeals) analyzed the legislative intention behind treating speculation business as a distinct entity, emphasizing that allowing set off against other business losses would negate this separation. The assessee's counsel contended that since speculation business was recognized as distinct, the claim for setting off business loss against speculation income should be allowed. The Tribunal noted that the interpretation of Explanation 2 should be limited to its intended purpose and referred to legal principles regarding the scope of legal fictions.

Section 72(1) permits setting off of brought forward business losses against profits of any business or profession carried on by the assessee. The Tribunal found no impediment to the assessee's claim for setting off business loss against income from speculation business, as speculative activities were treated as a separate business. Referring to a Supreme Court decision, the Tribunal emphasized that income-tax is one tax and income classification is based on commercial principles, supporting the assessee's position. Consequently, the Tribunal allowed the appeal, directing the acceptance of the assessee's claim for setting off the business loss against speculation income.

Ultimately, the Tribunal allowed the appeal by the assessee, setting aside the orders of the authorities below and directing the acceptance of the claim for setting off the business loss against income from speculation business.