TMI Blog2012 (7) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... be set off against the same notwithstanding that the Act required that the dividend income should be assessed under the head “income from other sources" - in favour of the assessee - ITA No.254/2006 - - - Dated:- 23-7-2012 - MR. JUSTICE S. RAVINDRA BHAT, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Mr. Kaanan Kapur, Adv. For Respondent: Mr. Sanjeev Sabharwal, Sr.Standing Counsel with Mr. Puneet Gupta, Jr. Standing Counsel R.V. EASWAR, J.: The following substantial question of law is framed:- Whether the Income Tax Appellate Tribunal was right in law in holding that the assessee was not entitled to set off the brought forward business loss against the rental income, car and computer hire charges and the commission income received in the previous year relevant to the assessment year 1995-96, on a proper interpretation of Section 72(1) of the Income Tax Act, 1961? 2. The assessee is a private limited company carrying on the business of sale and purchase of properties and also earning rental and other income. In the return filed for the assessment year 1995-96, for the previous year ended on 31st March, 1995, it filed a return of income on 30th November, 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction on the said property was completed in April, 1994 and was subsequently let out to Smt.Vimla Devi Jhunjhunwala. According to him the assessee-company was not in the business of renting out properties, and that it was only in the business of sale and purchase of properties which had not been carried on during the year and on this ground the rental income could not be considered as the business income of the assessee, so as to be utilized to set off the brought forward business loss. He also noted that house-owning, however profitable, cannot be a business or trade for the purpose of the Income Tax Act and even on this reasoning rental income could not be adjusted against the brought forward business loss. The Assessing Officer also noted that the assessee had not claimed any depreciation on the buildings which were let out. 5. As regards the service charges received from M/s Tulika Advertising and Marketing Pvt. Ltd., the Assessing Officer observed that the assessee could not substantiate why they should be assessed as rental income. He held that the service charges were neither assessable as income from house property nor assessable under the head business , and was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8223;s claim for set-off of the brought forward business loss from the assessment year 1994-95 against the income for the assessment year 1995-96 by way of rent, car and computer hire charges and the commission income. 9. The assessee carried the matter in appeal to the CIT (Appeals). He found that the properties let out by the assessee were shown in the balance sheet as stock-in-trade and thus constituted trading assets. According to him the rental income arising from these trading assets was available for being adjusted against the brought forward business loss. As regard the rent of Rs.1,14,000/- received from M/s Tulika Advertising and Marketing Pvt. Ltd., it was held by the CIT (Appeals) that the office space let out included a telephone connection, electricity and office furnishing. It was held that complete details of the letting out were furnished to the Assessing Officer. The office space was at No.23, Community Centre, East of Kailash, New Delhi which has been sub-let out to M/s Tulika for which rent was received by the assessee. The CIT (Appeals) held that the income received from M/s Tulika, described as service charges by the assessee, also had to be treated as rent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be set off against the rental income, car and computer hire charges and the commission income under Section 72(1) of the Act. 12. The Revenue carried the matter in appeal to the Tribunal. The Tribunal took the view, for reasons stated in its order, that the business loss brought forward from the earlier year cannot be set off against the rental income and income from car and computer hire charges, commission income, etc. It is against the decision of the Tribunal that the assessee has filed the present appeal. 13. We are unable to sustain the decision of the Tribunal. The relevant section in the Act which deals with the set off of brought forward losses is Section 72. Under sub-section (i), the brought forward business loss shall be set off against the profits and gains, if any, of any business carried on by the assessee and assessable for that assessment year. It may be necessary to reproduce the relevant part of the Section in order to expose the fallacy in the reasoning of the Tribunal: - Carry forward and set off of business losses. 72. (1) Where for any assessment year, the net result of the computation under the head Profits and gains of business or profession i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd not with its heads under section 6 of the Act. Section 24, therefore, is enacted to give further relief to an assessee carrying on a business and incurring loss in the business though the income there from falls under different heads under section 6 of the Act. 15. A similar position emerges on a reading of Section 72 (1) of the present Act. The opening part of the sub-section refers to the net result of the computation under the head profits and gains of business or profession . Thus the computation of the loss should have been made under the particular head of income. However, when it comes to the set off of the loss computed under the head profits and gains of business against the profits and gains of the business of assessee in the subsequent year, the condition that the computation of the profits and gains of the business carried on by the assessee in the subsequent year should be under the head profits and gains of business or profession is conspicuously absent. This will be clear from clause (i) of the sub-section which does not refer to the head of income but merely makes reference to the profits and gains, if any, of any business or profession carried on by him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only the classification prescribed by the Indian Income-tax Act for computation of income. 