1996 (9) TMI 14 - HC - Income Tax

Summary

Issues:
Interpretation of deduction under section 80T on capital gains, Recomputation of deduction under section 80T, Reliance on circular for interpreting section 80T.

Analysis:
The case involved three key questions related to the deduction under section 80T on capital gains. The assessee, a firm of contractors, filed a return showing total income and long-term capital gains. The Income-tax Officer initially allowed the deduction under section 80T on the gross amount of capital gains. However, the Commissioner of Income-tax (Appeals) modified this decision, directing the re-computation of the deduction only on the net amount of capital gains as per section 80AB.

The Commissioner acted under section 263 of the Income-tax Act, stating that the deduction should be based on the net amount of capital gains included in the total income. The case proceeded to the Income-tax Appellate Tribunal, which relied on a circular and a judicial decision to determine that the deduction under section 80T should be allowed on the gross income from capital gains.

The High Court analyzed the relevant provisions of the Income-tax Act, particularly section 80T, which allows a deduction from the gross total income of an assessee on long-term capital gains. Referring to previous judgments, the court emphasized that the term "such income" in section 80T specifically refers to the assessee's long-term capital gains and not the total income of the assessee.

The court highlighted that section 80T had been deleted from the Act with its provisions incorporated into section 48. The apex court's decision in another case further clarified that "such income" in section 80T pertains to capital gains, not the total income. The court concluded that the Tribunal's decision to allow the deduction on the gross income from capital gains was correct.

In the final judgment, the High Court declined to answer questions 1 and 3, focusing only on question 2 related to the re-computation of the deduction under section 80T. The court answered question 2 in the negative, against the Revenue and in favor of the assessee. The court directed the forwarding of the judgment to the Income-tax Appellate Tribunal for necessary actions.