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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 ..... ng Officer has set off long-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 Value of House as per agreement ₹ 70,00,000 Add : Stamp Duty Paid ₹ 5,18,750 Transfer Fees ₹ 75,000 HDFC Fees ₹ 55,000 ₹ 76,48,750 Less : Adjusted in assessment year 1996-97 ₹ 13,30, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g. 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 Court in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 2941. Being aggrieved by the order of the CIT(A), the assessee is in appeal before us. 6. At the time of hearing before us, the ld. counsel for the assessee argued at length. He stated that the assessee has duly fulfilled all the requirements prescribed for getting the exemption under section 54F, i.e., the assessee had income from capital gain arising from long-term capital asset and the assessee had purchased a residential house within a period of one year before the date of transfer of the capital asset. Section 45 provides for charging of capital gain, save as provided in section 54F. Thus, section 54F has an overriding effect and whatever exemption is provided under section 54F, is excluded from the charge of capital gain as per section 45 itself. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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-term capital gain and short-term capital gain; that long-term capital gain or short-term capital gain is not the source of income but the source of income is the asset, on the transfer of which capital gain arises. Therefore, it was the assessee's option to adjust loss from sale of shares against profit from sale of other shares. He also submitted that the assessee never pleaded before the CIT(A), as mentioned by him para 15 of his order, that there are four sources under the head "capital gain". He accordingly submitted that the Assessing Office should be directed to accept the working of long-term capital gain and short-term capital gain made by the assessee. 7. The ld. DR on the other hand, heavily relied upon the order of the CIT(A). He contended that the burden is upon the assessee to prove that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, long-term capital gain and short-term capital gain are to be determined separately. Therefore, as per natural connotation, first long-term capital gain and long-term capital loss are to be adjusted against each other so as to determine the net long-term capital gain or long-term capital loss. Similarly, short-term capital gain/loss is to be determined separately. When there is long-term capital gain, long-term capital loss and also short-term capital gain, it would be unjust and unlawful to adjust short-term capital gain against long-term capital loss where long-term capital gain is still available. He, therefore, submitted that the order of the CIT(A) should be sustained. 8. The ld. counsel for the assessee, in the rejoinder, submitted that the various decisions relied upon by the ld. D.R. have no application to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 capital gain which may arise from the transfer of new asset, the cost of new asset shall be reduced by the amount of capital gain. In our opinion, the above provision for determining the cost of new asset should be applied not only for considering the capital gain arising from the transfer of new asset but also for all other purposes where the cost of new asset is relevant. The Legislature is not expected to provide for each and every contingency and it would only be logical to extend the above provision defining the cost of "new asset" for all other purposes under the head 'capital gain' unless there is any contrary provision. 9.1 As per section 54F, where the assessee, being an individual, derives income from transfer of long-term capital asset and the assessee has, within a period of one year before or two ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore 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 at the relevant time reads as under :- "70. Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head". As per section 70, income from any source falling under any head of income can be adjusted against the loss in any other source under the same head. We also notice that section 70 is amended w.e.f. 1-4-1988 and prior to the said amendment long-term capital loss could have been adjusted only against the long-term capital gain. However, even after the amendment, for the purpose of Income-tax Act, long-term capital gain and short-term capital gain are to be worked out separately b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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