B. P. JEEVAN REDDY, J. - (1.) THIS appeal is preferred by the assessee against the Judgment of the Madras High Court answering the question referred to it under Section 256(1) of the Income-tax Act in favour of the Revenue and against the assessee. The question stated, at the instance of Revenue, for the opinion of the High Court reads: "Whether, on the facts and in the cirumstances of the case, the Appellate Tribunal was justified in holding that the assessable capital gain would be only Rs. 1,81,671.00 computed in the manner set out in paragraph 14 of the order of the Tribunal?"
(2.) THE assessee is a registered firm. THE assessment year concerned is 1973-74, the relevant previous year being the financial year 1972-73. During the said previous year, the assessee sold shares held by him in several companies. From the sale of shares in three companies, it secured a gross long-term capital gain of Rs. 5,61,508.00. However, in the sale of shares in six other companies, it sustained a long-term capital loss in a sum of Rs. 96,583.00. THE assessee computed the capital gains on the aforesaid transactions of sale of shares in the following manner: JUDGEMENT_416_SUPP3_1993Html1.htm 2A. THE Income-tax Officer did not agree with the said mode of computation. He set off the long-term capital loss against the long-term capital gain in the first instance and then applied the deductions provided by S. 80-T to the balance figure of Rs. 4,64,925.00. His computation was in the following terms: JUDGEMENT_416_SUPP3_1993Html2.htm Aggrieved by the order of assessment, the assessee preferred an appeal which was dismissed by the Appellate Assistant Commissioner. On further appeal, however, the Tribunal agreed with his mode of computation. Thereupon the Revenue asked for and obtained the said reference. The High Court answered the said question in the negative i.e., in favour of the Revenue, on the following reasoning, the income from capital gains constitutes a separate head of income under the Act. Capital gains are bifurcated into long-term capital gains and short-term capital gains. In this case the Court is concerned only with long-term capital gains. Section 70(2)(ii) prescribes the manner in which the loss from sale of long-term capital asset is to be set off. According to the said provision, the assessee "shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under the similar computation made for the assessment year in respect of any other capital asset not being a short-term capital asset". Support for the said proposition was derived from the decision in Commr. of Income-tax v. Sigappi Achi, (1983) 140 ITR 448 (Mad). The correctness of the view taken by the High Court is questioned in this appeal. Shri T. A. Ramachandran, learned counsel for the appellant submitted that according to the provisions and scheme of the Act, capital gains have to. be computed in respect of each asset separately. S. 80-T prescribes different percentages of deduction for different types of capital assets : If the capital asset sold consists of "buildings or land, or any rights in buildings or lands", the deduction provided is 35 Per Cent in addition to the standard deduction of Rs. 5,000.00. Whereas in the case of any other capital asset, the percentage of deduction provided is 50 Per Cent , in addition to 'the standard deduction of Rs. 5,000.00. The deductions have to be worked out separately where the capital assets transferred during a previous year fall in both the categories. Even the proviso to S. 80-T shows that the gains arising from the transfer of these two types of capital assets must be treated as separate and distinct. If the capital gains arising from the transfer of both the types of capital assets are clubbed together, it would not be possible to work out the provisions of S. 80-T. The correct method, therefore, is to compute the capital gains with respect to each asset transferred separately, in accordance with S. 80-T, before setting off the losses.
(3.) WE are afraid the arguments advanced by Mr. Ramachandran travel far beyond the controversy involved herein. This is not a case where the assets transferred by the assessee during the relevant previous year consisted both the types of capital assets. They were of only one-type namely - shares. From the sale of certain shares the assessee derived profit and from the sale of certain other shares, he suffered loss. The simple question is how to work out and apply the deductions provided by S. 80-T in such a case. For answering this question, it is necessary to notice the provisions of S. 80-T and S. 70, as they stood during .the relevant previous year. "80-T. Where the gross total income of an assessee not being a company includes any income chargeable under the head "Capital gains" relating to capital assets other than short-term capital assets (such income being, hereinafter, referred to as long-term capital gains), there shall be allowed, in computing the total income of the assessee, a deduction from such income of an amount equal to,- (a) in a case where the gross total income does not exceed ten thousand rupees or where the long-term capital gains do not exceed five thousand rupees, the whole of such long-term capital gains; (b) in any other case, five thousand rupees as increased by a sum equal to,- (i) (thirty five per cent.) of the amount by which the long-term capital gains relating to capital assets, being buildings or lands, or any rights in buildings or lands, exceed five thousand rupees; (ii) (fifty per cent.) of the amount by which the long-term capital gains relating to any other capital assets exceed five thousand. rupees: Provided that in a case where the long-term capital gains relate to buildings or lands, or any rights in buildings or lands, as well as to other assets, the sum referred to in sub-clause (ii) of Clause (b) shall be taken to be- (A) where the amount of the long-term capital gains relating to the capital assets mentioned in sub-clause (i) is less than five thousand rupees, (fifty per cent.) of the amount by which the long-term capital gains relating to any other capital assets exceed the difference between five thousand rupees and the amount of the long-term capital gains relating to the capital assets mentioned in sub-clause (i); and (B) where the amount of the long-term capital gains relating to the capital assets mentioned in sub-clause (i) is equal to or more than five thousand rupees, (fifty per cent.) of the long-term capital gains relating to any other capital assets. 70. (1) Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income other than 'Capital gains is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. (2) (i) Where the result of the computation made for any assessment year under Ss. 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset. (ii) Where the result of the computation made for any assessment year under Ss.48 to 55 in respect of any capital asset other than a short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset not being a short-term capital asset." The opening words of Section 80-T are relevant. If the gross total income of an assessee (not being a company) "includes any income chargeable under the head "capital gains" relating to capital assets (referred to as long-term capital gains) there shall be allowed in computing the total income of the assessee a deduction from such income of an amount equal to ... ..";