Unabsorbed business loss for a y 2012-13

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

27 August 2013 SIR,
my client has Unabsorbed Business Loss of Rs.500,000/- for A Y 2012-13. during A Y 2013-14., " A" has sold P & M as a result of Whcih ther was a short TErm capital Gain u/s 50 of Rs.10,00,000/- Can Assesee set off unabsorbed Busines loss for A Y 2012-13 of Rs.500000/- against Short Term capital Gain of Rs.10,00,000/-u/s 50 .

Jayesh Shah CA

Aalok Chhaperwal

Aalok Chhaperwal (Expert)
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27 August 2013 While the Bangalore (Kampli Co-operative Sugar Factory’s case)and Rajkot Benches of the Tribunal have held that unabsorbed business loss cannot be set off against the gains arising u/s.50, the Mumbai Bench of the Tribunal has held that the business loss brought forward from earlier years can be set off against such capital gains chargeable u/s.50.

Digital Electronics’ case (Mumbai Bench)

The issue recently came up before the Mumbai Bench of the Tribunal in the case of Digital Electronics’ Ltd. v. Addl. CIT, 135 TTJ (Mum.) 419.

In this case, the assessee sold the factory building and plant and machinery, and claimed set-off of unabsorbed depreciation and brought forward business loss against such short-term capital gains taxable u/s.50. It was claimed that though the income was taxable as capital gains, its character remained that of business income inasmuch as the gains arose on transfer of a business asset on which depreciation was allowed. Reliance was placed on the decision of the Mumbai Bench of the Tribunal in the case of J. K. Chemicals Ltd. v. ACIT, 33 BCAJ (April 2001) page 36 [ITA No. 3206/Bom./89 dated 1st November 1993], where the Tribunal had held on similar facts [though in the context of section 41(2) and capital gains] that the character of such income that arose on transfer of depreciable assets remained that of business income, though it was taxed as capital gains under a deeming fiction.

The Assessing Officer however disallowed such setoff. The Commissioner (Appeals) upheld the stand of the Assessing Officer, taking the view that there was no ambiguity in section 72, and that reliance could not be placed on erstwhile provisions of section 41(2).

The Tribunal, analysing the provisions of section 72, observed that the said section 72 stated that the losses incurred under the head ‘Profits and Gains of Business or Profession’ which could not be set off against income from any other head of income, had to be carried forward to the following assessment year and was allowable for being set off “against the profits, if any, of that business or profession carried on by him and assessable for that assessment year.” In other words, according to the Tribunal, there was no requirement of the gains being taxable under the head ‘Profits and gains of business or profession’ and thus, as long as gains were ‘of any business or profession carried on by the assessee and assessable to tax for that assessment year’, the same could be set off against loss under the head profits and gains of business or profession carried forward from earlier years. According to the Tribunal, the gains arising on sale of the business assets was in the nature of business income, though it was taxed under the head ‘Capital Gains’.

The Tribunal therefore held that the unabsorbed business losses could be set off against the capital gains charged to tax u/s.50.

Querist : Anonymous

Querist : Anonymous (Querist)

28 August 2013 SIR,
Thank you very much for your perfect answer.

JAYESH SHAH

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