1. This set of two appeals, though relate to two different assessees, involve a common ground and, therefore, they are disposed of by this combined order, for the sake of convenience. We first take up for consideration [IT Appeal No. 122 (Ahd.) of 1982] and our decision in the said appeal, which is filed by the revenue, would apply to the other appeal also. The short point which arises for consideration relates to exemption under Section 54E of the Income-tax Act, 1961 ('the Act'). The assessee sold certain shares of Vikram Mills, Dhrangadhra Chemicals, etc., during the year under appeal. On sale of 414 shares of Vikram Mills, the assessee derived capital gains of Rs. 1,32,894 on the basis of the sale consideration of Rs. 2,36,394.
However, in regard to the sale of shares of Dhrangadhra Chemicals, Sarangpur Cotton and Silver Cotton the assessee suffered net capital loss. The total loss in sale of these shares worked out to Rs. 9,474.
Thus the net capital gains worked out to Rs. 1,23,420. The assessee invested the sale consideration in specified assets within the meaning of Section 54E and claimed exemption in regard to the capital gains.
The ITO found that the assessee had made investment in fixed deposit of Kalupur Co-operative Bank amounting to Rs. 2 lakhs and for the balance amount certain investments were made in equity shares of limited companies. However, according to him, no details were furnished in regard to the investment made in the limited companies. He however took into account the total sale consideration received on sale of all the shares, including the shares in which the assesses had suffered a loss and on that footing considered the investment made by the assessee in specified asset, viz., fixed deposit as aforesaid amounting to Rs. 2 lakhs and on that basis allowed exemption of Rs. 1,00,846 under Section 54E out of the total capital gains of Rs. 1,23,420.
2. Being aggrieved, the assessee carried the matter in appeal before the AAC and contended that there was no reason to set off capital loss against capital gains before allowing exemption under Section 54E. In this connection, it was contended that so long as the net consideration in respect of the assets, of which capital gains were realised were invested in the specified asset within the meaning of Section 54E, the assessee was entitled to relief on the basis of the sale consideration received on sale of shares on which capital gains were earned. The AAC examined the provisions of Section 54E in detail and also considered the material on record and observed at the outset that the assessee had produced evidence in support oftthe investment made in equity shares.
He next observed that the exemption to capital gains under Section 54E has to be determined with reference to each of the assets and the relief should not be determined after setting off the capital loss against the capital gains, which were exempt under Section 54E. In other words, he held that capital gains should be worked out separately in respect of each of the assets and after considering the exemption admissible under Section 54E, the capital loss should be set off only against the net amount of the capital gains so determined.
3. Being aggrieved, the revenue has come up in appeal before us. The learned departmental representative pointed out that the construction of Section 54E as placed by the AAC had no basis and, therefore, relief under Section 54E has to be determined on bash of the tot'd) sate cons)deration, inclusive of the shares in which the assessee had suffered a loss. In this connection he relied on an order under Section 263 of the Act as made by the learned Commissioner, on identical point, in another case. The learned representative of the assessee on the other hand reiterating the submissions which were placed before the AAC stated that the scheme of Section 54E provided for exemption from liability to capital gains, under certain circumstances. By very nature the said provisions would never apply in a case where the assessee has suffered a capital loss because there was no question of any liability to capital gain in such a case. Therefore, the basis adopted by the AAC was correct and would not call for any interference.
4. We have considered the rival submissions. The short point for consideration is whether for the purpose of determining the exemption under Section 54E, the sale consideration should be taken only in regard to the shares in which capital gain was derived only excluding the sale consideration received on sale of the shares which has resulted in a loss, or whether the exemption under Section 54E has to be determined with reference to the total sale consideration. In our view, the basis adopted by the AAC is correct for more than one reason.
Firstly, Section 54E provides for an exemption of capital gains in a case where an assessee invests the sale consideration realised on sale of original asset in specified assets within a period of six months the date of sale. This Section is designed to grant exemption from capital gains liability and by its very nature, therefore, excludes the consideration received on sale of asset which has resulted in capital loss. Secondly, the aggregation of sale consideration received on the sale of all the assets during the year is not contemplated under the scheme of Section 54E because the sale consideration has to be invested within a period of six months after the date of transfer of the original asset. Therefore, it follows that as and when the asset is transferred, the assessee must make investment or deposit within a period of six months after the date of each such transfer. This provision by itself excludes aggregation of sale consideration received in respect of all the assets during the year. As a corollary, the assets in respect of which the assessee has suffered a loss would stand clearly excluded. For these reasons, therefore, we agree with the reasoning and the conclusion of the AAC.5. Now we return to IT Appeal No. 108 (Ahd.) of 1982. The controversy in this appeal is identical, except in regard to the capital gains realised on sale of shares and the capital loss incurred by the assessee on sale of certain shares. The assessee had realised capital gains of Rs. 1,13,634 on sale of 354 shares of Vikram Mills and had suffered capital loss on sale of shares of Dhrangadhra Chemicals and Sarangpur Cotton and Silver Cotton which in all amounted to Rs. 14,338.
For the same reasons as recorded in the preceding paragraph, we decline to interfere with the decision of the AAC.