Income Tax Appellate Tribunal - Kolkata
B.N. Jhunjhunwalla Charity Trust vs Assistant Director Of Income-Tax on 17 January, 1996
Equivalent citations: [1996]58ITD135(KOL)
ORDER
Sri R. Acharya, AM.
1. This appeal is instituted by the assessee against the order of the DC (Appeals) for the assessment year 1981-82.
2. Although the assessee has raised four grounds, the sum and substance of all of them is that the DC (Appeals) erred in holding that the business loss of Rs. 1,05,000 in share transaction is to be set first against capital gains of Rs. 76,301 before any deduction under section 80T of the Income-tax Act 1961 even when the assessment is made on a positive total income of Rs. 34,586.
3. In short, the facts of the case are that the assessee has declared a loss of Rs. 1.05.000 against the share transactions as business loss and also has shown capital gains of Rs. 76,301 on sale of investment relating to the stock of the assessee shown in his shareholding with several companies including that of Texmaco Ltd. The assessee has earned capital gain of Rs. 76,301 as the shares relating to Texmaco Ltd. have been sold. According to the ITO the assessee claimed the set off of loss on the regular dealing in shares against this profit. The details and particulars of purchases and sales of the shares were furnished and were examined by the ITO. In his assessment order ITO held as the assessee had shown shares in the prohibited concern during the year the assessee had violated the terms of section 13 (1)(c) with regard to investment in the above concern read with section 13 (2)(h) and also made infringement of the provisions of section 13 (1)(bb) of the Act. He, therefore, denied the exemption to the assessee under section 11 and allowed the set off of loss in share transaction of Rs. 1,05,000 to the extent of capital gain on sale of investment of shares of Rs. 76,301.
4. Being aggrieved by the order of the ITO the assessee preferred the first appeal to the DC (Appeals) on the ground that the ITO erred in law as well as in fact in not allowing the deduction under section 80T of Rs. 33,520 arising out of sale of long-term shares investment. The DC (Appeals) found that the loss of Rs. 1,05,000 in share transaction was set off of the extent of Rs. 76,301 being capital gains on account of sale of shares and the result was that there was no income chargeable under the head "Capital Gains" which was included in the gross total income and as such he concluded that the Assessing Officer (A. O.) was justified in not entertaining the claim of the assessee for deduction under section 80T of the Act. While confirming the order of the Assessing Officer he took support from the following case laws :-
(i) CIT v. Gautam Sarabhai [1981] 129 ITR 133 (Guj.);
(ii) CIT v. M. Seshasayee [1981] 129 ITR 166 (Mad.);
(iii) H. H. Sir Rama Varma v. CIT [1981] 129 ITR 156 (Ker.);
(iv) Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC); &
(v) CIT v. Amul Transmission Line Hardware (P.) Ltd. [1976] 104 ITR 771 (Guj.).
Being aggrieved by the order of the DC (Appeals) the assessee has preferred this appeal to the Tribunal.
5. The learned counsel for the assessee Sri. G. P. Agrawal invited our attention to the provisions of section 71 (2) and 80T and submitted that on the facts and circumstances of the case the assessee is entitled to deduction under section 80T. He also contended that the business loss on purchase and sale of shares is separate and the capital gain on sale of share investment is shown under separate head and, therefore, the Assessing Officer and the DC (Appeals) were not justified in disallowing the claim of the assessee. Sri G. P. Agrawal also submitted that since the assessment has been completed on positive income the assessee is entitled to deduction under section 80T. In order to support his contention and argument he placed reliance on the following decisions :-
(i) CIT v. B. K. Birla [1988] 174 ITR 361 (Cal.);
(ii) CIT v. V. Venkatachalam [1993] 201 ITR 737 (SC);
6. The learned departmental representative Sri R. N. Sinha on the other hand submitted that since loss on sale of shares has been correctly adjusted against the profit or gain on sale of shares there is no question of deduction under section 80T as the deduction under section 80T depends upon gross total income. According to Sri Sinha the gross income includes losses too. He placed reliance on following judicial pronouncement in order to support his argument and contentions :-
(i) CIT v. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118 (SC);
(ii) M. S. P. Nadar Sons v. CIT [1993] 201 ITR 1044 (SC);
(iii) Eastern aviation & Industries Ltd. v. CIT [1994] 208 ITR 1023 (Cal.).
7. We have carefully considered that rival contentions, the relevant facts and material available on the record and have also gone through the case laws on which reliance has been placed by both the parties. In our opinion, the Assessing Officer and the DC (Appeals) are not justified in refusing the claim of the assessee. Although the Assessing Officer had distinguished both types of purchase and sale of shares, he has erred in adjusting the capital gain against loss on share transaction without granting deduction under section 80T. Before the DC (Appeals) the assessee had already made it very clear in its grounds of appeal that the assessee had already made it very clear in its grounds of appeal that the capital gain has arisen out of sale of long term shares investment and, therefore, is entitled to deduction under section 80T but in spite of that the DC (Appeals) allowed the set off of business loss against the long term capital gain and denied the benefit of deduction under section 80T to the assessee. The case laws on which he has relied do not help the cause of the Revenue because the facts and circumstances of the cases are altogether different, and the gross total income is negative and has resulted in a loss as contrary to the facts of the instant case.
