1993 (4) TMI 10 - SC - Income Tax

Whether Tribunal was justified in holding that the assessable capital gain would be only Rs. 1,81,671 - computation of capital gains on transactions of sale of shares - held that deduction should be given only after loss is deducted from gain

Summary

Issues:
1. Computation of capital gains on the sale of shares by a registered firm for the assessment year 1973-74.
2. Interpretation of provisions under section 80T and section 70 of the Income Tax Act for setting off long-term capital losses against long-term capital gains.

Analysis:
The Supreme Court judgment dealt with an appeal by an assessee against the Madras High Court's decision regarding the computation of capital gains from the sale of shares. The assessee, a registered firm, had secured a gross long-term capital gain from the sale of shares in three companies but incurred a long-term capital loss from shares in six other companies. The disagreement arose in the method of computation of capital gains. The Income-tax Officer set off the long-term capital loss against the gain before applying deductions under section 80T, resulting in a lower capital gain figure for taxation.

The High Court favored the Revenue's approach, emphasizing the separate treatment of capital gains and losses under the Income Tax Act. It cited section 70(2)(ii) to support the set-off mechanism for long-term capital losses against gains. The Supreme Court agreed with the High Court's reasoning, highlighting that deductions under section 80T should be applied to the total capital gains derived during the relevant year, considering profits minus losses. The Court rejected the argument to apply deductions separately to each asset, as the assets in question were of the same type.

The judgment distinguished a previous decision concerning a different section of the Act, emphasizing the specific provisions of section 80T and section 70(2)(ii) applicable in the case. The Court dismissed the appeal, upholding the High Court's interpretation and concluding that the deductions provided by section 80T should be applied to the total capital gains without separate treatment for individual assets. The judgment clarified the application of provisions for setting off long-term capital losses against gains, affirming the Revenue's method of computation in this case.

In conclusion, the Supreme Court's judgment resolved the issues related to the computation of capital gains from the sale of shares by a registered firm, emphasizing the correct application of deductions under section 80T and the set-off mechanism for long-term capital losses as prescribed by the Income Tax Act. The decision provided clarity on the treatment of capital gains and losses, supporting the Revenue's approach and dismissing the appeal.