THE COMMISSIONER OF INCOME TAX,COCHIN vs. KUTTANAD CREDIT & INVESTMENT (P) LTD.

ITA/853/2009HC KeralaKLHC01025614200924 May 2016Author: HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU,HONOURABLE MR.JUSTICE ANTONY DOMINIC5 pages
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What were the facts?

The Revenue appealed against an order of the Income Tax Appellate Tribunal (ITAT) for assessment year 1996-97. The assessee, Kuttanad Credit and Investments Pvt. Ltd., an investment company, had set off net profit of ₹2,27,255/- against unabsorbed business loss carried forward from assessment year 1994-95. The Assessing Officer disallowed this, citing Section 72 of the Income Tax Act, arguing that carried forward losses can only be set off against business income, not income from other sources. The Commissioner of Income Tax (Appeals) and the ITAT overturned the Assessing Officer's decision, relying on a High Court judgment in ITA.No.96 of 2000. The Revenue contended that the facts in the cited case were distinguishable.

What did the High Court hold?

The High Court held that the order of the Commissioner (Appeals), which was upheld by the Tribunal, was erroneous. The Court found that the assessee in the cited case (ITA.No.96 of 2000) was engaged in the business of shares and debentures, whereas the respondent assessee herein is solely an investment company not engaged in any trading transactions. Therefore, the principles laid down in ITA.No.96 of 2000 were inapplicable to the present case. The Court concluded that unabsorbed business loss, as per Section 72 of the Income Tax Act, can only be set off against income from 'profits and gains of any business or profession'. Since the assessee's dividend income was from other sources and not business income, the set-off was impermissible. The Court set aside the order of the Commissioner (Appeals) and answered the question of law in favour of the Revenue. The appeal was allowed.

What were the issues?

1. Whether the unabsorbed business loss brought forward from earlier years can be set off against dividend income, which is income from other sources, when the assessee is an investment company not engaged in trading transactions (Question of law turning on Section 72 of the Income Tax Act). Assessee's contentions: The assessee argued, and the Commissioner (Appeals) and Tribunal held, that unabsorbed business loss could be set off against dividend income. They relied on the High Court's judgment in ITA.No.96 of 2000, where a similar set-off was allowed for an investment company dealing in shares and debentures. Revenue's contentions: The Revenue argued that the assessee is an investment company not engaged in any trading transactions. Therefore, its income is from other sources and cannot be set off against carried forward business loss as per Section 72 of the Income Tax Act. The Revenue further contended that the facts in the cited High Court judgment (ITA.No.96 of 2000) were distinguishable because the assessee in that case was engaged in the business of shares and debentures, unlike the present assessee.

Which sections of the Income-tax Act were involved?

Section 72

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU TUE AY, THE 24TH DAY OF MAY 2016/3RD JYAISHTA, 1938 ITA.No. 853 of 2009 ( ) ------------------------ AGAINST THE ORDER/JUDGMENT IN ITA 1108/COCH/2004 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 14-06-2005 APPELLANT(S)/APPELLANT: ---------------------- THE COMMISSIONER OF INCOME TAX, COCHIN

BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S)/RESPONDENT: -------------- KUTTANAD CREDIT AND INVESTMENTS PVT. LTD 39/4046, CHAKIAT CHAMBERS,RAVIPURAM,, COCHIN-682016. BY ADV.VINOD CHANDRA K. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 24-05-2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

APPENDIX IN ITA.853/09 APPELLANT'S EXHIBITS: ANNEXURE A: COPY OF ORDER U/S.143(3) R.W.S.1`47 OF THE INCOME TAX ACT DTD.19.1.2001 FOR THE ASSESSMENT YEAR 1996-97. ANNEXURE B: COPY OF THE ORDER DATED 16.8.2004 OF THE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE C: COPY OF THE ORDER DATED 14.6.2005 OF THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN

The order continues below.

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