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TMI Blog1984 (7) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as short-term capital loss. The short-term capital loss amounted to Rs. 8,10,000. In the assessment order, the ITO computed the business income before depreciation at Rs. 8,21,405. Then, he allowed depreciation for the year amounting to Rs. 10,80,284. Thus, he arrived at a business loss of Rs. 2,58,879. In arriving at this figure, the ITO had already set off the short-term capital loss of Rs. 8,10,000 against the business income before arriving at the aforesaid business income of Rs. 8,21,405. Then the ITO found that the assessee was entitled to investment allowance of Rs. 4,59,554 under section 32A(3) of the Income-tax Act, 1961 ('the Act'). As the income of the assessee from business after adjusting the short-term capital loss but aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y been set off during the year under consideration and what is to be carried forward is the unabsorbed investment allowance. The significance of this difference is that while brought forward investment allowance can be set off against future business income, brought forward short-term capital loss can be set off only against future short-term capital gains and not against future business income because of the provisions of section 74 of the Act. The Commissioner issued a show-cause notice to the assessee and after overruling the objection of the assessee passed the order under section 263 of the Act dated 3-1-1983, directing the ITO to set off the investment allowance and carry forward the short-term capital loss to the future years. 4. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s done then there is no positive business income left, against which investment allowance could be allowed. Hence, the investment allowance had to be carried forward under section 32A(3) as was done by the ITO. In this connection, he pointed out that in section 32(2), which deals with the carry forward of depreciation, the Legislature has used the words 'profits or gains' and not the words 'total income'. His point was that total income in section 32A(3) must not mean the total income as defined in section 2(45) but as modified by the language used in section 32A(3) itself. If that is done, then there was no mistake in the order of assessment passed by the ITO. So, he contended that the order under section 263 passed by the Commissioner des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be computed in accordance with the definition under section 2(45), viz., in accordance with the provisions of the Act, which, in turn, would mean after setting off the short-term capital loss of this year, as provided for in section 71(3). This is the case of the assessee. On the other hand, if the meaning of the phrase 'total income' appearing in section 32A(3) is to be understood without reference to the definition in section 2(45), then total income would remain undefined for the purpose of section 32A(3). It is that undefined total income which has to be further modified by the express language of section 32A(3). This is the case of the learned Commissioner. In our opinion, the reasonable way to understand the meaning of the words, 'tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary to be introduced in section 32A(3) because it was not defining a new term like 'gross total income'. Section 32A(3) deals with the concept already defined in section 2(45) and does not deal with a new concept like 'gross total income'. Considering all the facts and circumstances of the case and the plain language of section 32A(3), we are inclined to hold that the order of the Commissioner under section 263 was not called for in this case. In any case, the best case for the department can only be that there is a doubt about the meaning of the words 'total income' used in section 32A(3). It is now well settled that in case of a genuine doubt leading to two reasonable interpretations, the one favourable to the assessee has to be preferred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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