Ratnam, J. - (1.) AT the instance of the Revenue, under section 256(1) of the Income-tax Act, 1961, (hereinafter referred to as "the Act"), the following question of law has been referred for the opinion of this court : "Whether, on the facts and in circumstances of the case, the Appellate Tribunal was justified in holding that the assessable capital gain would be only Rs. 1,81,671 computed in the manner set out in paragraph 14 of the order of the Tribunal ?"
(2.) THE assessee is a registered firm and the assessment year under consideration is 1973-74. In the accounting period ending on March 31, 1973, the assessee sold shares in several companies. With reference to the sale of such shares in three companies, viz., (i) Stanes and Co. Ltd., (ii) Consolidated Coffee Ltd., and (iii) Coffee Land Ltd., the assessee secured a gross long-term capital gain of Rs. 5,61,598. However, in the sale of shares of six other companies, viz., (i) Shree Ayyanar Spinning and Weaving Mills Ltd., (ii) Virudhunagar Steel Rolling Mills Ltd., (iii) Be Be Rubber Ltd., (iv) Bhavani Tea Ltd., (v) Pierce Leslie India Ltd. and (vi) Keelkotagiri Ltd., the assessee sustained long-term capital loss in a sum of Rs. 96,583. THE assessee, in the course of the assessment proceedings before the Income-tax Officer, computed the assessable capital gains on the aforesaid transactions of sale of shares in the following manner : JUDGEMENT_55_ITR179_1989Html1.htm Against the quantum of assessable capital gains computed as aforesaid by the assessee, the Income-tax Officer recomputed it at Rs. 2,29,963 on the following basis : JUDGEMENT_55_ITR179_1989Html2.htm THE difference in the computation by the assessee and the Income-tax Officer arose because while the assessee first claimed deduction under section 80T(b) of the Act from the capital gains arising out of the sales of shares of the three companies in which there was a profit and then deducted 50% thereof and thereafter deducted further the loss on the sale of shares, the Income-tax Officer set off against the long-term capital gains, the long-term capital loss and thereafter allowing deduction under section 80T(b) of the Act at Rs. 5,000, proceeded to deduct a further 50% under section 80T(b)(ii) of the Act. Before the Appellate Assistant Commissioner, the assessee maintained that the computation of the capital gains made by it in the manner set out earlier was correct. But he took the view that the computation made by the Income-tax Officer was in accordance with the relevant provisions of the Act and there was, therefore, no error therein. On further appeal to the Tribunal by the assessee, the Tribunal upheld the computation made by the assessee on the basis of a decision of the Tribunal in I.T.A. No. 1115 of 1975-76 (Mad) dated December 17, 1976, and computed the assessable capital gains at Rs. 1,81,671. In doing so, the Tribunal took into account the long-term capital gains of Rs. 5,61,508 and deducted Rs. 96,583 representing the long-term capital loss of the same year and arrived at the balance of Rs. 4,64,925, from which Rs. 5,000 was further deducted under section 80T(b) of the Act and thereafter the Tribunal, purporting to give effect to section 80T(b)(ii) of the Act, gave a 50% deduction on Rs. 5,61,508 to arrive at the assessable capital gains at Rs. 1,81,671. On the view so taken, the Tribunal allowed the appeal of the assessee and that is how the matter has come up before this court on a reference on the question of law set out earlier. Learned counsel for the Revenue submitted that the Tribunal erred in its approach to the question of computing the assessable capital gains and that the computation made by the Tribunal is opposed to the decisions of this court in CIT v. Sigappi Achi [1983] 140 ITR 448 and CIT v. Rajah Sir M. A. Muthiah Chettiar (T.C. No. 1222 of 1977, dated 4-1-1982). On the other hand, learned counsel for the assessee attempted to support the conclusion arrived at by the Tribunal on its reasoning and by referring us to the decision in CIT v. Canara Workshops P. Ltd. . We have carefully considered the rival submissions made. The scheme of the Act envisages different heads of income, such as, income from property, profits and gains of business, income from securities, capital gains, etc. Capital gains is also one such head of income, though, for certain purposes, that has been bifurcated into long-term capital gain and short-term capital gain. We are, in this reference, concerned only with the long-term capital gains. The assessable income falling under the head "Long-term capital gains" comprises the totality of the long-term capital gains secured by the sale of individual