Business loss can be set off against income having attributes of business income even if same isn’t assessable under PGBP: HC

Case details: Nandi Steels Ltd. v. ACIT - [2021] 128 taxmann.com 267 (Karnataka)
Circulars and Notifications: Circular No. 779, dated 14-9-1999

Judiciary and Counsel Details

• • Alok Aradhe and Natraj Rangaswamy, JJ.  
  • A. Shankar, SP. Counsel, V. Chandrasekhar, Adv., Bhairav Kuttaiah, Adv. and M. Lava, Adv. for the Appellant.
  • K.V. Aravind, Adv. for the Respondent.

Facts of the Case

Assessee was a limited company carrying on the business of manufacturing iron and steel. Assessing Officer (AO) issued a notice for reopening of assessment. Reasons recorded for reopening assessment were supplied to assessee. It was stated that assessee had set off the carried forward business loss of earlier years against income declared under the head ‘Capital Gains’ arising out of the sale of land along with the sale of building and borewell.
Assessee contended that the 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 the business’.

High Court Held

On appeal, Karnataka High Court held that the various courts have held that business income is broken up under different heads only to compute the total income. By that break-up, the income does not cease to be the business’s income, the different heads of income being only the classification prescribed by the Income Tax Act for computation of income. Relying on same, Karnataka High Court held that 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.

Case Review

• • CIT v. Cocando Radhaswami Bank Ltd . [1965] 57 ITR 306 (SC) (para 14) followed.
  • Nandi Steels Ltd. v. Asstt. CIT [2012] 17 taxmann.com 93/134 ITD 73 (Bang.) (SB)reversed.

List of Cases Referred to

• • CIT v. Express Newspapers Ltd . [1964] 53 ITR 250 (SC) (para 6)
  •  CIT v. Cocanda Radhaswami Bank Ltd . [1965] 57 ITR 306 (SC) (para 6)
  •  CIT v. Chugandas and Co . [1965] 55 ITR 17 (SC) (para 6)
  • CIT v. B.N. Keshav [IT Appeal 21 of 2003, dated 3-4-2008] (para 6)
  • Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) (para 6)
  • CIT v. Vikram Cotton Mills Ltd . [1988] 36 Taxman 1/169 ITR 597 (SC) (para 6)
  • CIT v. Tara Agencies [2007] 162 Taxman 337/292 ITR 444 (SC) (para 11)
  • GVK Industries Ltd. v. ITO [2011] 10 taxmann.com 3/197 Taxman 337/332 ITR 130 (SC) (para 11).