Gujarat High Court
Commissioner Of Income-Tax vs Mahendra Kanaiyalal (Huf) on 16 September, 1992
Equivalent citations: [1993]202ITR701(GUJ)
Author: G.T. Nanavati
Bench: G.T. Nanavati
JUDGMENT G.T. Nanavati, J.
1. The Income-tax Appellate Tribunal has referred the following question to this court under section 256(1) of the Income-tax Act, 1961 :
"1. Whether, on the fats and in the circumstances of the case, the assessee is entitled to set off its short-term capital loss of Rs. 1,790 only, against in income under other heads ?"
2. In the assessment proceedings for the assessments year 1974-75 of Mahendra Kanaiyalal (Hindu undivided family,) A questions arose as to whether the Assessee was entitled to set off short-term capital loss of Rs. 1,790 against other income or whether it was to be set off against capital gains, whether short-term or long-term. The Contention of the assessee was that it was entitled to set off short-term capital loss against other income, i.e., income other than capital gains. The Income-tax Officer rejected this claim. The assessee, however, succeeded in the appeal to the Appellate Assistant Commissioner. Thus, the assessee was held entitled to set off the short-term capital loss against its other income. Long-term capital gain was below Rs. 5,000 and, therefore, was held not taxable. The Revenue, therefore, preferred an appeal before the Tribunal but without any success. Thereupon, the Revenue moved the Tribunal for making a reference to this court under section 256(1) of the Act. That is how the aforesaid question is referred to this court for its opinion.
3. What is urged by learned counsel for the Revenue is that if we look at the Scheme of the Act, it becomes clear that computation of income is to be made headwise and similarly, the deductions also, in the first instance, are to be made headwise. He also submitted that if section 70(2)(i) and section 71(3) as they stood in 1974-75 are read together, it becomes clear that the option which was available to the assessee under sub-section (3) of section 71, was made "subject to the provisions of this Chapter". As the option under section 71(3) was made subject to the provisions of the Chapter in which the two sections appear, he submitted that, if the net result of the computation in respect of capital gains relating to short-term capital assets is a loss, then the assessee in the first instance has to have the amount of such loss set off against the income as arrived at under similar computation made in respect of long-term capital assets and, if while doing so, the said heads does not disclose a loss, then the question of claiming adjustment against another head would not arise. In support of this submission, he drew our attention to sections 15, 16, 18, 19, 20, 22, 24, 25, 28 to 43, 45, 48, 53, 56 to 58. Those section deal with various heads of income and permissible deduction under those heads. In this case, we are not concerned with deduction as such. For claiming set off, or to carry forward loss, separate provisions have been made in Chapter VI of the Act. Therefore, when a claim is made for set off or carrying forward loss, we have to consider those provisions only and find out whether the claim based upon those provisions is justified or not. Section 70 provides for set off of loss under one source of income from another source under the same head of income. Section 71 provides for set off of loss from one head against income from another. Thus, the Scheme adopted by the Legislature for the purpose of claiming set off of loss is quite different. Under section 70(2)(i), if the result of the computation made under section 48 to 55 in respect of any short-term capital asset was a loss, then the assessee was given a right to have the amount of such loss set off against the income, if any, arrived at under a similar computation in respect of any other capital asset. Thus, the assessee was entitled to set off loss in respect of short-term capital assets against income or gain derived from any other capital asset that included long-term capital assets also. Section 71 gave an option to set off such loss against income under any other head. The words "subject to the provisions of the Chapter" in section 71(3) cannot be read to mean that this sub-section was made subject to section 70(1) as that would result in almost nullifying the right which was given to the assessee under sub-section (3) of section 71. Moreover, as pointed out by the Calcutta High Court in Punjab Produce and Trading Co. Ltd. v. CIT [1986] 159 ITR 376, Section 70(2)(i) and section 71(3) confer severable and separate rights on the assessee. Thus, both the rights were independent of each other. We are in agreement with this view taken by the Calcutta High Court. The Calcutta High Court again followed that decision in CIT v. B. K. Birla [1988] 174 ITR 361. For the reason stated above, the contention raised on behalf of the Revenue cannot be accepted.
4. In our opinion, the Tribunal was right in holing as under :
"The rationale and object of introducing provisions relating to short-term capital loss were to assimilate such a loss to a loss under any other head of income. It is only long-term capital loss that operated in a restricted field and is set off in a restricted fashion. While the short-term capital loss can be set off under section 71(3) against income under any other head, long-term capital loss can be set off only against the long-term capital gains. Since short-term capital loss is likened to a loss under any other head of income for purpose of set off by the Legislature and long-term capital loss has been allowed to be set off only in a restricted fraction, it would not be proper to restrict the operative filed of "set off" for short-term capital loss by reading section 70(2)(i) in a narrow sense. Section 70(2)(i) only enables the assessee to set off short-term capital loss against long-term capital gains. The assessee shall be entitled to do so under that sub-section. It would not be fair, however, to compel the assessee to set off short-term capital loss against long-term capital against under section 70(2)(i) and then deprive the assessee of the larger benefit which he might obtain in regard to the set off of short-term capital loss by having resorts to sections 71(3)."
5. We, therefore, answer the questions in the affirmative, i.e., in favour of the assessee and against the Revenue. It may be stated for clarification that the word "only" appearing after the figure Rs. 1,790, goes with the figure of Rs. 1,790 and not with the following word, namely, against the income under other heads.
6. No order as to cost.