2013 (11) TMI 361 - AT - Income Tax

Set off of loss of Short Term Capital Gain as claimed by the assessee ignoring the provisions of section 70(1) of the Income tax act - Whether the assessee is entitled to adjust the loss on short term capital assets (STCA) arising on one set of transactions, i.e., on market transactions , with the short term capital gain (STCG) arising to it on another set of transactions, i.e., off market transactions Held that - Loss is only negative income , and is, in any case, assessable under the same head of income; any taxable income under the Act being required to be classified and assessed to tax under a particular head of income - Sub-section (1) of sec. 70, referred to by the Revenue in its ground of appeal, refers to a source of income (under a head), and is in any case not applicable to income assessable as capital gains . Reference thereto is therefore be to no moment; rather, would if at all signify that income on transfer of STCAs is regarded as one category or source of income u/s. 70(2). Reliance has been placed on the in the case of First State Investments (Hong Kong) Ltd. v. Asstt. DIT (International Taxation) 2009 (7) TMI 908 - ITAT MUMBAI , wherein it was held that the computation of income is a process anterior to the application of the tax rate, so that the differential in the tax rates is rendered as of no relevance - No infirmity in clarifying that the option to set off the loss arising under the same class of income, i.e., on STCA, notwithstanding the words similar computation in section 70(2), would lie with the assessee - The words similar computation would only mean the computation as made u/ss. 48 to 55 of the Act, and nothing more Decided against the Revenue.

Summary

Issues involved:
- Interpretation of Section 70(1) of the Income Tax Act, 1961 regarding set off of loss of Short Term Capital Gain against gains from the same category of transaction.

Detailed Analysis:
The judgment by the Appellate Tribunal ITAT Mumbai involved an appeal by the Revenue against an order by the Commissioner of Income Tax (Appeals) allowing the assessee's appeal regarding assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2008-09. The sole issue raised in the appeal was whether the assessee could set off the loss on Short Term Capital Assets (STCA) against the gains from the same category of transaction, despite the provisions of Section 70(1) requiring specific computation rules. The tribunal considered the argument presented by the authorized representative (AR) citing relevant case laws and emphasized that the computation of income precedes the application of tax rates, and the distinction between different types of transactions is irrelevant for assessability and aggregation under the Act.

The Departmental Representative (DR) highlighted the language of Section 70(2), emphasizing the requirement for a 'similar computation' in setting off losses against income from the same category of transactions. However, the tribunal clarified that 'loss' is essentially negative 'income' and assessable under the same head of income, without drawing distinctions based on transaction types or tax rates. The tribunal referred to previous judgments to support the assessee's option to set off losses under the same class of income, regardless of the 'similar computation' requirement in Section 70(2. The tribunal concluded that the words 'similar computation' only refer to the computation process under sections 48 to 55 of the Act, and upheld the assessee's right to set off losses against income from STCAs.

In the final decision, the tribunal dismissed the Revenue's appeal, affirming the assessee's entitlement to set off losses on STCAs against income from the same category of transactions. The judgment clarified that the option to set off losses under the same class of income lies with the assessee, irrespective of the 'similar computation' requirement in Section 70(2). The tribunal's decision was based on the principle that income computation precedes tax rate application, rendering distinctions between transaction types irrelevant for assessability and aggregation under the Income Tax Act.