1978 (11) TMI 11 - HC - Income Tax

Summary

Issues Involved:
1. Whether section 80T relief is to be given only for the amount of capital gains after the capital loss is set off.

Detailed Analysis:

Issue 1: Whether section 80T relief is to be given only for the amount of capital gains after the capital loss is set off.

The assessment year in question is 1970-71. The assessee had long-term capital gains and also carried forward long-term capital loss from previous assessment years. The primary question was how to quantify the amount of capital gains for the purpose of relief under section 80T of the Income-tax Act, 1961. The Income Tax Officer (ITO) calculated the capital gains at the net figure after setting off the capital loss from previous years against the capital gains of the assessment year. The assessee contended that the relief under section 80T should be calculated on the capital gains before setting off the losses from previous years.

Upon appeal, the Appellate Assistant Commissioner (AAC) agreed with the assessee's contention and allowed the appeal. However, the Income-tax Appellate Tribunal (ITAT) reversed this decision, siding with the department. The Tribunal followed the principle from an unreported judgment of a Division Bench of the Kerala High Court in I.T.R. No. 17 of 1972 (Emeete & Sons (Travancore) P. Ltd. v. CIT). This judgment interpreted section 80M of the Act, which was considered analogous to section 80T in its phraseology and scope.

Section 80T of the Act, as it stood at the relevant time, allowed a deduction from the gross total income of an assessee, not being a company, which included income chargeable under the head "Capital gains" relating to long-term capital assets. The key phrase under scrutiny was "such income" occurring towards the end of the first paragraph of section 80T. The court concluded that "such income" referred to the computed total income or the total income computed in accordance with the provisions of the Act, rather than the gross total income.

The court's interpretation was supported by the principle of the unreported Division Bench ruling in I.T.R. No. 17 of 1972 (Emeete & Sons (Travancore) P. Ltd. v. CIT). This ruling dealt with section 80M, which allowed deductions for dividend income. The court noted that the term "such income" in section 80M referred to the net income after certain deductions, not the gross receipts.

The court also considered the decision in Indian Transformers Ltd. v. CIT [1972] 86 ITR 192, which dealt with section 80E (later renumbered as section 80-I). This decision held that the deduction under section 80E should be made before setting off previous losses under section 72, as section 80E was a special provision granting specific benefits. However, this reasoning was scrutinized by the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. The Supreme Court observed that section 72 had a direct impact on the computation of total income under the head "Profits and gains of business or profession" and that unabsorbed losses should be deducted before calculating deductions under section 80E.

In light of the Supreme Court's observations and the language of section 80T, the court concluded that the principle in I.T.R. No. 17 of 1972 (Emeete & Sons (Travancore) P. Ltd. v. CIT) was more appropriate. Therefore, the Tribunal's decision to allow the department's appeal and calculate the relief under section 80T on the net capital gains after setting off the previous losses was upheld.

The court answered the question referred in the affirmative, in favor of the revenue and against the assessee. There was no order as to costs.