B/F business loss can be set off against short-term capital gains arising from sale of business assets: ITAT

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  • Last Updated on 23 August, 2022

capital gains

Case Details: Infinity Infotech Parks Ltd. v. PCIT - [2022] 141 taxmann.com 131 (Kolkata-Trib.)

Judiciary and Counsel Details

    • A.T. Varkey, Judicial Member & Rajesh Kumar, Accountant Member
    • Akkal Dudhwewala, FCA for the Appellant.
    • Md. Atahar H. Choudhury, CIT for the Respondent.

Facts of the Case

The assessee was engaged in leasing IT parks developed by it to various IT companies and other companies for commercial purposes. When the constructed spaces were given on long-term leases, the assessee received lump sum lease premium which was reduced/adjusted from the block of ‘fixed assets’ in terms of the deeming fiction set out in section 43(6) read with section 50.

Accordingly, when the block of asset ceased to exist, the excess/gain arising after adjustment of the premium received from long-term leases from the WDV of the asset, was computed and shown by way of deemed ‘short-term capital gain’ under section 50. The assessee claimed set-off of brought-forward business loss of preceding years against this short-term capital gain. The Assessing Officer allowed the same.

Subsequently, the Commissioner invoked revision jurisdiction under section 263 on the ground that the set-off of brought forward business loss of earlier years against the short-term capital gain was irregular. The assessee filed the instant appeal before the Tribunal.


The Tribunal held that the activity of leasing constructed spaces was undeniably the assessee’s core business activity. Hence, these properties constructed by the assessee were its ‘business asset’ reflected by way of ‘fixed asset’. The income derived from leasing these fixed assets had been taxed as ‘business income’.

Under the scheme of the Act, the income from grant of ‘long-term capital leases’ results in deemed transfer of fixed assets, and therefore by way of operation of deeming fiction set out in section 50, the excess/ gain over the WDV of the fixed asset has to be taxed as ‘short-term capital gain’.

It cannot be denied that the act of entering into ‘long term leases’ is the business activity of the assessee and the income, which is assessed by way of capital gain, bears the character of profits or gain derived from such leasing business.

Hence, irrespective of under which head such income is taxable (‘short-term capital gain’ in the instant case), the loss assessed under the head ‘profits & gains of business or profession’ in the preceding years and brought forward to the relevant year had been rightly claimed as set-off against the profits or gain derived from long term leases assessed under the head ‘short-term capital gain’.

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