Full Judgment Text
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PETITIONER:
M.S.P. NADAR SONS, VIRUDHU NAGAR
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX (CENTRAL), MADRAS
DATE OF JUDGMENT28/04/1993
BENCH:
JEEVAN REDDY, B.P. (J)
BENCH:
JEEVAN REDDY, B.P. (J)
VENKATACHALA N. (J)
CITATION:
1994 AIR 1298 1993 SCR (3) 446
1993 SCC Supl. (3) 416 JT 1993 (3) 688
1993 SCALE (2)678
ACT:
%
Income Tax Act 1961:
Sections 70 (2) (ii) and 80T-Assessee- Selling shares held
in companies-Long term capital gain as well as long term
capital loss-Capital gains-Computation of.
HEADNOTE:
The appellant-assessee was a Registered Firm. The
assessment year concerned was 1973-74. During the relevant
previous year being the financial year 1972-73, the assessee
sold shares it held in several companies; from the sale in
three companies it secured a gross long terms capital gain
of Rs.5,61,508 However, in the sale of shares in six other
companies it sustained a long term capital loss in a sum of
Rs. 96,583. The assessee computed the capital gains on
these transactions of sale of shares less the deductions
under Section 80-T(b) and Section 80T (b) (ii) (1) and
showed a profit of Rs. 1,81,671.00
The Income-Tax Officer did not agree with the mode of
computation indicated by the asssessee; and set off the long
term capital loss against the long term capital gain in the
first instance and then applied the deductions, provided by
Section 80-T to the balance figure and ultimately computed
the capital gains included in the total income at Rs.
2,29,963.
The assessee aggrieved by the aforesaid assessment preferred
an appeal which was dismissed by the Appellate Assistant
Commissioner.
In further appeal by the assessee the Tribunal agreed with
the assessee’s computation.
Revenue asked for and obtained a reference which the High
Court answered in the negative i.e. in favour of the
Revenue.
The High Court held that the income from capital gains
constituted a separate head of income under the Income Tax
Act and that capital gains are bifurcated into long term
capital gains and short term capital gains, and
446
447
relying on the decision in Commissioner of income Tax v.
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Sigappi Achi, 140 I.T.R. 448 held that in the instant case
it was concerned only with long term capital gains, and that
Section 70 (2) (ii) prescribes the manner in which the loss
from sale of long term capital asset is to be set off.
In the appeal to this Court it was submitted on behalf of
the appellant assessee that according to the provisions and
scheme of the Income-Tax Act capital gains had to be
computed in respect of each asset separately and that
Section 80-T prescribes different percentages of deduction
for different types of capital assets, and that the correct
method, therefore, is to compute the capital gains with
respect to each asset transferred saparately, in accordance
with Section 80-T before setting off the losses.
Dismissing the appeal, this Court,
HELD: 1. This is not a case where the assets transferred
by the assessee during the relevant previous year consisted
of both the types of capital assets, mentioned in sub-
clauses (i) and (ii) of clause (b) of Section 80-T. They
were of only one type namely those failing under sub-clause
(ii) viz. shares. From the sale of certain shares the
assessee derived profit and from the sale of certain other
shares, he suffered loss. (450-E)
2. The deductions provided by Section 80-T have to be
applied to the
" capital gains" arising from sale of long term capital
assets. In other words, the deductions provided by the said
section have to be applied to the amount representing the
capital gains during the relevant previous year. The amount
of capital gains during the relevant previous year means the
profits derived minus the losses suffered. (452-D)
3. It is not possible to treat the transfer of each asset
separately and apply the deductions separately. (452-E)
Commissioner of Income Tax v. V Venkarachalam, Civil Appeal
No. 3044 of 1993, dated April 13,1993, relied on.
Commissioner of Income Tax (Central) Madras v, Canara
Workshops Private Limited, 161 I.T.R. 320, distinguished.
448
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4851 (NT) of
1990.
From the Judgment and Order dated 31.1.89 of the Madras High
Court in Tax Case No. 900 of 1979,
K.N. Shukla, R. Satish for Ms. A. Subhashini for the
Appellant.
T.A. Ramachandran and Mrs. Janaki Ramachandran for the
Respondent.
