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TMI Blog2002 (5) TMI 854X X X X Extracts X X X X X X X X Extracts X X X X ..... term capital loss against long-term capital gains, while the assessee has set off the long-term capital loss against short-term capital gains. 4. Since all the above three grounds are intricately connected with each other, they are being considered together. 5. The facts of the case are that the assessee is an individual, who, in the return of income for the year under consideration, has disclosed long-term capital gains at ₹ 19,19,134 and short-term capital gain at ₹ 55,57,565. The assessee worked out the long-term capital gain as under: Capital gain on sale of 10,800, 10,000 16,100 (bonus) shares of Marico ₹ 83,65,416 Less : Exemption under section 54F ₹ 63,17,795 ₹ 20,47,621 (-) Set off of loss of assessment year 1994-95 ₹ 1,28,487 ₹ 19,19,134 Deduction under section 54F at ₹ 63,17,795 was worked out as under : For the purchase of Residential House at EVEREST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting year relevant to the assessment year 1996-97. The Assessing Officer denied the same on two grounds : (i) that on the date on which the long-term capital gain arose, the assessee was owner of a residential house, and (ii) that in respect of purchase of the same house, deduction under section 54 has already been claimed by the assessee in assessment year 1996-97 and, therefore, the assessee cannot claim again deduction under section 54F for the same house. The CIT(A) did not agree with the first reasoning of the Assessing Officer because he was of the view that section 54F prohibited deduction under section 54F if the assessee was owner of a house other than the new asset. Since the assessee was not owner of any other house than the new house, deduction under section 54F cannot be denied on the above reasoning. He, however, agreed with the second reasoning, given by the Assessing Officer. In addition, he also pointed out that deduction under section 54F as claimed by the assessee is not workable. He also stated that once a deduction under section 54F cannot be worked, the same cannot be allowed. In support of above finding, he has relied upon the decision of Hon ble Apex Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on altogether different grounds and facts and will not be applicable to the case under appeal before us. 6.2 The ld. counsel for the assessee further stated that as per section 70 as it stood at the relevant time, income from any source under any head of income can be adjusted against loss from any other source under the same head; that prior to 1-4-1988, adjustment of loss from long-term capital gain was prohibited to be adjusted against short-term capital gain. However, section 70 was amended w.e.f. 1-4-1988 and now there is no prohibition against adjustment of loss from long-term capital gain against profit from short-term capital gain. He further stated that while setting off of loss from one source against income of other source, the option is with the assessee to decide against which income to set off the loss. The Assessing Officer cannot compel him to set off against a particular income. In support of this argument, he relied upon Circular No. 26 (LXXVI-3) [F. No. 4(53)-IT/54] dated 7-7-1955. He further contended that the CIT(A) has confused himself while adopting the meaning of the words source of income . He has opined that there are two sources of income- long-ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011 as against the deduction claimed in the computation of income at ₹ 63,17,795. This clearly proves that the exemption under section 54F as claimed by the assessee cannot be worked out as per the provisions of Income-tax Act with certainty. If the claim of exemption cannot be worked out, the deduction cannot be allowed. In support of this contention, he relied upon the decision of Hon ble Apex Court in the case of B.C. Srinivasa Setty (supra). He has also submitted that the order of the CIT(A) is perfectly justified. He had allowed enough opportunity to the assessee. The CIT(A) has not decided the appeal on any new ground. According to the ld. D.R., the Assessing Officer had rejected the assessee s claim for exemption under section 54F on two grounds. The CIT(A) did not agree with the first ground but he did agree with the second ground taken by the Assessing Officer. He also stated that if the CIT(A) has relied upon the decision of Hon ble Apex Court, it cannot be said to be an illegal action on the part of the CIT(A). 7.1 Regarding set off of long-term capital loss against short-term capital gain, the ld. D.R. submitted that for the purpose of levy of capital gain, lon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fference between the amount of the capital gain and the cost of the new asset shall be charged under this section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii)if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. Thus, if the amount of capital gain is more than the cost of new asset, the exemption under section 54 would be limited to the extent of cost of new asset, and for the purpose of computing the capital gain which may arise from the transfer of new asset, the cost shall be taken at nil. However, where the cost of the new asset is more than the amount of capital gain, the entire capital gain is exempt, and for the purpose of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new asset is to be considered where the cost of new asset is more than the amount of capital gain. Though the above provision is with reference to determination of capital gain which may arise from the transfer of new asset within a period of 3 years, in our opinion, it would be logical to extend the above provision for determination of cost of new asset for all other purposes under the head capital gain which may be applicable within a period of 3 years. We, therefore, have no hesitation in holding that the assessee is entitled to exemption under section 54F and we direct the Assessing Officer to work out the exemption by taking the cost of new asset at ₹ 63,17,795. We may mention that the various decisions relied upon by the parties before us are not applicable as the facts in the case under appeal before us are altogether different than the facts in those cases. 10. The next issue before us is whether the assessee was justified in setting off the long-term capital loss against the short-term capital gain while the assessee was also having income from long-term capital gain. 10.1 We have carefully considered the arguments of both the parties. Section 70 as it stood ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4(53)-IT/54] dated 7-7-1955 to support his contention that option is with the assessee to set off loss in one head against the income in any other head. However, in our opinion, the above circular is not applicable for setting off the loss within the same head. In the above example, the assessee has loss under the head business , profit under the head income from house property and also has income under the head interest on securities which was tax free. The assessee was permitted as per above circular to set off business loss against the income from house property. However, as we have noted, for the purposes of income-tax, long-term capital gain and short-term capital gain are to be separately worked out. While determining long-term capital gain, naturally, if there is loss from transfer of one asset and profit from transfer of other asset, both have to be set off against each other and then only the net long-term capital gain/long-term capital loss can be determined. We accordingly uphold the finding of the lower authorities that the long-term capital loss is to be adjusted against the long-term capital gain. The Assessing Officer will re-determine the exemption under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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