capital assets after deducting or setting off the long-term capital losses as well against the long-term capital gains. Under section 70(2)(ii) of the Act,it is provided that an assessee shall be entitled to have the amount of such loss set off the gains, if any. In other words, if the assessee sustains a loss in respect of the transfer of any long-term capital asset, the assessee would also be entitled to set off such a loss sustained against the long-term capital gains derived from the sale of any other long-term capital asset during the same previous year. In order to arrive at the income chargeable under the head "Long-term capital gains" within the meaning of section 80T of the Act, the loss on the transfer of the long-term capital asset and its set off against long-term capital gains derived by the transfer of any other long-term capital asset has to be taken into account. Without reference to the method of computation as indicated in section 70(2)(ii) of the Act, setting off the loss resulting from the sale of some shares as against the gains arising from the sale of the other shares and arriving at the income chargeable to tax as capital gains, the assessee has, from only out of the capital gains arising from the sale of long-term capital asset, proceeded to deduct Rs. 5,000 under section 80T(b) of the Act and a further 50% on the balance and thereafter to totally deduct the entire capital loss arising from the sale of other long-term capital assets to arrive at the assessable capital gains at Rs. 1,81,671. This method of computation is not in accordance with the letter as well as the spirit of the provisions we have already referred to. We are also fortified in this view of ours by the two decisions relied on by the Revenue. In CIT v. Sigappi Achi [1983] 140 ITR 448 (Mad), the assessee, by the sale of one long-term capital asset, viz., shares, incurred a loss of Rs. 96,907, while, by the sale of another long-term capital asset, viz, house site, she secured a capital gain of Rs. 48,767. Notwithstanding the net result that there was a net loss of Rs. 48,140, the assessee claimed relief under section 80T of the Act, praying that such relief had to be worked out on the basis of the capital gains arising out of the sale of the house site in a sum of Rs. 48,767. This claim of the assessee was rejected, but eventually the Tribunal held that the assessee was entitled to the relief also had to be worked out on the basis of the capital gains of Rs. 48,767, representing the long-term capital gains on the sale of the house site. While answering the reference, this court observed at page 450 as follows : "A reading of section 80T will clearly show that the relief is exigible not on individualised items of long-term capital gains, but, on the contrary, it is on 'Income chargeable under the head "Capital gains" relating to capital assets other than short-term capital assets'. Under the scheme of the Income-tax Act, there are different head of income, such as, income from property, profits and gains of business, income from securities, capital gains, and so on. For certain purposes, chiefly for set-off of loss under the head 'Capital gains', capital gains itself is bifurcated into two subheads - long-term capital gains and short-term capital gains. The income which is chargeable under the sub-head 'Long-term capital gains' would really include the sum total of the long-term capital gains derived from the sale of individual capital assets. But, before arriving at the figure chargeable under the sub-head 'Long-term capital gains', one will have to set off the long-term capital losses, as against the long-term capital gains. This rule of computation is laid down by section 70(2)(ii) of the Act. In the present case, the long-term capital loss on the sale of shares was Rs. 96,907, whereas the long-term capital gains on the sale of real property was only Rs. 48,140. Since this net result was a loss, there can be no question of any relief under section 80T of the Act, for the simple reason that it contemplates a positive income chargeable under the head 'Long-term capital gains'. The Tribunal's decision has wholly ignore not only the scheme of computation of the long-term capital gains under appropriate sub-head inclusive of the provisions as to set off of long-term capital losses but also the relief provided under section 80T." We are of the view that the aforesaid observations clearly bring out the method to be adopted for computing the assessable long-term capital gains in any given case where by the sale of some long-term capital assets there is a gain and by the sale of some others there is a loss, though in the same year.
