Nandi Steels Limited vs. ACIT

Karnataka HC

 ITA No.: 103 of 2012

 1. The assessee had no business income during relevant AY 2003-04. However, he had sold his land and building, which were being held as capital assets. There were capital gains earned out of the sale.

 2. There were brought forward losses of previous years under the head ‘Profits and gains of business and profession’. The assessee adjusted the business losses against the capital gains.

 3. The AO held that Sec 72(1) allows business losses to be adjusted only against business income and not capital gains.

 4. Assessee maintained that income arising from sale of a business asset (land & building) has character of business income, hence, even if such income is assessed as ‘capital gains’, the same is eligible of being adjusted against the brought forward business loss.

The Hon. Karnataka HC held as below:

 1. In CIT vs. Tara Agencies (2007) 292 ITR 444 (SC), it was held that attention has to be paid to what has been said and what has not been said.

 2. Sec 72(1) provides that losses under the head ‘Profits and gains of business and profession’ shall be shall be set off against the profits and gains, if any, of any business or profession carried by him (the phrase ‘profits and gains of business and profession’ is missing).

 3. Legislation had consciously left it open that any income from business though classified under any other head (here, capital gains) can still be entitled to the benefit of set off against the brought forward business losses.

  Accordingly, brought forward business loss was held as allowable against capital gains of current year.