M/s. Nandi Steels Ltd., Bangalore V. ACIT, Bangalore

ITA 546/BANG/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51391 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 19-01-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 28-04-2008
• Court: TRIBUNAL
• Department Lawyers: G V GOPALA RAO CITI
• Assessee Lawyers: S RAMASUBRAMANIAN
• Keywords: Capital asset; Business income; Depreciation; Capital receipt; Unabsorbed depreciation
• Section: 143(3); 148

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH A, BANGALORE BEFORE HONBLE VICE PRESIDENT SHRI N.BARATHVAJA SAN KAR, VICE PRESIDENT SHRI G.C.GUPTA AND SMT. P MADHAVI DEVI, JUDICIAL MEMBER I.T.A. NO.546(BANG.)/2008 (ASSESSMENT YEAR : 2003 -2004) M/S NANDI STEELS LIMITED, F4, RICHMOND PLAZA, RICHMOND CIRCLE, BANGALORE-560 025. PAN NO.AAACN4849D APPELLANT VS THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-12(2), BANGALORE RESPONDENT FOR ASSESSEE BY : SHRI S. RAMASUBRAMANIAN, CA FOR REVENUE BY : SHRI G.V.GOPALA RAO, CIT-I DATE OF HEARING : 17-10-2011 DATE OF PRONOUNCEMENT : 09-12-20 11 O R D E R PER SMT. P. MADHAVI DEVI, JM; THE PRESENT SPECIAL BENCH HAS BEEN CONSTITUTED U/S 255(3) OF THE IT ACT, 1961. THE SPECIAL BENCH WAS CONSTITUTED UND ER THE FOLLOWING CIRCUMSTANCES. 2. THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUS INESS OF MANUFACTURE/PRODUCTION OF IRON AND STEEL HAS FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR ON 14-10-2003, DEC LARING AN INCOME OF ITA NO.1546(B)2008 (SB) S 2 RS.98,27,270/- UNDER THE HEAD CAPITAL GAINS. THE RETURN WAS PROCESSED U/S 143(1) ON 20-01-2004 AND A REFUND OF RS.4,77,163/- WAS ISSUED. SUBSEQUENTLY, THE AO NOTICED THAT THE ASSE SSEE HAD SET OFF THE LONG TERM CAPITAL GAINS OF RS.43,36,640/- AGAINST T HE BROUGHT FORWARD BUSINESS LOSS AND DEPRECIATION CONTRARY TO THE PROV ISIONS OF SEC.72 OF THE IT ACT. IN VIEW OF THE SAME, THE AO BELIEVED T HAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SEC.147 AND ISSUED NOTICE U/S 148 ON 8-07-2005. IN RESPONSE TO NOTICE U/S 148, THE ASSESSEE FILED ITS RETURN OF INCOME ON 17-04-2006 AS RETURNED IN THE ORIGINAL RETURN OF INCOME. THE ASSE SSEE ALSO REQUESTED THE AO TO FURNISH A COPY OF THE REASONS RECORDED FO R RE-OPENING OF THE ASSESSMENT. THE AO FURNISHED THE REASONS RECORDED F OR REOPENING OF THE ASSESSMENT TO THE ASSESSEE. IN THE PROCEEDINGS U/S 143(3) READ WITH SEC.148 OF THE IT ACT, THE AO HELD THAT THE BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION CANNOT BE SET OFF AGAINST THE INCOME FROM CAPITAL GAINS. HE OBSERVED THAT THE ASSESSEE HAS SOLD THE LAND SITUATED AT TUMKUR ROAD ALONG WITH THE BUILDING AND BORE WELL WHICH WERE ALL USED FOR THE BUSINESS. TAKING NOTE OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF M/S KILLICK NIXON & CO., VS