INCOME TAX ACT, 1961

Section 263

Revision under section 263 - Erroneous and prejudicial order - Setting off of brought forward loss against dividend income held as business income -

AO had adjusted the brought forward business loss of assessment year 1998-99 against the various other income of the assessee. The CIT invoking provision of section 263 observed that brought forward business loss could be set-off only against business income of the assessee and since, in the opinion of the CIT, there was no business income for the assessee during the year under consideration, he held that the order passed by the AO was erroneous and prejudicial to the interest of the revenue by allowing the set-off of brought forward loss since assessee was a Tamil Nadu Government undertaking engaged in the promotion and development of new indusrial undertakins in the State and for this purpose, it held shares in number of joint sector undertakings for which dividend income was received on those shares. Tribunal in the assessees own case in earlier years had categorically held that the dividend income would form part of business of the assessee and accordingly taxable under the head 'income from business', although the same was assessable under the head 'income from other sources' by virtue of specific provision contained in section 56(2)(i). Accordingly, assessee would be entitled to set-off of brought forward business loss and unabsorbed depreciation of earlier years against the said dividend income. Held: As per the original agreement with the joint sector undertakings entered into by the assessee, the assessee was only holding 24% shares for those entities. It was incumbent on the part of the assessee that having promoted industries in the State and having undertaken to participate in the day to day affairs in the management of those undertakings by participating in crucial decision making process. The assessee had to maintain its 24% equity stake in those undertakings at every point in time, so as not to lose controlling interest over the respective undertakings. Assessee was all along getting returns only in the form of dividend and had never participated in any profit sharing with those public sector undertakings right from the inception of the assessee company. Accordingly, the observations of the CIT of his order were dismissed and the grounds raised by the assessee in this regard were therefore, allowed.

Followed:assessee's own case for the assessment years 1976-77, 1979-80, 1980-81 and 1981-82 in ITA Nos. 2153 to 2156/Mds/1987, dt. 19-3-1991, assessee's own case reported in (2010) 124 ITD 117 (Chen) : 2010 TaxPub(DT) 0997 (Chen-Trib).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2003-04

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