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Case Law Details

Case Name : M/s. Southern Travels Vs The Assistant Commissioner (Madras High Court)
Appeal Number : Tax Case (Appeal) Number-758 of 2007
Date of Judgement/Order : 20/01/2015
Related Assessment Year :

Brief facts of the case: The appellant is engaged In the business of plying taxis and letting out heavy equipments. The appellant has filed a ‘NIL’ return for assessment year 1999-2000 after setting carry forward depreciation loss under section 32(2) of the income tax act relating to the assessment years 1995-96 and 1997-98 and business loss under section 72 relating to assessment year 1997-98.

While doing assessment under sec 143(3) of the income tax act,AO has reduced the carry forward loss for setting off under sec 72 and 32(2) of the IT act.

AO initiated the re-assessment proceedings under sec 147 of the income tax act by issuing notice Dt 23-03-2001 under sec 148 on the ground that the carry forward unabsorbed depreciation cannot be set off against short term capital gains arising on sale of business assets and rejected the claim of the assessee .

Assessee filed an appeal against an order of AO to CIT(A) who also answered against assessee. Aggrieved form the decision of CIT(A) ,assessee file an appeal with ITAT,whose bench also ordered against assessee.

Contention of the assessee: Assessee contended that the capital gain has arisen on the sale of the depreciable business assets which are used for the running of business and earning of income ,So the gain on the sale of the same should be treated under head” profits and gains from business and profession” though the profit on sale of depreciable assets was taxed under short term capital gains by the deeming provision of section 50 of the income Tax act.He also stated that the section 50 does not state the capital gain on sale of assets but provides for withdrawal of depreciation already allowed on depreciable asset at the time of sale.So the capital gain on the sale of depreciable asset should be adjusted against carry forward of unabsorbed depreciation and there is no escaping of income in doing that.

Assessee has also given reference of the decision of supreme court in CIT V/s Cocanada Radhaswami Bank Limited (57 ITR 306) and CIT Vs ramaanth Goenka where in it is decided that the carry forward depreciation loss needs to be adjusted against short term capital gains arising out on sale of business assets.

Contention of revenue: Respondent argued that the capital gain on sale of depreciable asset should be taxed under head income from capital gains so there is escaping of income on the assessee side and the cannot be set off against carry forward unabsorbed depreciation.

Held by respective court: Hon’ble High Court relied on the decision of Cocanada reported in 57 ITR 306 and Sasoon V/s CIT in which it was held that carry forward unabsorbed depreciation can be set off against the capital gain from sale of depreciable asset. So the Hon’high court remanded the matter back to the tribunal to consider and pass orders on the entire issues raised by the assessee. Accordingly the order of tribunal stands set aside .

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June 2024