CIT REPORTED IN 66 ITR 714(SC), WHEREIN IT WAS HELD THA T ONLY INCOME WHICH IS EARNED BY CARRYING ON BUSINESS IS ENTITLED TO BE SET OFF, HE HELD THAT THE CARRY FORWARD BUSINESS LOSS CANNOT BE SET OFF A GAINST THE INCOME FROM CAPITAL GAINS, AS IT IS AGAINST THE PROVISIONS OF LAW. HE ALSO OBSERVED THAT THE ASSESSEE HAS ADMITTED THE PROFIT AND SALE OF LAND ETC. ITA NO.1546(B)2008 (SB) S 3 AS LONG TERM CAPITAL GAINS AND OFFERED TO TAX AT TH E RATE OF 20%. HE ACCORDINGLY, COMPUTED THE INCOME OF THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE CAME IN APPEAL BEFORE THE TRIBUNAL. 3.1 BEFORE THE TRIBUNAL, THE ASSESSEE HAS RAISED VA RIOUS GROUNDS RELATING TO VALIDITY OF THE ASSESSMENT U/S147 OF TH E ACT AND ALSO WITH REGARD TO DISALLOWANCE OF THE SET OF CARRY FORWARD BUSINESS LOSS AND DEPRECIATION AGAINST THE LONG TERM CAPITAL GAINS AR ISING FROM THE SALE OF LAND AND BUILDINGS USED FOR THE PURPOSE OF BUSINESS . THE DIVISION BENCH OF THIS TRIBUNAL VIDE ITS REFERENCE DATED 11- 12-2008 HAVE DECIDED THE FIRST FOUR GROUNDS OF APPEAL AND ALSO THE ADDIT IONAL GROUND OF APPEAL RAISED BY THE ASSESSEE AND WITH REGARD TO GROUND NO .5 & 6 A REFERENCE WAS MADE TO THE HONBLE PRESIDENT FOR THE CONSTITUT ION OF A SPECIAL BENCH OF THE TRIBUNAL. THE REASONS FOR THE REFEREN CE WAS THAT THE ASSESEEE HAS RELIED UPON THE DECISION OF THE BANGAL ORE BENCH OF THE TRIBUNAL IN A REPORTED CASE OF M/S STEELCON INDUSTR IES (P) LTD., VS ITO DATED 27-12-2004 IN ITA NO.571(BANG.)1989 FOR THE A SSESSMENT YEAR 1985-86, WHEREIN THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE HOLDING THAT THE CARRY FORWARD LOSS CAN BE SET OFF AGAINST THE INCOME FROM CAPITAL GAINS. FOR COMING TO THIS CONCLUSION, THE TRIBUNAL HAS FOLLOWED THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS COCANADA RADHASWAMI BANK (1965) 55 ITR 17(SC) AND CIT VS ITA NO.1546(B)2008 (SB) S 4 CHUGANDAS & CO.,(1965) 55 ITR 17(SC). THE DIVISION BENCH HOWEVER, NOTICED THAT THERE IS ANOTHER JUDGMENT OF THE HONB LE SUPREME COURT IN THE CASE OF CIT VS EXPRESS NEWSPAPERS LTD.,53 ITR 2 50(SC) WHEREIN IT WAS HELD THAT THE CAPITAL GAINS ARE CONNECTED WITH THE CAPITAL ASSETS OF THE BUSINESS AND THEREFORE, IT CANNOT MAKE THEM THE PROFIT OF THE BUSINESS AND CANNOT BE SET OFF AGAINST THE CARRY FO RWARD BUSINESS LOSS. HAVING OBSERVED THAT THE BENCH OF THE TRIBUNAL AT B ANGALORE IN THE CASE OF M/S STEELCON INDUSTRIES LTD.,(SUPRA) HAS NOT CON SIDERED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF EXPRESS NEWSPAPERS LTD., CITED SUPRA, THE DIVISION BENCH FELT THAT THE DECIS ION OF THE TRIBUNAL IN THE CASE OF M/S STEELCON INDUSTRIES PVT.LTD., REQUI RES RE-CONSIDERATION BY A SPECIAL BENCH CONSTITUTING OF THREE MEMBERS FO R A DECISION. THUS, THEY REFERRED THE GROUNDS OF APPEAL NOS.5 & 6 TO TH E SPECIAL BENCH. THE HONBLE PRESIDENT OF ITAT AFTER CONSIDERING THE REF ERENCE IN DETAIL U/S 255(3) MADE BY THE DIVISION BENCH OF THIS TRIBUNAL (VIDE ORDER DATED 11- 12-2008 CONSTITUTED A SPECIAL BENCH) FOR DISPOSAL O F THE GROUND NOS.5 & 6. WE ACCORDINGLY, PROCEED TO DECIDE THE APPEAL. 