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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