Non speculative business loss can be set off against profits of any business including speculative business–High Court

Non speculative business loss can be set off against profits of any business including speculative business carried on by assessee – High Court 

ABCAUS Case Law Citation:
ABCAUS 2096 (2017) (10) HC

The Challenge/Grievance:
This instant Income Tax Appeal was filed under Section 260(A) of the Income Tax Act, 1961 (‘the Act’) by the by the Department against the judgment and order passed by the Income Tax Appellate Tribunal (ITAT) in allowing set off of non-sepculative business loss with speculative profits.

Brief Facts of the Case:

The respondent assessee was a private limited company who had filed return of the income declaring nil income after setting off business loss of the earlier year. The Assessing Offficer (AO) completed the assessment u/s 143(3) of the Act by disallowing set off of business loss from share trading business treating it as speculative profit.

On appeal by the assessee, the CIT(A) however, enhanced the income.

The ITAT allowed the appeal of the assessee and allowed set off of business loss (non-speculative) against profit from speculative business (share trading income).

Aggrieved by the ITAT order, the Department filed the instant appeal before the High Court and disputed the setting off of loss of a non-speculative business against income from speculative business.

The Substantial Questions of Law framed/urged for determination:

1. Whether the ITAT was correct in law and on facts in holding that non-speculative business loss of current year and carry forward non-speculative business loss of earlier years can be set off from the income of speculative business of the current years?

2. Whether the ITAT was in error in allowing loss in non-speculative business to be set off from income of speculative business without appreciating that set off of loss against income is governed by and limited to provisions of Sections 72 and 73 in particular and Sections 70 to 80 in general which do not provide for set off loss of non-speculative business against income from speculative business.

3. Whether the ITAT erred in law and in fact in failing to appreciate that Section 28 provides that a speculative business shall be deemed to be distinct and separate from any other business and this being the case loss from non-speculative business could not be set off against profits of speculative business.

Contention of the Assessee:

It was contended that as per section 72(1) of the Income Tax Act non-speculative business loss can be set off against profit and gains of any business or profession.

Observations made by the High Court:

The High Court observed that the Tribunal had categorically held that the expression ”any” business appearing in section 72(1)(i) of the Act clearly includes all business and do not make any distinction between the speculative and non-speculative business.

The ITAT in view of the above had held that in view of the plain language of the statutory provision of section 72, loss in a business, other than non-speculative business, cannot be set off against profit of speculative business as also non-speculative business. But there is no bar in the reverse case i.e. losses of non-speculative business, can be set off against profit of speculative business

The High Court observed that the ITAT even looked into the backdrop of the provisions putting restrictions on set off of speculation losses which were brought in to operation with effect from 1st April, 1953 when for the very first time the the distinction between speculation business and non-speculation business was introduced.

Decision/Held:

The Hon’ble High Court upheld that order passed by the ITAT and declined to interfere with it.