4. GROUND NO.5 & 6 RAISED BY THE ASSESSEE IN THE AP PEAL ARE AS UNDER; GROUND NO.5: THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS THAT THE APPELLANT IS NOT ENTITLED TO SET OFF CARRY FORWARD BUSINESS LOSS OF RS.39,99,652/- AGAIN ST THE LONG TERM CAPITAL GAIN ARISING ON SALE OF LAND USED FOR THE PURPOSE BUSINESS. ITA NO.1546(B)2008 (SB) S 5 GROUND NO.6: THAT THE AUTHORITIES BELOW OUGHT TO HA VE APPRECIATED THAT THERE IS NO CESSATION OF BUSINESS AND THE APPELLANT IS ENTITLED TO SET OFF THE CARRY FORWARD BUSINESS LOSS. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI S.RAMASUBRAMANIAN, SUBMITTED THAT DURING THE PREVIO US YEAR RELEVANT TO THE ASSESSMENT YEAR 2003-04, THE ASSESSEE SOLD THE LAND, BUILDING AND BORE WELL OF THE ASSESSEE USED FOR ITS BUSINESS PURPOSES FOR A CONSIDERATION OF RS.1,55,00,000/-. HE SUBMITTED THA T THE ASSESSEE HAD CLAIMED DEPRECIATION IN THE EARLIER YEARS ON THE BU ILDING AND THE BORE WELL. ACCORDING TO HIM, THE FACTORY BUILDING AND P LANT & MACHINERY STOOD ON THE SAME LAND AND SINCE THESE ASSETS WERE CONNECTED TO THE BUSINESS OF THE ASSESSEE, THE GAIN FROM SALE OF THE SE ASSETS HAS BEEN RIGHTLY SET OFF AGAINST THE CARRIED FORWARD BUSINES S LOSS FROM THE EARLIER YEARS. ACCORDING TO HIM, THE LONG TERM CAPITAL GAI NS ON TRANSFER OF BUSINESS ASSETS HAD THE CHARACTER OF BUSINESS INCOM E AND THEREFORE, BUSINESS LOSS BROUGHT FORWARD FROM EARLIER YEARS CA N BE SET OFF AGAINST SUCH INCOME THOUGH, IT WAS NOT COMPUTED UNDER THE H EAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IN SUPPORT OF HIS CONTENTION, HE PLACED RELIANCE UPON THE FOLLOWING DECISIONS; 1. UNITED COMMERCIAL BANK LTD., 32 ITR 688 2. CHUGANDAS & CO., 55 ITR 17 3. COCANADA RADHASWAMI BANK LTD., 57 ITR 306 6. HE ALSO DREW OUR ATTENTION TO THE RATIONALE LAI D DOWN BY THE HONBLE APEX COURTS DECISION TO THE EFFECT THAT TH OUGH THE INCOME WAS ITA NO.1546(B)2008 (SB) S 6 COMPUTED UNDER THE DIFFERENT HEADS OF INCOME, BUT W HEN IT HAS THE CHARACTER OF BUSINESS INCOME, THE BROUGHT FORWARD B USINESS LOSS CAN BE SET OF AGAINST SUCH INCOME. HE SUBMITTED THAT THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS EXPRESS NEWSPAPERS LTD., CITED SUPRA, WAS CONSIDERED BY THE SUBSEQUENT BENCH OF THE SUPREME COURT IN THE CASE OF CIT VS COCANADA RADHASWAMI BAN K LTD., CITED SUPRA AND AFTER TAKING INTO CONSIDERATION OF THE SA ME, IT HAS BEEN HELD THAT THE BREAK UP OF INCOME UNDER DIFFERENT HEAD IS ONLY FOR THE PURPOSE OF COMPUTATION OF TOTAL INCOME AND IT DOES NOT CEAS E TO BE INCOME FROM THE BUSINESS. 