TMI Blog2011 (5) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... f of business loss incurred by the assessee out of the income earned from in syndication charges - Decided in favor of assessee. - 1096 (HYD.) OF 2010 - - - Dated:- 13-5-2011 - G.C. GUPTA, CHANDRA POOJARI, JJ. S. Rama Rao for the Appellant. Amlan Tripathy for the Respondent. ORDER Chandra Poojari, Accountant Member. This appeal preferred by the assessee is directed against the order of the CIT(A) - V, Hyderabad dated 23-6-2010 and pertains to the assessment year 1998-99. 2. The assessee raised the following grounds in its appeal: 2. The CIT(A) erred in confirming the assessment made under section 143(3) of the IT Act without providing proper opportunity to the assessee. 3. The CIT(A) erred in holding that the activity of production of electronic goods by the assessee company did not continue. The CIT(A) ought to have seen the details of the activities carried on by the assessee and ought to have held that the activity of production of electronic goods continued during the previous year relevant for the assessment year under consideration. 4. The CIT(A) erred in holding that the syndication charges do not represent income from the business activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Expenses under syndication Rs. 64,000 Total Charges Rs. 1,03,500 Total income Rs. 15,13,650" 4. Aggrieved by the above, the assessee went in appeal before the CIT(A). The CIT(A) adjudicated on the matter and gave a finding that the syndication charges received actually pertaining to the Managing Director of the Company, Sri Ravi Kiran and that this income should be assessed in the hands of the MD and not in the hands of the company. Therefore, both the assessee as well as the department went in appeal before the Tribunal and the Tribunal vide order dated 14-12-2007, in ITA Nos. 1056 1074/H/03 for the assessment year 1998-99 held that the syndication income was to be assessed in the hands of the assessee company only and not in the hands of the MD. It was further observed that the CIT(A) had not adjudicated on grounds raised by the assessee. Accordingly, the appeal was set aside to the file of the CIT(A) with the following observations: "20. However, since the CIT(A), as stated above has not adjudicated the grounds raised by the (sic) in the appeal before him, we are of the view that in the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommon business with the closed down activity of manufacture of TV sets. This income has to be classified under the head 'income from other sources'. 6. Further, he observed that since the assessee has not carried on the business in the assessment year under consideration and there is no income assessable under the head 'profit and gains from business' from which the loss was originally computed, the loss earned by the assessee cannot be set off against the income from other sources earned in the assessment year under consideration. He also held that unabsorbed depreciation and carry forward cannot be adjusted against this income. Accordingly, he confirmed the order of the Assessing Officer. Against this, the assessee is in appeal before us. 7. The Learned Authorized Representative submitted that during the previous year under consideration, the business of manufacturing of electronic goods has been continued. He drew our attention to the copies of following letters which to prove the existence of assessee business during the assessment year : 1. Letter from Electronics Trade and Technology Development Corporation Ltd. (Govt. Enterprises) dated 28-12-1999 (PB 7-9) 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be said that the business was closed. The assessee is continuing the business activity though it could not obtain orders for sale of TV sets. 10. He submitted that the Assessing Officer wrongly placed reliance on the final accounts of the assessee for the years 1996-97 and 1997-98 to state that there was a closure of manufacturing activity. The details in the final accounts of the earlier years show that there was no manufacturing activity. However, they clearly show that there was an opening stock-in-trade, finished goods, consumables and the closing balance of the said stock. This clearly shows the intention of the assessee to carry on the business activity and the intention of the assessee not to close the said business. It is further submitted that at no point of time the assessee tried to liquidate the company. The assessee is trying to revive its activity by getting some more orders from various Government Agencies. Therefore, it is keeping the premises in its possession with all the equipments. However, the assessee could not obtain orders from the Government agencies for supply of TV sets. Therefore, it did not manufacture any TV sets during the previous year. It cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 Taxman 718 (Delhi) 9. CIT v. Pioneer Asia Packing (P.) Ltd. [2008] 170 Taxman 127/[2009] 310 ITR 198 (Mad.) 10. CIT v. RPIL Signalling Systems Ltd. [2010] 328 ITR 283 (Mad.) 11. CIT v. Bharat Nidhi Ltd. [1966] 60 ITR 520 (Punj.) wherein held that the assessee advanced its first loan only September, 1952, did not indicate that its business ceased to exist or that the assessee did not carry on business at all: the mere fact that a business was inactive or dormant for a period did not lead to the conclusion that it had ceased. Shah Pratapchand Nowpaji's case (supra) wherein held that the Tribunal had found on facts that the assessee did not carry on speculative business