Case Note & Summary
The assessee, K.S. Venkatesh, filed an appeal under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal (ITAT), Bangalore Bench in ITA No.60/BANG/2009 for the assessment year 2004-05. The assessee had filed a return of income claiming a loss of Rs. 24,23,760/-. The Assessing Officer, after issuing notice under Section 143(2) of the Act, framed the assessment order under Section 143(3) on 30.11.2006, accepting the carried forward loss and allowing it to be set off against the total income of the assessee comprising 'Income from Other Sources', 'Income from House Property', and 'Business Income'. However, the Commissioner of Income Tax (CIT) invoked revisionary jurisdiction under Section 263 of the Act and set aside the assessment order, holding that the loss from house property could not be set off against income from other heads in view of the amendment to Section 71(3A) of the Act with effect from 1.4.2003. The CIT directed the Assessing Officer to recompute the income by not allowing set-off of house property loss against salary income. The assessee appealed to the ITAT, which partly allowed the appeal by holding that the loss from house property could be set off against salary income but not against other heads. The assessee then appealed to the High Court. The High Court framed the substantial question of law: whether the loss from house property can be set off against income from other heads, particularly salary income, in light of the amendment to Section 71(3A) of the Act. The court analyzed the provision and held that the amendment, which came into effect from 1.4.2003, clearly prohibits set-off of loss from house property against income from any other head except as provided. The court noted that the ITAT's view that salary income is not 'income from other sources' and thus can be set off was erroneous. The court allowed the appeal, set aside the ITAT's order, and restored the order of the CIT under Section 263, directing the Assessing Officer to recompute the income without allowing set-off of house property loss against salary income.
Headnote
A) Income Tax - Set Off of Losses - Section 71(3A) of Income Tax Act, 1961 - Loss from house property cannot be set off against salary income - The amendment to Section 71(3A) with effect from 1.4.2003 restricts set-off of loss from house property only against income from house property. The court held that the ITAT erred in allowing set-off against salary income, and the Assessing Officer's order allowing set-off against other heads was also erroneous. (Paras 2-5) B) Income Tax - Interpretation of Statutes - Retrospective vs. Prospective - Section 71(3A) of Income Tax Act, 1961 - The amendment is prospective from 1.4.2003 and applies to assessment year 2004-05. The court held that the plain language of the provision prohibits inter-head adjustment of house property loss. (Paras 3-5)
Issue of Consideration
Whether the loss from house property can be set off against income from other heads, particularly salary income, in light of the amendment to Section 71(3A) of the Income Tax Act, 1961 with effect from 1.4.2003?
Final Decision
Appeal allowed. Order of ITAT set aside. Order of CIT under Section 263 restored. Assessing Officer directed to recompute income without allowing set-off of house property loss against salary income.
Law Points
- Section 71(3A) of Income Tax Act
- 1961
- Loss from house property
- Set off of losses
- Inter-head adjustment
- Amendment with effect from 1.4.2003