7. ANOTHER ARGUMENT PUT FORTH BY THE LEARNED COUNS EL FOR THE ASSESSEE IS THAT SEC.72 OF THE ACT PERMITS THE CARR Y FORWARD OF UNABSORBED LOSS AND CLAUSE-(I) THEREOF PERMITS SET OFF OF SUCH LOSS FROM THE INCOME, IF ANY, OF ANY BUSINESS OF THE ASSESSEE . THEREFORE, ACCORDING TO HIM, IT IS ENOUGH, IF SUCH PROFITS AND GAINS HAVE A NEXUS WITH BUSINESS. HE ALSO SUBMITTED THAT WHENEVER LEG ISLATURE WANTED TO REFER TO A PARTICULAR HEAD, IT SPECIFICALLY STATED SO. HE DREW OUR ATTENTION TO THE REFERENCE TO THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION IN THE EXPLANATION (BAA) TO SEC.80HHC, WHEREIN WHILE DEFINING THE PROFITS OF BUSINESS IT IS PROVIDED THA T IT MEANS THE PROFITS OF BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GA INS OF BUSINESS OR PROFESSION. HE SUBMITTED THAT THE SIMILAR EXPRESSI ON IS USED IN CLAUSE- (D) OF THE EXPLANATION TO SEC.80HHE. THUS, ACCORDI NG TO HIM, SINCE SEC.72 DOES NOT STATE THAT THE LOSS CAN BE SET OFF ONLY FROM INCOME ITA NO.1546(B)2008 (SB) S 7 COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION, IT CAN BE SET OFF AGAINST THE PROFITS AND GAINS OF BUSINESS OR PROFESSION EVEN IF IT IS COMPUTED UNDER ANY OTHER HEAD OF INCO ME. 8. THE OTHER ARGUMENT RAISED BY THE ASSESSEE IS TH AT THE LOWER AUTHORITIES HAVE REJECTED THE CLAIM OF THE ASSESSEE MAINLY ON THE GROUND THAT THE ASSESSEE HAS NOT CARRIED ON THE BUSINESS D URING THE PREVIOUS YEAR ENDING 31-03-2002 AND THEREFORE, THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASES OF UNITED COMMERCIAL BAN K AND COCANADA RADHASWAMI BANK LTD (CITED SUPRA) AND THAT OF BANGA LORE BENCH IN THE CASE OF M/S STEELCONS CASE ARE NOT APPLICABLE. HE SUBMITTED THAT THIS FINDING OF THE LOWER AUTHORITIES IS INCORRECT BECAU SE, THE AO HIMSELF HAS DETERMINED THE LOSS OF RS.9,67,922/- UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION AND THIS IS A POINTER TO THE FACT THAT THE ASSESEEE HAD CARRIED ON THE BUSINESS DURING THE YEA R ENDING 31-03- 2003. HE THEREAFTER, DREW OUR ATTENTION TO THE DET AILS OF TURNOVER EFFECTED BY THE ASSESEEE DURING VARIOUS FINANCIAL YEARS TILL 31-03-2009 TO DEMONSTRATE THAT DURING THE FINANCIAL YEAR 2003- 04 THE TURNOVER WAS RS.33,09,862/- FOR THE ASSESSMENT YEAR 2007-08 IT W AS RS.8,02,775/- FOR ASSESSMENT YEAR 2008-09 IT WAS RS.86,40,160/-. HE SUBMITTED THAT THERE WAS NO TURNOVER DURING THE FINANCIAL YEARS : 2000-01,2001-02 AND 2002-03 AND THAT THIS ONLY SHOWS THAT THERE WAS A T EMPORARY LULL IN THE BUSINESS OF THE ASSESEEE AND IT DOES NOT AMOUNT TO CLOSURE OF THE BUSINESS. FOR THIS PROPOSITION, THE ASSESSEE PLACE D RELIANCE UPON THE FOLLOWING DECISIONS; ITA NO.1546(B)2008 (SB) S 8 1. CEPT VS SRILAKSHMI MILLS LTD., 20 ITR 451 (SC) 2. CIT VS VIKRAM COTTON MILLS LTD.,(1988) 169 ITR 597 (SC) 