2011 (11) TMI 477 - HC - Income Tax

Deduction u/s 48(2) - share of capital gains received from firm - Held that - It is not in dispute that in the hands of the partner the amount of long term capital gain is entitled to apportionment under various heads. Section 48(2) allows deduction while computing the capital gains and not from the capital gains included in the gross total income while Section 80T provides for deduction from the gross total income and Section 80A(3) provides that when once the deduction was allowable in the case of a firm, no such deduction would be allowed in the hands of the partner. Thus, assessee was not entitled to deduction u/s 48(2) in respect of the capital gains received from the firm - against the assessee.

Summary

Issues Involved:
1. Deduction under Section 48(2) of the Income Tax Act, 1961.
2. Applicability of Section 67(2) in computing a partner's share.
3. Interpretation of Sections 80A(3) and 80T of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deduction under Section 48(2) of the Income Tax Act, 1961:

The primary issue was whether the appellant (assessee) was entitled to claim a deduction under Section 48(2) of the Income Tax Act, 1961, on the share of capital gains allocated to him from the firm's assessment. The appellant, a partner in a firm, had admitted to long-term capital gains and sought a deduction under Section 48(2). The Assessing Officer did not consider this plea, and the Commissioner of Income Tax (Appeals) upheld this decision, stating that the deduction had already been allowed in the firm's hands. The Tribunal also dismissed the appeal, holding that since the deduction was granted to the firm, it could not be claimed again by the partner, as it would amount to a double benefit.

2. Applicability of Section 67(2) in computing a partner's share:

The appellant argued that under Section 67(2) of the Act, the long-term capital gain retains its character when it is apportioned to the partner, thus entitling the partner to claim the deduction. However, the court found that Section 67(2) pertains to the method of computing a partner's share in the firm's income and does not confer an independent right to claim deductions under Section 48(2). The court emphasized that the deduction under Section 48(2) is granted to the firm and cannot be claimed again by the partner.

3. Interpretation of Sections 80A(3) and 80T of the Income Tax Act:

The appellant compared the provisions of Section 80T, which allowed deductions for long-term capital gains for assessees other than companies, with Section 80A(3), arguing that the latter negates deductions in the partner's hands. The court noted that Section 80T was repealed with effect from 1.4.1989, and the legal framework post-amendment differed significantly. The court rejected the analogy, stating that the legislative intent was to prevent double benefits. The court also distinguished the case from the Express Newspapers Ltd. judgment, which dealt with a different context of interest deduction.

Conclusion:

The court concluded that Sections 48(1) and 48(2) must be read together, and deductions under Section 48(2) could not be claimed independently by the partner if already granted to the firm. The court upheld the Tribunal's decision, stating that allowing the partner to claim the deduction again would result in double benefits, contrary to legislative intent. The appeal was dismissed, and the substantial question of law was answered against the assessee.