AJIT K.SENGUPTA, J. - (1.) AT the instance of the CIT, the following question of law has been referred to this Court under s. 256(1) of the IT Act, 1961, for the asst. yr. 1971-72 : "Whether, on the facts and in the circumstances of the case, the assessee is entitled to deduction of Rs. 5,000 as contemplated under S. 80T of the IT Act, 1961, from the long-term capital gains of Rs. 5,864 before the same are set off against the short-term capital loss of Rs. 7,792?"
(2.) THE facts leading to this reference are that for the year under reference, the assessee suffered loss of Rs. 7,792 under the head "Capital gains-short-term" and made profit of Rs 5,864 under the head "Capital gains-long-term". In his return of income as well as during the course of assessment proceedings, the assessee claimed that he should be granted deduction of Rs. 5,000 as contemplated under S. 80T of the Act in respect of "long-term capital gains" without setting it off first against "short-term capital loss" of Rs. 7,792. The ITO, however, first set off the "long-term capital gains" against "short-term capital loss" and determined the loss under the head "Capital gains" at Rs. 1,928 (Rs. 7,792 minus Rs. 5,864). Moreover, he declined to give relief under S. 80T of the Act with the following remark "Relief under S. 80T is not allowable because there is no long- term capital gains after adjusting short-term capital loss against it". In appeal, it was submitted that the ITO should have first allowed the statutory relief of Rs. 5,000 as contemplated under S. 80T of the Act and then proceeded to make other adjustment to the total income. The AAC, in his order dt. 16th July, 1975, accepted the assessee's claim holding that in view of the provisions of S. 80T(b), a sum of Rs. 5,000 should be deducted from the long-term capital gains of Rs. 5,864 and the balance be set off against short- term capital loss.
(3.) BEFORE the Tribunal, the Revenue submitted that on a correct interpretation of ss. 70(2), 80B and 80T of the Act, the AAC was not justified in accepting the assessee's submissions in this regard. Learned counsel for the assessee, on the other hand, submitted that once the total income of the assessee before giving effect to the deductions contemplated in Chapter VI-A of the Act was a positive figure, the assessee would be entitled to claim deduction under S. 80T of the Act (which is one of the sections of Chapter VI-A) in view of the definition of "gross total income" contained in sub-s. (5) of S. 80B of the Act. In this connection, he submitted that in the gross total income of the assessee, income chargeable under the head "Capital gains" was included and, therefore, the assessee was entitled to claim deduction of Rs. 5,000 as contemplated under S. 80T(b) of the Act. He, therefore, submitted that the order of the AAC was in accordance with the aforesaid section of the Act and, therefore, should be upheld. The Tribunal upheld the order of the AAC holding that "long- term capital gains" of Rs. 5,864 was included in the gross total income of the assessee as contemplated under sub-s. (5) of S. 80B of the 1961 Act and that"the mere fact that the same was adjusted against "short-term capital loss" of Rs.7,792 would not disentitle the assessee to claim deduction of Rs.5,000 as contemplated under S. 80T(b) of the 1961 Act.;