18. The aforesaid observations of the Supreme Court in the case of Chugan Das Co. (supra) were approvingly cited in Cocanada (supra). Elucidating the position further Subba Rao, J. (as he then was) observed as under: - The scheme of the Act is that the income tax is one tax. Section 6 only classifies the taxable income under different heads for the purpose of computation of the net income of the assessee. Though for the purpose of computation of the income, the interest on securities is separately classified, income by way of interest from securities does not cease to be part of the income from business if the securities are part of the trading assets. Where a particular income is part of the income from a business falls to be tested not on the basis of the provisions of Section 6 but on commercial principles .if the income from the securities was the income from its business, the loss could, in terms of that section, be set off against that income . 19. There is thus high authority for the proposition canvassed before us on behalf of the assessee quite forcefully and we think hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture and fall to be considered as a prudent utilization of idle assets amounting to business. So far as the commission income is concerned, the assessee had right through contended that it was earned by procuring business to M/s. Tulika. The business was procured by the assessee from Delhi Police, Zee TV, Doordarshan and Cosmo and the total business procured was to the tune of 24,46,200/- on which the assessee earned commission at the rate of 10% namely Rs.2,44,620/-. All these facts go to show that the activities of hiring out the car and the computer and in earning commission by procuring business for others were dictated by business and commercial considerations and it would therefore be a reasonable inference to hold that these activities wore the badges of trade. It is true that the Assessing Officer could not have brought the rental income to tax under any head other than income from house property ; nor did he bring the hire charges and the commission income to tax under any head other than income from other sources but as we have already noticed on the basis of the judgments of the Supreme Court, the question whether the activities carried on by the assessee amounted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the decision in East India Housing and Land Development Trust Ltd. (supra) does not lay down that the income from the shops is not the income in the business . If the Supreme court in Cocanada (supra) had accepted the contention of the Revenue based on East India House and Land Development Trust Ltd. (supra), then Cocanada (supra) could not have been decided in the way it was. 22. With particular reference to the activity of renting out properties, by a company incorporated for that purpose, it will be apposite to refer to the observations of Hidaytullah, J. (as he then was) as to the test to be applied in Karanpura Development Co. Ltd. v. CIT, (1962) 44 ITR 362: - Ownership of property and leasing it out may be done as a part of business, or it may be done as land owner. Whether it is the one or the other must necessarily depend upon the object with which the act is done. It is not that no company can own property and enjoy it as property, whether by itself or by giving the use of it to another on rent. Where this happens, the appropriate head to apply is income from property (section 9), even though the company may be doing extensive business otherwise. But a company f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the shares held as stock-in-trade itself was not questioned as it was sought to be questioned before us on behalf of the Revenue. It is expected of the Revenue to take consistent positions on matters involving legal principles, particularly before different High Courts since the Income Tax Act is an all India statute and the department of income tax being one for the entire country it cannot possibly adopt different or inconsistent legal positions before the Courts or the Tribunals. 25. The other decision of this Court is in Snam Progetti S.P.A. v. Addl. CIT, (1981) 132 ITR 70. In this case following the judgment of the Supreme Court in Cocanada (supra) and Chugan Das Co. (supra) it was held by the Division Bench of this Court that the brought forward business loss can be set off against the interest earned by the assessee from bank deposit in the subsequent year, if such interest can be attributed to a business activity of the assessee, notwithstanding that such interest is assessable under the head income from other sources under the Act. 26. For the aforesaid reasons we answer the substantial question of law in the negative, in favour of the assessee and against t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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