1990 (7) TMI 157 - AT - Income Tax

Summary

Issues Involved:
1. Whether the CIT(A) erred in allowing deduction under Section 80T with reference to the gross amount of Long-Term Capital Gains without allowing set-off of the Short-Term Capital Loss against the Long-Term Capital Gains.
2. Whether the CIT(A) erred in not considering the provisions of Section 40AB (likely intended to be Section 80AB) regarding the computation of deductions under Chapter VIA.

Issue-Wise Detailed Analysis:

1. Deduction under Section 80T and Set-off of Short-Term Capital Loss:
The primary issue revolves around the interpretation of Section 80T and its application to Long-Term Capital Gains without adjusting for Short-Term Capital Losses. The assessee, a minor with business income through a guardian and beneficiary income from two trusts, sold shares resulting in Long-Term Capital Gains and incurred Short-Term Capital Losses. The ITO contended that Short-Term Capital Losses should be set off against Long-Term Capital Gains before applying the deduction under Section 80T. However, the CIT(A) allowed the deduction on the gross Long-Term Capital Gains, relying on the Madras High Court's decision in Addl. CIT v. K.AL.KR. Ramaswamy Chettiar [1979] 120 ITR 694.

The Tribunal upheld the CIT(A)'s decision, emphasizing that Section 80T specifically refers to income from Long-Term Capital Gains without mandating the adjustment of Short-Term Capital Losses. The Tribunal noted that Section 70(2)(i) provides the assessee with the option to set off Short-Term Capital Losses against any capital gains, but this is not mandatory. The Tribunal distinguished this from mandatory adjustments under Section 74, which uses the term "shall," indicating a compulsory set-off.

2. Provisions of Section 40AB (Section 80AB):
The second issue pertains to the interpretation of Section 80AB, which was likely referred to as Section 40AB in the appeal. Section 80AB, effective from 1-4-1981, mandates that deductions under Chapter VIA should be computed with reference to the "net income" under the respective sections, as per the provisions of the IT Act. The Tribunal clarified that even under Section 80AB, the income computed in accordance with the Act includes the option exercised by the assessee under Section 70(2)(i) to claim Long-Term Capital Gains without adjusting for Short-Term Capital Losses.

The Tribunal referenced the Supreme Court decisions in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120 and Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, which emphasized computing total income per the Act before allowing deductions under Chapter VIA. The Tribunal concluded that the assessee's choice to not set off Short-Term Capital Losses aligns with the computation provisions of the Act and supports the deduction under Section 80T on the gross Long-Term Capital Gains.

Conclusion:
The Tribunal dismissed the departmental appeal, affirming the CIT(A)'s decision to allow the deduction under Section 80T on the gross amount of Long-Term Capital Gains without adjusting for Short-Term Capital Losses. The Tribunal's interpretation underscores the optional nature of the set-off under Section 70(2)(i) and aligns with the computation requirements under Section 80AB.