3. M/S LAKSHMI NARAYAN BOARD MILLS PVT.LTD., VS CIT (1994) 205 ITR 88(CAL.) 4. M/S KARSONDAS RANCHHODDASS VS CIT (1972) 83 ITR 1(B OM) 5. L.VE VAIRAVAN CHETTIAR VS CIT (1969) 72 ITR 114(M AD.) 6. M/S EMDEE EXPORTS VS ELEVENTH INCOME TAX OFFICE R (1985) 13 ITD 8(BANG.) 8.1. THE LEARNED COUNSEL FOR THE ASSESSEE THEREFORE , PRAYED THAT THE GROUNDS OF THE APPEAL OF THE ASSESSEE BEFORE THE SP ECIAL BENCH MAY BE ALLOWED. 9. THE LEARNED DR ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSETS SOL D BY THE ASSESSEE ARE IN FACT CAPITAL ASSETS AND THEREFORE, THE ASSESSEE BY ITSELF OFFERED THE INCOME FROM THE SALE OF THESE ASSETS UNDER THE HEAD CAPITAL GAINS AND HAS ALSO PAID TAXES AT THE RATE AT WHICH CAPITAL GA INS ARE TAXED. HE SUBMITTED THAT ANY GAIN OR LOSS ON THE SALE OF A CA PITAL ASSET CANNOT BE REFERRED TO AS BUSINESS INCOME AND IT CANNOT BE SET OFF AGAINST THE BROUGHT FORWARD LOSS OF EARLIER YEARS. HE DREW OUR ATTENTION TO THE PROVISION OF SEC.72 OF IT ACT TO DEMONSTRATE THAT I T IS ONLY BUSINESS INCOME AGAINST WHICH THE BROUGHT FORWARD LOSS CAN B E SET OFF. HE STRONGLY RELIED UPON THE JUDGMENT OF THE HONBLE SU PREME COURT IN THE CASE OF M/S EXPRESS NEWSPAPERS LTD., (CITED SUPRA) AND SUBMITTED THAT THE FINDINGS OF THE HONBLE SUPREME COURT SHOULD BE CONSIDERED IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES BEFORE THE HON BLE COURT. HE ALSO ITA NO.1546(B)2008 (SB) S 9 SUBMITTED THAT IN BOTH THE CASES I.E M/S UNITED COM MERCIAL BANK LTD., AND M/S COCANADA RADHASWAMI BANK LTD., THE CAPITAL GAINS WERE ON ACCOUNT OF SALE OF SECURITIES AND THE HONBLE SUPRE ME COURT HAS TAKEN NOTE OF THE FACT THAT THESE SECURITIES WERE IN FACT TRADING ASSETS OF THE ASSESSEES THEREIN AND THEREFORE, THOUGH THE INCOME WAS TO BE TAXED UNDER THE HEAD INCOME FROM SECURITIES IT DOES NOT LOSE THE CHARACTER OF BUSINESS INCOME AND THEREFORE, BROUGHT FORWARD LOSS OF EARLIER YEARS CAN BE SET OFF AGAINST SUCH INCOME. HE SUBMITTED THAT IN THE CASE BEFORE US, ASSETS WERE FIXED ASSETS AS SHOWN IN THE BALANCE SH EET OF THE ASSESSEE AND WERE UNDOUBTEDLY CAPITAL ASSETS. HE SUBMITTED T HAT THE ASSESSEE EVEN CLAIMED DEPRECIATION ON THE BUILDING AND BORE WELL IN THE EARLIER YEARS. HE SUBMITTED THAT MERELY BECAUSE, THERE IS A NEXUS BETWEEN THE BUSINESS CARRIED ON BY THE ASSESSEE AND THE ASSETS SOLD, THE GAINS ON THE SALE OF SUCH ASSETS CANNOT GET THE CHARACTER OF BUSINESS INCOME. THUS, ACCORDING TO HIM, THE FINDINGS OF LOWER AUTHO RITIES ARE TO BE UPHELD. 10. