'Capital gains' is a loss. - Income Tax - 993/CBDT

INSTRUCTION NO. 993/CBDT Dated : July 31, 1976 Section(s) Referred: 71(2)(ii) Statute: Income - Tax Act, 1961 Section 71(2) of the Income-tax Act, 1961 provides that where in respect of any assessment year the net result of the computation under any head of income other than 'Capital gains' is a loss, and the assessee has income assessable under the head 'Capital gains', such loss may, subject to the provisions of Chapter VI be set off: (i) against the income, if any, of the assessee assessable for that assessment year under any head including income assessable under the head "Capital gains" whether relating to short-term capital assets or any other capital assets), or (ii) if the assessee so desires, only against his income, if any, under the head 'Capital gains', in so far as such income relates to short term capital assets, and income under any other head. 2. An instance has come to the notice of the Board where the Income-tax Officer invoked the provisions of Section 71 (2) (ii) of the Act and allowed the set off of losses against short term capital gains. The assessee successfully contested that the Income-tax Officer should not have set off the losses as he had not exercised the option. No request in writing was received from the assessee exercising the option for the set off nor did the Income-tax Officer make any noting on the order sheet that verbal request had been made by the assessee. In the circumstances the Income-tax Appellate Tribunal held that the set off should not have been made. 3. Board desires that wherever any set off is made under section 71(2)(ii) of the Act, the Income-tax Officer must obtain from the assessee his option in writing and must also make an entry on the order sheet that the option has been exercised by the assessee.