1. The assessee, who has income from salary, dividends, etc., sold in the year under consideration gold and shares of two companies held by him. It is common ground that all these assets are not short-term assets. There is no dispute also about the full value of the consideration received by the assessee in this case and the amount deductible as the cost of acquisition. The difference between the consideration and the cost was as below:- Consideration 66,940- Cost 19,712 47,2282100, shares of Deepak Nitrate Ltd.- Consideration 5,70,000- Cost 2,10,000 3,60,0002,000 shares of Sodium Metal (P.) Ltd.- Consideration 40,000- Cost 2,00,000 1,60,000 (loss) There is no dispute that the assessee is entitled to the deduction of Rs. 5,000 allowable under section SOT. The dispute is about the amount of deduction further allowable at 40 per cent of the long-term capital gain.
2. According to the assessee, the amount of deduction is to be worked out at 40 per cent of each of the amounts of long-term capital gain arising from the sale of gold and the shares of Deepak Nitrate Ltd., respectively, but before setting off the loss from the sale of the shares of the Sodium Metal (P.) Ltd. The assessee worked out the deduction in the sum of Rs. 1,60,890 as below :Gain from sale of shares of Deepak Nitrate Ltd. 3,60,000Gain from sale of gold 47,228Total capital gains 407,228Less : Exemption 5,000 4,12,228 According to the department, the deduction is allowable at 40 per cent of the amount arrived at after setting off the loss from the sale of the shares of Sodium Metal (P.) Ltd. against the total amount of the capital gain. The ITO determined accordingly the deduction allowable at Rs. 96,890 as below :Gain from sale of shares of Deepak Nitrate Ltd. 3,60,000Less : Loss from sale of shares of Sodium Metal (P.) Ltd. 1,60,000Capital gain 2,00,000Add : Gain from sale of gold 47,228Total capital gains 2,47,228Less : Exemption 5,000Capital gain 2,42,22840 per cent of gain 96,890 3. The Commissioner (Appeals) having upheld the view of the TTO, the assessee has filed the appeal now under consideration.
4. The Commissioner (Appeals), in his order, has not specifically dealt with the arguments which had been advanced before him on behalf of the assessee. He has felt that it was not necessary to do so because the learned representative of the assessee, who appeared before him, had not disputed that there was only one decision of the High Court on the point at issue, that the said decision was in favour of the revenue and the said learned representative of the assessee had not supplied the Commissioner (Appeals) with a copy of the said decision. The Commissioner (Appeals) has not indicated the identity of the relevant decision.
From the grounds of appeal, it would appear that the decision in question was the decision of the Kerala High Court in the case of H.H.Sir Rama Varma, which has since been reported at  129 ITR 156.
However, his assumption that there was no other decision available at the relevant time is not quite correct. For example, there were decisions of the Madras High Court in the cases of CIT v. V.Venkatachalam  J20 ITR 688 and Addl. CIT v. K.AL. KR. Ramaswami Chettiar  120 ITR 694 which had been reported in 1979 and the ratio of these decisions is against the revenue.
5. Shri Khare, learned representative of the assessee, preferred to refer us to the decision of the Karnataka High Court in the case of Dr.
T. Ramadas M. Pai v. Girt 1978] 115 ITR 883, which follows in turn the decision of the Bombay High Court in CIT v. G.M. Graver  115 ITR 885, though it relates to construction of section SOL and not section SOT.Shri Inamdar, learned departmental representative, tried to distinguish the authorities relied upon by Shri Khare on the ground that they related to the question whether the income chargeable as dividends can be reduced by allowing expenditure under Section 57(iv) before allowing deduction under section SOL whereas in the case under consideration, the point is whether loss under the head "Long-term capital gains" could be set off against the income under the head "Long-term capital gains" under Section 70(2)(ii).
Suffice it to state that as far as we can see there are decisions of the High Courts on the construction of section SOT itself, though there is a conflict in the views taken by the High Courts. Moreover, many of these decisions purport to derive support from decisions of the Supreme Court in the cases of Cambay Electric Supply Industrial Co. Ltd. v. CIT  113 ITR 84 and Cloth Traders (P.) Ltd. v. Addl. CIT  118 ITR 243, as the case may be, and as and when these decisions become available. Indeed, the Madras High Court decided the issue in favour of the revenue, deriving inspiration from the decisions in the case of Cambay Electric Supply Industrial Co. Ltd. (supra), in the case of CIT v. M. Seshasayee  129 ITR 166 (Mad.), whereas it decided the issue in favour of the assessee later in the case of V. Venkatachalam (supra) deriving support from the decision in the case of Cloth Traders (P.) Ltd. (supra).
With respect, this situation has arisen, perhaps, because all the decisions in question do not relate to the construction of the same section, though all the sections fall under Chapter VIA.6. The decisions on the construction of section SOT which are in favour of the revenue are the following : 1. Emecte & Sons (Travancore) (P.) Ltd. v. CIT  129 ITR 163 (Ker.) decided on 5-7-1973.
2. H.H. Sir Rama Varma v. CIT 129 ITR 156 (Ker.) decided on 2-11-1978.
3. CIT v. M. Seshasayee  129 ITR 166 (Mad.) decided on 4-2-1979.
4. CIT v. Gautam Sarabhai  6 Taxman 13 (Guj.) decided on 25-9-1980.
The decisions on the construction of section SOT which are against the revenue are the following : 1. Addl. CIT v. K.AL.KR. Ramaswami Chettiar  120 ITR 694 (Mad.) decided on 17-2-1978.
2. CIT v. V. Venkatachalam  120 ITR 688 (Mad.) decided on 3-7-1979.
The decision of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. (supra) is on the construction of Section 80E and its decision in the case of Cloth Traders (P.) Ltd. (supra) is on the construction of Section 80M.7. What is stated above is sufficient to show, with respect, that at least two views are possible on the construction of section SOT and it is significant that the Gujarat High Court in its decision which is the latest decision and which takes into account the earlier decisions has granted leave to the concerned assessee to appeal to the Supreme Court noting that there is a conflict of decisions between the High Courts on the point involved and that both sides rely upon different judgments of the Supreme Court in support of their respective contentions.
8. It is well settled that when two views are possible, the view in favour of the taxpayer rather than the view in favour of the revenue should be preferred. On this principle, we hold that the assessee before us is entitled to succeed.
9. We direct that the amount of deduction under Section 80T shall be allowed in proportion to the amount of the long-term capital gain determined before setting off the loss allowable against the income chargeable as long-term capital gains.