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THA T THE ONLY QUESTION BEFORE US FOR CONSIDERATION IS WHETHER THE BROUGHT FORWARD LOSS FROM THE EARLIER YEARS CAN BE SET OFF AGAINST THE INCOME FRO M CAPITAL GAINS U/S 72 OF THE IT ACT. FOR THE PURPOSE OF READY REFERE NCE, THE RELEVANT PORTION OF SEC.72 IS REPRODUCED HERE UNDER; ITA NO.1546(B)2008 (SB) S 10 72 (1) WHERE FOR ANY ASSESSMENT YEAR, THE NET RESULT OF THE COMPUTATION UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION IS LOSS TO THE ASSESSEE, NOT BEING LOSS SUSTAINED IN A SPECULATION BUSINESS, AND SUCH LOSS CANNOT BE OR IS NOT WHOLLY SET OFF AGAINST INCOME UNDER ANY HEAD OF INCOME IN ACCORDANCE WITH THE PROVISIONS OF SEC.71, SO MUCH OF THE LOSS AS HAS NOT BEEN SO SET OFF OR .. WHERE HE HAS NO INCOME UNDER ANY OTHER HEAD, THE WHOLE LOSS SHALL, SUBJECT TO THE OTHER PROVISIONS O F THIS CHAPTER, BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR, AND (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GA INS, IF ANY , OF ANY BUSINESS OR PROFESSION CARRIED ON B Y HIM AND ASSESSABLE FOR THAT ASSESSMENT YEAR;. MUCH STRESS HAS BEEN LAID BY BOTH THE PARTIES ON TH E TERM PROFITS AND GAINS IF ANY, OF ANY BUSINESS OR PROFESSION ME NTIONED IN SUB- CLAUSE (I) OF SUB-SEC.(1) OF SEC.72 OF THE IT ACT. WHAT ARE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION ?. WHETHER IT SHOU LD BE THE INCOME EARNED OUT OF THE BUSINESS CARRIED ON BY THE ASSESS EE OR IT MAY BE THE INCOME IN ANY WAY CONNECTED TO THE BUSINESS OR PROF ESSION CARRIED ON BY THE ASSESSEE ?. THE ANSWER TO THIS QUESTION ENTI RELY DEPENDS ON THE INTERPRETATION TO BE GIVEN TO THE TERM OF ANY BUSI NESS OR PROFESSION CARRIED ON BY THE ASSESSEE AND ASSESSABLE FOR THAT ASSESSMENT YEAR FOR DETERMINATION OF THE ISSUE. IT IS NOT IN DISPUTE T HAT THE LAND, BUILDING ITA NO.1546(B)2008 (SB) S 11 AND BORE WELL SOLD BY THE ASSESSEE WERE USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES. IT IS ALSO NOT DISPUTED THAT TH ESE ASSETS WERE FIXED ASSETS OF THE ASSESSEE. THE ONLY ARGUMENT OF THE A SSESSEE HAS BEEN THAT THEY HAVE DIRECT NEXUS WITH THE BUSINESS CARRIED ON BY THE ASSESSEE AND THEREFORE, ARE BUSINESS ASSETS AND ANY GAINS FROM T HE SALE OF SUCH ASSETS WOULD ALSO HAVE THE CHARACTER OF BUSINESS IN COME. WE ARE UNABLE TO AGREE WITH THIS CONTENTION OF THE ASSESSE E THAT THE ASSETS SOLD BY THE ASSESSEE WERE BUSINESS ASSETS. UNDISPUTEDLY, THEY WERE CAPITAL ASSETS AND THE CAPITAL RECEIPTS ARE NOT TAXABLE NOR ARE THE CAPITAL PAYMENTS DEDUCTIBLE FROM THE INCOME OF THE ASSESSEE . THE CAPITAL IS TO BE USED FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE AND IT SHALL REMAIN IN THE BUSINESS OF THE ASSESEE TILL IT IS EITHER CONVERTED INTO STOCK-IN-TRADE OR IS DISPOSED OFF. THE INCOME EARNED BY THE ASSESSEE BY CARRYING ON THE BUSINESS BY USE OF THE STOCK IN TRADE ONLY IS THE BUSINESS INCOME OF THE ASSESSEE. LIKEWISE, ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR CARRYING ON OF BUSINESS AND FOR EARNING THE INCOME FROM SUCH BUSINESS OR PROFESSION IS ONLY ALLOWABLE AS DEDUCTION. AFTER TAKING INTO ACCOUNT