Best Trading & Agencies Ltd vs DCIT (Karnataka HC)

(2020) 108 CCH 0130 (KarHC)

• Best Trading and Agencies Ltd. (Assessee) was utilised as a special purpose vehicle for restructuring of Kirloskar Electric Company Ltd. Under an arrangement approved by the Karnataka HC, the surplus on non-manufacturing and liquid assets including real estate at Bangalore, Pune etc. were transferred to the special purpose vehicle for disbursement of the liabilities.

• The Assessee filed the return of income declaring a loss of INR 11.51 crore and subsequently, filed a revised return of income declaring a long term capital loss of INR 11.67 crore and total income of INR 0.03 crore being income from other sources.

• The AO passed the assessment order and invoked the provisions of section 115JB of the IT Act and assessed the Assessee on book profits without giving the benefit of indexation on the cost of capital asset sold during the year.

• The Karnataka HC noted that by virtue of section 115JB(5), the application of other provisions of the IT Act were open, except if specifically barred by the section itself. Further, there was no provision in the IT Act to prevent the Assessee from claiming indexed cost of acquisition on the sale of asset in case, where the Assessee was subjected to section 115JB of the IT Act.

• The HC observed that the indexed cost of acquisition was subjected to tax under a specific provision viz., Section 112 of the IT Act and therefore the provisions of Section 115JB of the IT Act, which was a general provision cannot be made applicable to the case of the Assessee.

• The HC held that the Assessee had to be given the benefit of indexed cost of acquisition, as considering the profits on sale of land without giving the benefit of indexed cost of acquisition, results in taxing the income other than actual income. In other words, a mere book keeping entry cannot be treated as income.