(3.) WE may now refer to the decision of the Tribunal in I.T.A. No. 1115/Mds./1975-76 dated December 17, 1976 relied on by the Tribunal in this case. The assessee therein, during the accounting year relevant for the assessment year 1972-73, sold two long-term capital assets, viz., land and shares. By the sale of the land, the assessee realised a capital gain of Rs. 7,13,000, while by the sale of shares he sustained a loss of Rs. 4,63,530. The assessee claimed that relief should be given under section 80T of the Act on the long-term capital gain in land ignoring the loss on the sale of shares. This was not accepted by the Income-tax Officer, who gave relief under section 80T of the Act to the limited extent of about 2.49 lakhs of rupees, which was the income chargeable under the head "Long-term capital gains". Eventually, the Tribunal took the view that relief under section 80T of the Act must be worked out on the basis of accepting the figure of long-term capital gains on the sale of land only. This court pointed out that the subject of the relief under section 80T of the Act is a long-term capital gain and when expanded, this phrase means "any income chargeable under the head 'Capital gains' relating to long-term capital gains. Referring to section 70(2)(ii) of the Act, it was laid down that provision enacted that where there is loss in respect of the transfer of any long-term capital asset, the assessee would be entitled to set off such a loss against the long-term capital asset and its set off as against the long-term capital gains derived from the sale of any other long-term capital asset in the same previous year and that the determination of the loss on the transfer of a long-term capital gain derived from the transfer of any other long-term capital asset will alone give us the income chargeable under the head "Long-term capital gains" within the meaning of section 80T of the Act. In that view, the Tribunal's conclusion was not accepted. The conclusion of the Tribunal in this case that it cannot be held that it is only the net adjusted figure under section 70(2)(ii) of the Act that stands included in the gross total income and not the surplus or deficit from each transfer computed in the manner prescribed in sections 48 to 55 of the Act, cannot at all be supported in view of the decisions referred to already. Cit v. Canara Workshops P. Ltd. does not in any manner assist the assessee. In that case, the court was considering section 80B of the Act and the question was whether the loss incurred by the assessee in the manufacture of alloy steels, a priority industry, could not be set off against the profits of the manufacture of automobile ancillaries, which was also a priority industry, carried on by the assessee. It was in that context that the court pointed out that in the application of section 80E of the Act, each industry must be considered on its own and the profits and gains earned by one priority industry cannot be reduced by the loss suffered by any other industry or industries owned by the assessee and that in computing the profits for the purpose of deduction under section 80E of the Act, the incurred by the assessee in the manufacture of alloy steel, a priority industry, could not be set off against the profits of the manufacture of automobile ancillaries, another priority industry, as the object of section 80E of the Act would be served only by confining its application to the profits and gains of a single industry. We do not see how that decision could be of any assistance to the assessee. That case dealt with section 80E of the Act, providing for deduction of 8% in computing the profits and gains in respect of certain priority industries and had nothing whatever to do with the computation of capital gains arising out of long-term capital assets, specifically dealt with under section 70(2)(ii) and 80T of the Act. We are of the view that decision has no application at all in this case. We have now to refer to an error in the computation of capital gains as found in paragraph 14 of the order of the Tribunal. While giving the benefit of deduction of 50% under section 80T(b)(ii) of the Act, the Tribunal has arrived at the figure of Rs. 2,78,254; whereas it should be 50% of Rs. 4,59,925 only so that the assessable capital gains would work out to Rs. 2,29,963 and not Rs. 1,81,671 as found by the Tribunal. We, therefore, answer the question referred to us in the negative and in favour of the Revenue. The Revenue will be entitled to the costs of this reference. Counsel's fee Rs. 500. ;