THE RECEIPTS AND PAYMENTS FOR C ARRYING ON THE BUSINESS OF THE ASSESSEE ONLY THE PROFIT OR GAIN OR LOSS FROM THE BUSINESS IS COMPUTED. IF THE PROFIT OR LOSS RELATE TO THE SAME ASSESSMENT YEAR FROM ONE SOURCE THEN IT CAN BE SET OFF FROM AN OTHER SOURCE UNDER THE SAME HEAD OF INCOME U/S 70 ACT, AND IT CAN BE S ET OFF AGAINST THE INCOME FROM ANY OTHER HEAD OF INCOME U/S 71 OF THE ACT. SEC.72 OF THE ACT HOWEVER, PERMITS THE CARRY FORWARD BUSINESS LOS S TO SUBSEQUENT ITA NO.1546(B)2008 (SB) S 12 ASSESSMENT YEARS AND ALLOWS IT TO BE SET OFF AGAINS T PROFIT & GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY T HE ASSESSEE AND ASSESSABLE FOR THE RELEVANT ASSESSMENT YEAR. THUS, IT IS CLEAR THAT IT IS ONLY THE BUSINESS LOSS THAT CAN BE CARRIED FORWARD U/S 72 OF THE ACT AND IT CAN ALSO BE SET OFF ONLY AGAINST THE BUSINESS IN COME OF THE ASSESSEE, BE IT FROM THE SAME BUSINESS OR FROM ANY OTHER BUSI NESS. IN THE CASES RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE , THE HONBLE SUPREME COURT WAS DEALING WITH THE CASES OF THE ASS ESSEES WHOSE BUSINESS WAS DEALING IN SECURITIES ALSO AND IT WAS THUS HELD THAT THESE SECURITIES WERE TRADING ASSETS AND THEREFORE, THE I NCOME THEREFROM THOUGH TO BE COMPUTED UNDER THE HEAD INCOME FROM S ECURITIES DOES NOT LOSE THE CHARACTER OF BUSINESS INCOME. BUT I N THE CASE OF M/S EXPRESS NEWSPAPERS LTD., CITED SUPRA, THE FACTS OF THE CASE ARE LITTLE DIFFERENT AND AFTER TAKING INTO CONSIDERATION THE F ACTS OF THE CASE THEREIN, THE HONBLE SUPREME COURT HAS HELD THAT TH E CAPITAL GAINS ON SALE OF CAPITAL ASSETS IS NOT TO BE SET OFF AGAINST THE BROUGHT FORWARD LOSS OF EARLIER YEARS. IN OUR OPINION, THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S EXPRESS NEWSPAPERS LTD., I S FAIRLY APPLICABLE TO THE FACTS OF THE CASE BEFORE US. THE COORDINATE B ENCH OF THE TRIBUNAL IN THE CASE OF M/S STEELCON INDUSTRIES PVT.LTD., CI TED SUPRA, HAS MISPLACED ITS RELIANCE UPON THE DECISION OF THE APE X COURT IN THE CASES OF M/S UNITED COMMERCIAL BANK LTD., AND M/S COCANAD A RADHASWAMI BANK LTD., IN VIEW OF THE SAME, WE ARE INCLINED TO REJECT THE GROUNDS OF ITA NO.1546(B)2008 (SB) S 13 APPEAL NOS.5 & 6 RAISED BY THE ASSESSEE. THUS, THE REFERENCE IS ANSWERED IN FAVOUR OF REVENUE. 11. THE CASE IS NOW TO BE POSTED BEFORE THE DIVISIO N BENCH TO GIVE EFFECT TO THE ORDER OF THE SPECIAL BENCH AND ALSO T O GIVE EFFECT TO THE ORDER OF THE DIVISION BENCH ON THE GROUNDS OF APPEA L NOS. 1 TO 4 DECIDED BY IT WHILE MAKING THE REFERENCE TO THE HONBLE PRE SIDENT FOR THE CONSTITUTION OF A SPECIAL BENCH. ( N.BARATHVAJA SANKAR) (G.C.GUPTA) (SMT. P. MADHA VI DEVI) VICE PRESIDENT VICE PRESIDENT JUDICI AL MEMBER PLACE: BANGALORE DATED: 09-12-2011 AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF(BLORE) BY ORDER AR, ITAT, BANGALORE