S.72 Set off and Carry Forward of Losses - In the Case of Nandi Steels

Section 72: Set Off and Carry Forward of Losses Explained

Gains on Fixed Assets Vs. Set Off of Business Loss u/s 72

M/S. Nandi Steels Limited, Bangalore

Vs

Asstt. Commissioner of Income Tax, Bangalore

Section 72: Gains arising from “business assets” not eligible for set-off against brought forward business loss

The assessee sold land & building used for business purposes. Though the gain was offered as capital gains, the assessee claimed, relying on Cocanada Radhaswami Bank Ltd 57 ITR 306 (SC) and other judgements, that as the assets were “business assets”, the gains arising from such business assets were eligible for set-off against the brought forward business loss u/s 72.

The issue was referred to a Special Bench. HELD by the Special Bench against the assessee:

 S. 72 (1) defines that the business loss brought forward shall be set-off against the “profits & gains of any business or profession” of the subsequent year. The expression “profits & gains of business” means income earned from the business carried on by the assessee and not the income connected to the business or profession carried/practiced by the assessee. The land & building were fixed & capital assets used or the business purposes. Therein the gains arising are assessable as capital gains and were not eligible for set-off against the brought forward business loss u/s 72. For detailed Judgement - click here

(Cases Followed: Express Newspapers 53 ITR 250 (SC); Cocanada Radhaswami Bank 55 ITR 17(SC) distinguished; Steelcon Industries reversed)