2007 (10) TMI 441 - AT - Income Tax

Summary

Issues involved:
1. Eligibility for deduction under section 80M of the Income-tax Act.
2. Interpretation of provisions regarding deduction under Chapter VI-A in relation to income arising from transfer of long term capital assets.
3. Validity of reopening assessment and disallowance under section 80M of the Income-tax Act.

Analysis:

Issue 1: Eligibility for deduction under section 80M
The case involved a company's assessment for the year 1993-94 where the Assessing Officer disallowed the deduction claimed under section 80M due to the inclusion of long term capital gains in the gross total income. The assessee argued that as per section 71(2) of the Income-tax Act, the loss from one head of income can be set off against income from another head, including capital gains. The CIT(A) upheld the claim, relying on circular No. 721 dated 13-9-1995, stating that there is no bar to applying section 71(2) to the case. The Tribunal concurred with the CIT(A) and dismissed the revenue's appeal, emphasizing the permissibility of setting off business loss against long term capital gains for computing gross total income eligible for deductions under Chapter VI-A.

Issue 2: Interpretation of provisions regarding deduction under Chapter VI-A
The revenue contended that deduction under section 80M is only applicable against income other than long term capital gains, citing section 112(2) and section 80AB. However, the assessee argued that set off of losses against capital gains is permissible under section 71(2) and relied on judicial precedents supporting this interpretation. The Tribunal analyzed the provisions of Chapter VI-A, emphasizing the entitlement of the assessee to set off losses from any head of income against income under capital gains. Referring to the CBDT circular No. 731 and judicial decisions, the Tribunal upheld the CIT(A)'s direction to allow the deduction under section 80M after setting off business loss from long term capital gains.

Issue 3: Validity of reopening assessment and disallowance under section 80M
The validity of reopening the assessment and the disallowance under section 80M were challenged by the assessee before the CIT(A). While the CIT(A) confirmed the reopening, the disallowance under section 80M was overturned based on the interpretation of relevant provisions and judicial precedents. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal and affirming the allowance of deduction under section 80M after setting off business loss from long term capital gains.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to allow the deduction under section 80M by permitting the set off of business loss against long term capital gains for computing gross total income eligible for deductions under Chapter VI-A of the Income-tax Act.