TMI Blog2021 (3) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... mploys the expression computation 'under the head profits and gains or profession', whereas, Section 72(1)(i) does not use the expression under the head. Thus, the legislature has consciously left it open that any income from business though classified under any other head can still be entitled to the benefit of set off. In COCANADA RADHASWAMI BANK LTD [ 1965 (4) TMI 11 - SUPREME COURT ] the Supreme Court dealt with Section 24(2) of the Act which is parimateria with Section 72 of the Act. Therefore, the aforesaid decision applies to the fact situation of the case. In view of aforesaid enunciation of law, it is evident that the assessee is entitled to set off brought forward loss against income which has the attributes of business income even though the same is assessable to tax under a head other than profits and gains from business. Therefore, the substantial questions of law 1 and 2 are answered in favour of the assessee and against the revenue. Notice issued under section 148 - HELD THAT:- No order has been passed under Section 254(1) of the Act and the order answering the reference cannot be termed as an order under Section 254(1) of the Act. Therefore, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of this appeal briefly stated are that the assessee is a limited company carrying on the business of manufacture of iron and steel. The assessee filed the return of income for the Assessment Year 2003-04 on 14.10.2003 and declared an income of ₹ 98,27,270/- under the head 'income from capital gains'. The return was processed under Section 143(1) of the Act on 30.01.2004 and a refund of ₹ 4,77,163/- was issued. Thereafter, the Assessing Officer issued notice under Section 148 of the Act on 28.07.2005. The appellant filed the return of income on 17.04.2006 in response to the notice under Section 148 of the Act declaring income of ₹ 98,27,270/-. 3. The reasons recorded on 27.05.2005 for reopening the assessment were supplied to the assessee on 26.07.2006. The reason for reopening the assessment was that the assessee had set off the carried forward business loss of earlier years to the extent of ₹ 39,99,652/- against the income declared under the head 'income from capital gains' arising out of sale of land along with building and bore well. The assessee filed objections to the proposal to reopen the assessment vide letter dated 09.08.2006. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of re-assessing the income of the assessee as per the Assessing Officer vide reasons recorded and any errors in reasons recorded is fatal to the assessment and therefore, the entire proceeding is bad in law. It is also urged that the Assessing Officer did not dispose of the objections taken by the assessee against re-opening of the proceeding and proceeded to pass the order of assessment. It is pointed out that the failure to dispose of the objection of the assessee by a separate speaking order is fatal to the assessment. 6. It is also contended that reasons recorded do not constitute the reason to believe and misinterpretation of the law would not result in reasons to re-assess and the material relied thereupon does not constitute 'reason to believe'. It is also urged that claim of set off was in accordance with decisions of Supreme Court and was based on the proposition that an assessee is entitled to set off of brought forward loss against the income, which has the attributes of business income even though the same is assessable to tax under the head other than 'profits and gains from business'. In this connection, our attention has been invited to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther hand, learned counsel for the revenue submitted that undisputedly the assets sold by the assessee is capital asset and consideration has been offered to tax under the head 'capital gains' therefore, the question of treating the consideration from transfer of a capital asset as business income does not arise. It is also submitted that in order to consider the business income, the land which was the subject matter of the sale should have been held as stock in trade, whereas, undisputedly the same was considered as capital asset and the consideration has been rightly treated under the head of capital gains. It is also argued that the business loss claimed to be set off by the assessee, was carried forward business loss of the earlier years and the same can be set off only in terms of Section 72 of the Act, which permits only set off of business loss against the profits and gains of business or profession. Therefore, Section 72 of the Act does not apply to the fact situation of the case. 8. It is also pointed out that Section 72(1)(i) of the Act mandates that carried forward business loss can be set off against the profit and gains from business which is assessable for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profession. E.- Capital gains. F.- Income from other sources. A.- Salaries. 28. Profits and gains of business or profession 1 The following income shall be chargeable to income- tax under the head Profits and gains of business or profession ,- (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; 41 Profits chargeable to tax. (2) Where any building, machinery, plant or furniture,- (a) which is owned by the assessee; (b) in respect of which depreciation is claimed under clause (i) of sub-section (1) of section 32; and (c) which was or has been used for the purposes of business, is sold, discarded, demolished or destroyed and the moneys payable in respect of such building, machinery, plant or furniture, as the case may be, together with the amount of scrap value, if any, exceeds the written down value, so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of the business of the previous year in which the moneys payable for the building, machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter, at any time before the expiry of the period of three years referred to in that section, such business is re- established, reconstructed or revived by the assessee, so much of the loss as is attributable to such business shall be carried forward to the assessment year relevant to the previous year in which the business is so re- established, reconstructed or revived, and-- (a) it shall be set off against the profits and gains, if any, of that business or any other business carried on by him and assessable for that assessment year; and (b) if the loss cannot be wholly so set off, the amount of loss not so set off shall, in case the business so re- established, reconstructed or revived continues to be carried on by the assessee, be carried forward to the following assessment year and so on for seven assessment years immediately succeeding. (2) Where any allowance or part thereof is, under sub- section (2) of section 32 or sub- section (4) of section 35, to be carried forward, effect shall first be given to the provisions of this section. (3) No loss other than the loss referred to in the proviso to subsection (1) of this section shall be carried for- w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion computation 'under the head profits and gains or profession', whereas, Section 72(1)(i) does not use the expression under the head. Thus, the legislature has consciously left it open that any income from business though classified under any other head can still be entitled to the benefit of set off. 12. The special bench of the tribunal relied on the decision of Supreme Court in CIT VS. EXPRESS NEWSPAPERS supra and held that the appellant is not entitled to brought forward business loss against interest on capital gains. Thereafter the decision of the Supreme Court in Express Newspapers was considered in CIT vs. CHUGANDAS AND CO and COCANADA RADHASWAMI BANK LTD. subsequently. In Express Newspapers supra, the Supreme Court dealt with the issue whether the capital gains can be taxed in the hands of the successor company and the issue whether the character of capital gains income was in fact a business income was not considered. In other words, the question of law which was considered by the Supreme Court in Express Newspapers supra was whether the capital gain by the Pre Press company is liable to be assessed in the hands of express company under Section 26(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come : by that break up the income does not cease to be the income of the business, the different the heads of income being only the classification prescribed by the Indian Income Tax Act for computation of income. The same principles applies to the present case. 14. Thus in COCANADA RADHASWAMI BANK LTD supra the Supreme Court dealt with Section 24(2) of the Act which is parimateria with Section 72 of the Act. Therefore, the aforesaid decision applies to the fact situation of the case. In view of aforesaid enunciation of law, it is evident that the assessee is entitled to set off brought forward loss against income which has the attributes of business income even though the same is assessable to tax under a head other than profits and gains from business. Therefore, the substantial questions of law 1 and 2 are answered in favour of the assessee and against the revenue. 15. Thus, it is pertinent to note that no order has been passed under Section 254(1) of the Act and the order answering the reference cannot be termed as an order under Section 254(1) of the Act. Therefore, we are not inclined to examine the validity of the proceedings under Section 148 of the Act as on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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