The Judgment of the Court was delivered by
B.P. JEEVAN REDDY.J. This appeal is preferred by the
assessee against the judgment of the Madras High Court
answering the question referred to it under section 256 (1)
of the Income-tax Act in favour of the Revenue and against
the assessee. The question stated, at the instance of the
High Court reads:
"Whether, on the facts and in the circumstances of the case,
the Appellate Tribunal was justified in-holding that the
assessable capital gain would be only Rs. 1,81,671 computed
in the manner set out in paragraph 14 of the order of the
tribunal?
The assessee is a registered firm. The assessment year
concerned is 1973-74, the relevant previous year being the
financial year 1972-73. During the said previous year, the
assessee sold shares held by him in several companies. From
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the sale of ’shares in three companies, it secured a gross
long-term capital gain of Rs. 5,61,508. However, in the
sale of shares in six other companies, it sustained a long-
term capital loss in a sum of Rs. 96,583. The assessee
computed the capital gains on the aforesaid transaction of
sale of shares in the following manner:
Gross long-term capital gains Rs. 5,61,508.00
LESS, Deduction under Rs. 5,000.00
---------------
Section 80-T (b) Rs. 5,65,508.00
LESS:Deduction under
section 80-T (b) (ii) at 50% Rs. 2,78,254.00
----------------
449
LESS Loss on sale Rs. 2,76,254.00
of shares Rs. 96,583.00
----------------
Profits: Rs. 1,81,671.00
The Income-tax Officer did not agree with said mode of
computation. He set off the long-term capital loss against
the long-term capital gain in the first instance and then
applied the deductions provided by section 80-T to the
balance figure of Rs. 4,64,925.
His computation was in the following terms:
Gross long-term capital
gain Rs. 5.61,508
LESS: Long-term capital
loss of the same year Rs. 96,583
------------
Balance of long-term
capital gains of the year Rs. 4,64,925
LESS: Deduction under
section 80 T(b) (ii) at 50% Rs. 2,29,962
-------------
Capital gains included in
the total income Rs. 2,29,963
-------------
Aggrieved by the order of assessment, the assessee preferred
an appeal which was dismissed by the Appellate Assistant
Commissioner. On further appeal, however, the Tribunal
agreed with his mode of computation. Thereupon the Revenue
asked for and obtained the said reference. The High Court
answered the said question in the negative i.e., in favour
of the Revenue, on the following reasoning: the income from
capital gains constitutes a separate head of income under
the Act. Capital gains are bifurcated into long-term
capital gains and shurt-term capital gains. In this case
the Court is concerned only with long-term capital gains.
Section 70 (2) (ii) prescribes the manner in which the loss
from sale of longterm capital asset is to be set off.
According to the said provision, the assessee " shall be
entitled to have the amount of such loss set off against the
income, if any, as arrived at under the similar computation
made for the assessment year in respect of any other capital
asset not being a short-term capital asset". Support for
the said proposition was derived from the decision in
Commissioner of Income Tax v.
450
Sigappi Achi, 140 I.T.R. 448. The correctness of the view
taken by the High Court is questioned in this appeal.
Shri T.A. Ramachandran, learned counsel for the appellant
submitted that according to the provisions and scheme of the
Act, capital gains have to be computed in respect of each
asset separately. Section 80-T prescribes different
percentages of deduction for different types of capital
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assets: If the capital asset sold consists of "buildings or
land or any rights in buildings or lands", the deduction
provided is 35% in addition to the standard deduction of Rs.
5,000 Whereas in the case of any other capital asset, the
percentage of deduction provided is 50%, in addition to the
standard deduction of Rs. 5,000/-. The deductions have to
be worked out separately where the capital assets
transferred during a previous year fall in both the
categories. Even the proviso to section 80T shows that the
gains arising from the transfer of these two types of
capital assets must be treated as separate and distrinct.
If the capital gains arising from the transfer of both the
types of capital assets are clubbed together, it would not
be possible to work out the provisions of section 80-T. The
correct method, therefore, is to compute the capital gains
with respect to each asset transferred separately, in
accordance with section 80-T, before setting off the losses.
We are afraid the arguments advanced by Mr. Ramachandran
travel far beyond the controversy involved herein. This is
not a case where the assets transferred by the assessee
during the relevant previous year consisted both the types
of capital assets. They were of only one type namely-
shares. From the sale of certain shares the assessee
derived profit and from the sale of certain other shares, he
suffered loss. The simple question is how to work out and
apply the deductions provided by section 80-T in such a
case. For answering this question, it is necessary to
notice the provisions of section 80-T and section 70, as
they stood during the relevant previous year.
