COMMISSIONER OF INCOME TAX, BILASPUR vs. INCOME TAX APP.TRIBUNAL,JABALPUR and ANR

TAXC/10/2006HC ChhattisgarhCGHC01008548200608 May 2013Author: HON'BLE THE CHIEF JUSTICE,HON'BLE SHRI JUSTICE PRITINKER DIWAKER23 pages
AI SummaryDismissed

What were the facts?

The assessee, M/s Jyoti Straw Products Private Limited, ceased its business operations on September 30, 1998, and sold its plant and machinery. For Assessment Year (AY) 1999-2000, the assessee reported a short-term capital gain of ₹24,49,607, a long-term capital loss of ₹3,18,408, and a business loss of ₹5,56,356, resulting in a net income of ₹15,73,843. The assessee sought to set off unabsorbed depreciation of ₹9,92,669 from AY 1990-91 and ₹5,81,174 from AY 1991-92 against this income, rendering it nil. The Assessing Officer (AO) disallowed this set-off, citing the first proviso to Section 32(2)(iii) of the Income Tax Act, 1961, which required the business to be carried on for the entire previous year. The CIT(Appeals) upheld the AO's order. The Income Tax Appellate Tribunal (ITAT) allowed the assessee's appeal, leading to the present appeal by the Revenue.

What did the High Court hold?

The High Court held that the first proviso to Section 32(2)(iii) of the Income Tax Act, 1961, required the business or profession for which the allowance was originally computed to be continued by the assessee in the previous year, but it did not mandate that the business must be carried on for the entire year. The Court found that the assessee had continued its business until September 30, 1998, satisfying this condition. The Court also addressed the second question, noting that Section 41(2) and Section 50 of the Act treat gains from the sale of depreciable assets as business income. Consequently, unabsorbed depreciation, which is a business loss, could be set off against such gains. The Tribunal's decision was upheld. The appeal by the Revenue was dismissed.

What were the issues?

The High Court had to decide the following substantial questions of law: 1. Whether the Tribunal was justified in holding that short-term capital gains arising on the sale of plant and machinery and other assets should be assessed under the head 'business income' and not under the head 'capital gains', as per Section 41(2) and Section 50 of the Income Tax Act, 1961. 2. Whether the Tribunal was justified in allowing the set-off of unabsorbed depreciation allowance of earlier years against the short-term capital gains of the current year, by not considering the provisions of Section 32(2)(iii)(a) which stipulates such set-off only against profits and gains of any business or profession carried on by the assessee. The Revenue argued that under the first proviso to Section 32(2)(iii), carried forward unabsorbed depreciation could only be set off if the business was carried on for the entire previous year, which was not the case here. The Assessee contended that the proviso only required the business to be continued in the previous year, not for the entire duration of it. The Tribunal relied on the decision in JK Chemicals Limited Vs ACIT (ITA 8618/Bombay/89) for treating short-term capital gain on sale of depreciable assets as business income.

Which sections of the Income-tax Act were involved?

Section 32(2)(iii),Section 260A,Section 143(1),Section 147,Section 148,Section 143(3),Section 234A,Section 234B,Section 234C,Section 271(1)(c),Section 41(2),Section 50,Section 32(1),Section 34,Section 42A,Section 48,Section 49

AI-generated summary — verify with the full judgment below

^•\ HIGH COURT OF CHHATTISGARH ATBILASPUR CORAM: HON'BLE SHRI YATINDRA SINGH, C.J. HON'BLE SHRI PRITINKER DIWAKER, J. Appellant Respondents Commissioner of Income Tax, Bilaspur VERSUS Income Tax Appellate Tribunal, Jabalpjur and another JUDGEMENT FOR CONSIDERATION t*fc& CbieiJustice HON'BLE SHRI PRITINKER DIWAKER. J. _^ OW.U- Pritinker Diwaker Judge POST FOR PRONOUNCEMENT OF THE JUDGEMENTij? /05/2013 CHIEF JUSTICE /05/2013 ?

AFR HIGH COURT OF CHHATTISGARH AT BILASPUR CORAM: HON'BLE SHRI YATINDRA SINGH, C.J. HON'BLE SHRI PRITINKER DIWAKER, J. Appellant Respondents Commissioner of Income Tax, Bilaspur (CG) VERSUS Income Tax Appellate Tribunal, Jabalpur and another Appeal under Section 260A of the Income Tax Act Appearance: Shri Anand Dadariya, counsel for the Appellant. Shri GN Purohit, Senior Advocate with Shri Abhishek Oswal, counsel for Respondent-2. JUDGEMENT (09th May, 2013) (Delivered by Hon'ble Yatindra Singh, CJ)

1.

The main point involved in this case is: 'Whether the carried forward unabsorbed depreciation can be set off against the short-term capital gains arising out of sale of depreciable assets or not.' It a

The order continues below.

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