8. The learned deptt. representative Sri Sinha has also placed reliance on three decisions but they also do not apply to the facts and circumstances of this case. In the case of Harprasad & Co. (P.) Ltd. (supra) the question before the Hon'ble Supreme Court was as under :-
"Whether, on the facts and in the circumstances of the case, the capital loss of Rs. 28,662 could be determined and carried forward in accordance with the provisions of section 24 of the Indian Income-tax Act, 1922, when the provisions of section 12B of the Income-tax Act 1922 itself were not applicable in the assessment year 1955-56."
9. It was held by the Supreme Court reversing the decision of the High Court that the capital loss could not be determined and the respondent was not entitled to carry forward of the loss of Rs. 28,662. In this way, this decision does not cover the issue of deduction under section 80T involved in the instant case nor does the ratio of this decision helps the cause of the Revenue as the facts and circumstances of both the cases are altogether different.
10. In case of Eastern Aviation & Industries Ltd. (supra) where the question raised was "Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holing that the appellant was not an investment company in terms of section 109 (ii) of the Income-tax Act, 1961", it was held that the Explanation to section 73 was clearly applicable and the loss suffered by the assessee-company in its share trading transactions inclusive of interest paid on borrowed moneys attributable to that business was rightly treated by the Tribunal as a loss in speculative business. The ratio of this decision is also not applicable to the instant case as neither the question of investment-company nor the question of a loss in speculation business is involved in the case of assessee.
11. Sri Sinha has also relied on the Supreme Court decision in the case of M. S. P. Nadar Sons (supra) where the assessee had earned long term capital gain on sale of shares of some companies and had also suffered long-term capital loss on sale of shares of other companies in the same previous year it was held that the deduction under section 80T is to be given only after loss is deducted from the gain. The decision of the Hon'ble Supreme Court is quoted as under :-
"Held affirming the decision of High Court, that there was only one type of capital asset in this case, viz, shares. In the same year, from the sale of certain shares, the appellant derived profit and from the sale of certain other shares, it suffered loss. The amount of capital gain during the relevant previous year meant the profits derived minus the loss suffered. The provisions for deduction had to be applied only to the balance arrived at after deducting the capital loss from the capital gain. It was not possible to treat the transfer of each asset separately and apply the deductions separately."
12. If we put the facts of the instant case of the tests and principles laid down by the Hon'ble Supreme Court we find that the ratio of this decision is not applicable to the present case as the assessee had suffered business loss on purchase and sale of share transactions on one hand and has earned long term capital gains on sale of share investments on the other. As there was only one type of capital asset in that case the deduction under section 80T was allowed on the balance arrived at after deducting capital loss from the capital gain but this is not factual position in the instant case as the business loss has occurred on purchase and sale of shares and the long term capital gain on sale of share investment as an asset. Accordingly, in our opinion, this decision also does not help the cause of the Revenue.
13. On the other hand we find that the argument and contentions of the learned counsel for the assessee Sri G. P. Agrawal hold good and get support from the Calcutta High Court decision in the case of B. K. Birla (supra) wherein it was held as under :-
"Where the gross total income of an assessee is a positive figure and even after set Off of the short term capital loss against other income there would be still a positive income in such a case, loss of short-term capital assets should not be set Off first against the long term capital gains so as to deprive the assessee of the relief available under section 80T (b). The position would be different when the gross total income is a negative figure."
In the instant case also the assessee has income from other sources and gross total income is a positive income of Rs. 34,586. Thus, the Assessing Officer should not have adjusted business loss against capital gains denied deduction under section 80T.
14. The instant case is entirely covered by the Hon'ble Supreme Court decision in the case of V. Venkatachalam (supra) which fully supports our view. In the case of V. Venkatachalam (supra) during the previous year the assessee derived long term capital gains of Rs. 1,02,740 and suffered business loss of Rs. 41.892. The Assessing Officer set off the business loss against the capital gains and granted relief under section 80T on the balance. The first appellate authority and the Appellate Tribunal held that the assessee was entitled to the relief under section 80T on Rs. 1,02,740 without deduction of the business loss and the High Court on a reference affirmed the decision of the Tribunal. On appeal, the Hon'ble Supreme Court held as under :
"Held affirming the decision of the High Court.
(i) that the words "such income" in the main part of section 80T meant and referred to the capital gains and not the total income of the assessee;
(ii) That the deduction provided for in section 80T had to be made from out of the capital gains which, in this case, amounted to Rs. 1,02,740 and no question could arise of the business loss being set of against this amount of capital gains."
Having considered all the facts and circumstances of the case and having gone through all judicial pronouncements we have come to the conclusion that on the facts and in the circumstances, the case of the assessee is squarely covered by the Supreme Court decision in the case of V. Venkatachalam (supra). We, therefore, respectfully follow the ratio of the Hon'ble Supreme Court's decision and hold that the orders of the Assessing Officer and the DC (Appeals) are not in accordance with the provisions of law and, therefore, their orders are vacated and the Assessing Officer is directed to allow the deduction under section 80T on capital gain of Rs. 76,301 without deduction or adjustment of business loss.
15. In the result, the appeal of the assessee is allowed.