"80-T. 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, a
deduction from such income of an amount equal to,-
(a)in a case where the gross total income does not exceed
ten thousand rupees or where the long-term capital gains do
not exceed five thousand rupees, the whole of such long-term
capital gains;
451
(b)in any other case, five thousand rupees as increased by a
sum equal to,-
(i)(thirty five percent) of the amount by which the long-
term capital gains relating to capital assets, being
buildings or lands, or any rights in buildings or lands,
exceed five thousand rupees;
(ii)(fifty per cent.) of the amount by which the long-term
capital gains relating to any other capital assets exceed
five thousand rupees:
Provided that in a case where the long-term capital gains
relate to buildings or lands, or any rights in buildings or
lands, as well as to other assets, the sum referred to in
sub-clause (ii) of clause (b) shall be taken to be-
(A)where the amount of the long-term capital gains relating
to the capital assets mentioned in sub-clause (i) is less
than five thousend rupees, (fifty percent.) of the amount by
which the long-term capital gains relating to any other
capital assets exceed the difference between five thousand
rupees and the amount of the long-term capital gains
relating to the capital assets mentioned in sub-clause (i);
and
(B)where the amount of the long-term capital gains relating
to the capital assets mentioned in sub-clause (i) is equal
to or more than five thousand rupees, (fifty percent.) of
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the long-term capital gains relating to any other capital
assets.
70(1) 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 other than ’Capital gains’
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.
(2)(i) Where the result of the computation made for any
assessment year under sections 48 to 55 in respect of any
short-term capital asset is a loss, the assessee shall be
entitled to have the amount of such loss set off against the
income, if any, as arrived at under a similar computation
made for the assessment year in respect of any other capital
asset.
452
(ii)Where the result of the computation made for any
assessment year under sections 48 to 55 in respect of any
capital asset other than a short-term capital asset is a
loss, the assessee shall be entitled to have the amount of
such loss set off against the income, if any, as arrived at
under a similar computation made for the assessment year in
respect of any other capital asset not being a short-term
capital asset."
The opening words of section 80-T are relevant. If the
gross total income of an assessee (not being a company)
"includes any income chargeable under the head "capital
gains" relating to capital assets (referred to as long-term
capital gains) there shall be allowed in computing the total
income of the assessee a deduction from such income of an
amount equal to.........................
In our Judgment delivered on April 13, 1993 in Civil Appeal
No. 3044 of 1983 (Commissioner of Income Tax v. V
Venkatachalam) we have held that the deductions provided by
section 80-T have to be applied to the "capital gains"
arising from sale of long-term capital assets. In other
words, the deductions provided by the said section have to
be applied to the amount representing the capital gains
during the relevant previous year. The amount of capital
gains during the relevant previous year means the profits
derived minus the losses suffered. This is precisely the
opinion of the High Court, with which view we agree. It is
not possible to treat the transfer of each asset separately
and apply the deductions separately. If the argument of the
learned counsel for the appellant is logically extended it
would mean that even the deduction of Rs. 5,000 should be
applied in each case separately. Learned counsel, however,
did not take that stand. He agreed that the standard
deduction of Rs. 5,000 must be applied to the totality of
the capital gains. At the same time, he says, the
deductions provided in clause (b) should be applied
separately to each asset. We have not been able to
appreciate the logic behind the contention of the learned
counsel.
This is not a case where the capital assets transferred
consist of two types mentioned in sub-clauses (i) and (ii)
of clause (b) of section 80-T. They are only of one type
namely those falling under sub-clause (ii). We need not,
therefore, deal with or answer the hypothetical contention
raised by the learned counsel. Further as pointed out by
the High Court the provision contained in clause (ii) of
subsection (2) of section 70, as it stood at the relevant
time, supports the conclusion arrived at by us.
The learned counsel for the appellant relied upon the
decision of this Court in Commissioner of Income Tar
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(Central), Madras v. Canara Workshops Private
453
Limited, 161 I.T.R. 320. That was a case arising under
section 80-E of the Act, as it stood during the assessment
years 1966-67 and 1967-68. On the language of section 80-E,
it was held that in computing the profits for the purpose of
deduction under the said section, each ’priority industry’
must be treated separately. We do not see how the principle
of the said decision has any application to the facts of
this case, which has to be decided on the language of a
different provision namely section 80-T read with section 70
(2) (ii).
For the above reasons, we agree with the opinion expressed
by the High Court and dismiss this appeal. No order as to
costs.
N.V.K.
Appeal dismissed.
454