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TMI Blog1993 (11) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gains should be taken as it stood before set off of the capital loss of previous assessment years. The Appellate Assistant, Commissioner allowed the assessee's appeal. The Revenue preferred an appeal to the Income-tax Appellate Tribunal against the order of the Appellate Assistant Commissioner. The Tribunal allowed the appeal. Arising out of the judgment and order of the Tribunal, the following question was referred to the High Court of Kerala (see [1981] 129 ITR 156): "Whether section 80T relief is to be given only for the amount of capital gains after the capital loss is set off ?" The High Court, answered the question in the affirmative, that is to say, in favour of the Revenue and against the assessee (The judgment of the High Court is in H. H. Sir Rama Varma v. CIT [1981] 129 ITR 156). This appeal is preferred by the assessee by special leave. On behalf of the assessee it was submitted that the High Court had erred in holding that the words "such income" in section 80T referred to the amount which was arrived at after set off of the capital loss brought forward from earlier years. The submission was that the words "such income" referred only to the capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is at this stage that special deductions as provided by section 80T have to be effected. It is further pertinent to note that section 80T provides that where the gross total income of an assessee not being a company includes any income chargeable under the head 'Capital gains" relating to capital assets other than short-term capital assets (such income being hereinafter referred to as long-term capital gains), there shall be allowed, in computing the total income of the assessee, deduction from such income of an amount equal to. . . . These words clearly show that the deduction which is to be effected is from the gross total income of the assessee and that too only when such gross total income is found to have as its component income chargeable to tax 'capital gains'. But if the component of such capital gains does not form part of the gross total income of the assessee in a given year because of the supervening operation of section 74, the stage for effecting deduction under section 80T from such gross total income is not reached at all." In the case of Vimla P. Kapadia [1990] 181 ITR 394, the Bombay High Court said (at page 395) : "In the very nature of the scheme of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et result of the computation under the head "Capital gains" is a loss to the assessee and such loss cannot be or is not wholly set off against income under any other head of income, so much of the loss as has not been so set off or, where the assessee has no income under any other head, the whole loss shall be carried forward to the following assessment year and shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year and if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year, and so on for a maximum of eight assessment years immediately succeeding the assessment year for which the loss was first computed. Chapter VI-A is entitled "Deductions to be made in computing total income". Sub-section (1) of section 80A therein states that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of Chapter VI-A, the deductions specified in sections 80C to 80U. Sub-section (2) of section BOA makes it clear that the aggregate amount of the deductions under Chapter VI-A shall no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) Where the gross total income of an assessee, being a company, includes any income by way of dividends received by it from a domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends of an amount equal to- . . . ." (It will be seen that the phraseology of section 80M is similar to that of section 80T). The Constitution Bench held (at page 135): "The opening words describe the condition which must be fulfilled in order to attract the applicability of the provision contained in sub-section (1) of section 80M. The condition is that the gross total income of the assessee must include income by way of dividends from a domestic company. 'Gross total income' is defined in section BOB, clause (5), to mean the 'total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A or under section 280-O'. Income by way of dividends from a domestic company included in the gross-total income would, therefore, obviously be income computed in accordance with the provisions of the Act, that is, after d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived or received by the assessee and which is included in his gross total income." In the case of Distributors (Baroda) P. Ltd. [1985] 155 ITR 120 (SC), it was the retrospective effect of section 80AA which was under challenge. The court, as aforementioned, interpreted section 80M in a manner different from that placed upon it in Cloth Traders' case [1979] 118 ITR 243 (SC). It held that the decision in Cloth Traders' case [1979] 118 ITR 243 (SC), was erroneous and had to be overturned. It was, therefore, unnecessary to consider the question of the constitutional validity of the retrospective operation of section 80AA. Section 80AA, it was held, was, in its retrospective operation, merely declaratory of the law as it always had been since April 1, 1968, when the provisions of Chapter VI-A were introduced. On a parity of reasoning it must be held that section 80AB was enacted to declare the law as it always stood in relation to the deductions to be made in respect of the income specified under the head 'C' of Chapter VI-A. The manner of deduction specified under section 80AB accords with the interpretation that we have placed upon section 80T, read independently. Section 80T ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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