(Appeal by special leave from the judgment and order, dated 31st January, 1989, of the Madras High Court in T.C. No.900 of 1979).

Income-tax-

----Capital gains---Computation---Long-term capital gains---Provisions for deduction--- Long-term capital gain on sale of shares of some companies and long-term capital loss on sale of shares of other companies in same previous year---Deduction to be given only after loss is deducted from gain---Indian Income Tax Act, 1961, Ss.70(2)(ii) & 80-T.

During the previous year relevant to the assessment year 1973-74, the appellant, a registered firm, sold shares held by it in several companies. From the sale of shares in three companies, it secured a gross long-term capital gain of Rs.5,61,508 and from the sale in the same year of shares in six other companies it sustained a long-term capital loss of Rs.96,583. The Appellate Tribunal held that the deductions under section 80-T of the Income Tax Act, 1961, had first to be made from the capital gain of Rs.5,61,508 and from the balance the capital loss of Rs.96,583 was to be deducted. On a reference, the High Court reserved the decision of the Tribunal holding that the capital loss had first to be deducted from the capital gain and the deduction under section 80-T had to be applied to "the balance. On appeal to the Supreme Court: . _

Held, affirming the decision of the High Court, that there was only one type of capital asset in this case, viz., shares. In the same year, from the sale of certain shares, the appellant derived profit and from the sale of certain other shares, it suffered loss. The amount of capital gain during the relevant previous year meant the profits derived minus the loss suffered. The provisions for deduction had to be applied only to the balance arrived at after deducting the capital loss from the capital gain. It was not possible to treat the transfer of each asset separately and apply the deductions separately.

CIT v. M.S.P. Nadar Sons (1989) 179 ITR 55 affirmed.

CIT v. Canara Workshops (P.) Ltd. (1986) 161 TTR 320 (SC); CTT v. Sigappi Achi (1983) 140 ITR 448 (Mad.) and CIT v. V. Venkatachalam (1993) 201 ITR 737 (SC) ref.

T. A. Ramachandran, Senior Advocate with Mrs. Janaki Ramachandran, Advocate for Appellant.

K. N. Shukla, Senior Advocate (R. Satish and P. Parameswaran, Advocates with him) for Respondent.

JUDGMENT

B. P. JEEVAN REDDY, J: --This appeal is preferred by the assessee against the judgment of the Madras High Court (see (1989) 179 ITR 55) 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 Revenue, for the opinion of the High Court read (at page 57):

"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 it in several companies. From 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 transactions of sale of shares in the following manner:

The Income-tax Officer did not agree with the 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:

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 its 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 short-term capital gains. In this case, the Court a concerned only with long-term capital gains. Section 70(2)(ii) prescribes the manner in which the loss from sale of long-term 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 CIT v. Sigappi Achi (1983) 140 ITR 448 (Mad.) The correctness of the view taken, by the High Court is questioned in this appeal.

Shri T. A. Ramachandran, learned counsel for 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 asset: if the capital asset sold consists of "buildings or lands or any rights in buildings or lands", the deduction provided is 35 per cent. in addition to the standard deduction of Rs.5,000. Whereas, in the case of any other capital assets, the percentage of deductions provided is 50 per cent., 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 80-T shows that the gains arising from the transfer of these two types of capital assets must be treated as separate and distinct. 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 that 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 of both 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, it 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;

(b)in any other case, five thousand rupees as increased by a sum equal to,---

(i)thirty-five per cent. 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) shalI 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 thousand rupees, (fifty per cent.) 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 per cent.) of the long-term capital gains relating to any other capital assets.

70.---(1)Save as otherwise provided in this Act, where the 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.

(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 (CPT v. V. Venkatachalam (1993y 201 ITR 737), we have held that the deduction 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 applythe deductions separately. If the argument of 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 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 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.

" Learned counsel for the appellant relied upon the decision of this Court in CIT v. Canara Workshops (P.) Ltd. (1986) 161 ITR 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.

M.BA./2469/TAppeal dismissed.