and it was the normal trade practice to pay losses by commission agents on behalf of their constituents and recover the same from the latter in due course and such payments were necessary for the purpose of carrying on commission agency business. Hence, the loss suffered by the assessee on account of such payments could not be said to be in the course of speculative business, but was a loss arising from commission agency business. Further, the assessee was maintaining one set of account books for both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continued to be received. The money lending business and guarantee broking business were not identical, and in the absence of proof of any custom, the loss suffered in the guarantee broking business cannot be said to be loss suffered in the money lending business. Further, as the two businesses vested in two different entities in the present case, it could not be said that they were branches of the same business. The loss of a dead, separate and distinct business cannot be claimed as a set off against the income of another business which the assessee is carrying on in the accounting year. 5. CIT v. Bengal Jute Mills Co. Ltd. [1986] 28 Taxman 444/[1987] 165 ITR 631 (Cal.) wherein held that the assessee had not challenged the finding of the Tribunal that the income from letting out the godowns was income from house property and that finding had become final. The direction of the Tribunal allowing the assessee to set off its carried over business losses against rental income from the godown was erroneous. The assessee was not entitled to set off business losses carried forward from earlier years against rental income from the godowns for the assessment year 1971-72. 6. Mal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the year of accounts'. It was then observed that the question whether the business is being carried on must depend in each case on its own facts and not on any general theory of law. Their Lordship then referred to, with approval, Lord Summer's observation in IRC v. South Behar Railway Co. Ltd. [1925] 12 Tax Cases 657 that 'business is not confined to being busy ; in many businesses long intervals of activity occur.......The concern is still a going concern though a very quite one'. After elaborate survey of judicial precedence on the issue, their Lordship concluded, in the light of, as noted above, the factual position that 'there is nothing on record to show that he completely abandoned or closed the business forever. On the other hand, his books of account revealed that he was meeting the establishment charges and interest payment as detailed in the accounts in the year of account,' that the loss in areca nut business, in which admittedly no activity was carried out during the relevant previous year, was to be set off against the assessee's business income in the year, as the business must be deemed to be continuing. In the light of this legal position, it would follow that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off against the profits and gains, if any, of any business or profession carried on by him and assessable for that year ..... provided that the business or profession for which the loss was originally computed continued to be carried on by him in the previous year relevant for the assessment year'. It is thus clear that any non-speculation business loss brought forward by the assessee can be set off against any business income of the assessee, which essentially implies that it can be set off against any income from business even other than the business in which the loss was originally incurred; the question of activity in which the loss is carried forward is of course much narrower an issue. However, the restriction placed by the proviso to section 72(1)(i), lays down the condition that the business in which loss was actually incurred must be continued to be carried on by the assessee in the relevant previous year also. In effect, whether the loss brought forward is set off against the assessee's income from the same business or any other business, the only material condition is that the business in which the loss was actually incurred must not have been closed down. The law requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company, both manufacturing of TV sets and financial consultancy services were carried out by the same management, from the same organisation, from the same funds as were originally raised by the company and from the same place of business. It would thus follow that inter connection, interlacing, interdependence and unity referred to by Rowlatt J. and quoted with approval by the Hon'ble Supreme Court are furnished in this case, as were furnished in the case before Their Lordships, by the existence of common management, common business organisation, common administration, common fund and a common place of a business. As a corollary to this finding, it follows that the business carried on by the assessee was a composite business and since some activities of this composite business were beyond dispute, carried out in the relevant previous year, the Assessing Officer indeed in error in holding that the business in which losses were incurred in earlier years was not in existence in the relevant previous year. We may also mention that the Hon'ble Calcutta High Court in the case of CIT v. Produce Exchange Corpn. Ltd. [1963] 50 ITR 308 held, that the "essential matter to be considered in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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