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Vasant J. Sheth (Huf) Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1984)8ITD157(Mum.)
AppellantVasant J. Sheth (Huf)
RespondentCommissioner of Income-tax
Excerpt:
.....their lordships laid down that for working out the deduction under section 80t, the capital gains worked out under section 45 of the act have not to be reduced by the business loss. similarly, in view of the ratio laid down by the hon'ble supreme court in the case of cloth traders (p.) ltd. (supra), the deduction under section 80k has to be worked out on the gross amount of the dividends. as explained by their lordships of the hon'ble supreme court in the case of cloth traders (p.) ltd. (supra), chapter via deals with various categories or types of income which are entitled to the deduction under the various provisions of chapter via. this means that once a category or a type of income which is entitled to the deduction under any of the provisions of chapter via is determined, the.....
Judgment:
1. This is an appeal filed by the assessee against the order of the Commissioner under Section 263 of the Income-tax Act, 1961 ('the Act').

2. The ITO, while completing the assessment, determined the assessee's business loss at Rs. 3,25,375. He also determined capital gains of Rs. 3,51,050 and income from other sources which included income from dividends amounting to Rs. 2,14,350. The ITO worked out the deduction under Section 80K of the Act on dividends from shares attributable to the profits and gains of industrial undertaking exempt under Section 80J of the Act at Rs. 39,556. He also worked out the deduction under Section 80T of the Act based on the long-term capital gains at Rs. 3,51,050. The Commissioner (Appeals) was, however, of the view that if the business loss of Rs. 3,25,375 was set off against the income from dividends, there would be no dividend income left and, hence, there was no question of any deduction under Section 80K. He further held that the deduction under Section 80T on long-term capital gains can only be allowed on the long-term capital gains after set off of what remained of the business loss which was first to be set off against the dividend income. He, therefore, invoked his powers under Section 263 and set aside the assessment for being made afresh. The assessee is aggrieved and has, therefore, come up in the present appeal before us.

3. The assessee's learned counsel, Shri Mehta, submitted to us that in the case of CIT v. Gautam Sarabhai [1981] 129 ITR 133 (Guj.), their Lordships were considering whether the brought forward capital losses have to be set off against the capital gains of the year before working out the deduction under section 80T which is not the case here.

Proceeding further, he referred to the authority of the Hon'ble High Court of Madras on this very issue in the case of CIT. v. Venkatachalam [1979] 120 ITR 688 wherein their Lordships laid down that the deduction under Section 80T has to be worked out on the capital gains without its set off against the business loss. Reference was also made by him to the ruling of the Hon'ble Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 wherein their Lordships of the Hon'ble Supreme Court laid down that the deduction under Section 80M of the Act should be worked out with reference to the gross amount of the dividend without deducting therefrom the expenses for earning the dividend income and on the same parity of reasoning the deductions under Sections 80K and 80T have to be allowed on the gross amount of the income entitled to deductions under Sections 80K and 80T. It was also pointed out by Shri Mehta that Section 80AB of the Act introduced by the Finance (No. 2) Act, 1980, with effect from 1-4-1981, laid down that any deduction required to be made under Chapter VIA of the Act, except under Section 80M, shall be worked out with reference to the amount of the income of that nature which is computed in accordance with the provisions of the Act and this itself shows that prior to 1-4-1981, e.g., the assessment year 1977-78 under consideration before us, the deduction has to be worked out on the gross amount of the income under the head 'Dividend on shares' attributable to profits and gains of the industrial undertaking exempt under Section 80J and under the head 'Long-term capital gains'. He, therefore, submitted that the Commissioner (Appeals) was in error in directing that the ITO set off the business loss first against the dividend income thereby denying the assessee the deduction under Section 80K and whatever was the balance business loss, should be set off against the long-term capital gains with a view to reduce to the assessee-company the deduction admissible under Section 80T. He, therefore, submitted that the order of the Commissioner was erroneous and should be cancelled.

4. On the other hand, the learned departmental representative, Shri Joy, cited before us the ruling of the Hon'ble High Court of Gujarat in the case of Gautam Sarabhai (supra) and the order of the Commissioner in support of the department's case.

5. We have carefully considered the rival submissions. In the case of Gautam Sarabhai (supra), the issue before their Lordships was the set off of the brought forward losses under, the head 'Capital gains' against the income under the head 'Capital gains' for the current year before the deduction under Section 80T is worked out, which is not the case here. The ruling of the Hon'ble High Court of Gujarat in the case of Gautam Sarabhai (supra) will, therefore, not be applicable to the facts of the present case. On the other hand, we have the ruling of the Hon'ble High Court of Madras in the case of V. Venkatachalam (supra) wherein their Lordships laid down that for working out the deduction under Section 80T, the capital gains worked out under Section 45 of the Act have not to be reduced by the business loss. Similarly, in view of the ratio laid down by the Hon'ble Supreme Court in the case of Cloth Traders (P.) Ltd. (supra), the deduction under Section 80K has to be worked out on the gross amount of the dividends. As explained by their Lordships of the Hon'ble Supreme Court in the case of Cloth Traders (P.) Ltd. (supra), Chapter VIA deals with various categories or types of income which are entitled to the deduction under the various provisions of Chapter VIA. This means that once a category or a type of income which is entitled to the deduction under any of the provisions of Chapter VIA is determined, the deduction under the relevant provision has to be worked out on the income of that category or type.

It may also perhaps not be out of place to mention that while in the case of the deduction under Section 80M, Section 80AA of the Act was introduced by the Finance (No. 2) Act, 1980, with retrospective effect from 1-4-1968, in order to provide that only that income from dividend will be entitled to deduction under Section 80M which is computed in accordance with the provisions of the Act and not with reference to the gross amount of the dividends, Section 80AB dealing with the other deductions under Chapter VIA, inserted also by the Finance (No. 2) Act, 1980, is not retrospective but comes into effect from 1-4-1981. The assessment year under appeal before us is 1977-78 and, therefore, the provisions of Section 80AB, introduced by the Finance (No. 2) Act, 1980, with effect from 1-4-1981, will not apply to the assessment year under appeal before us. Considering all this and the overall facts and circumstances, we have no hesitation in coming to the conclusion that there is no justification for set off of the business loss firstly against the income from dividends and then against the income under the head 'Long-term capital gains' before working out the deductions under Section 80K or under Section 80T. The assessment order, which was the subject-matter of revision by the Commissioner in exercise of his power under Section 263, itself shows that even after the deduction under the various provisions of Chapter VIA, there was still a positive income of Rs. 55,799 on which the assessment was made. This shows that the aggregate of the various deductions under Chapter VIA did not exceed the gross income and the provisions of Sub-section (2) of Section 80A of the Act have been complied with. The Commissioner, therefore, was in error in directing the ITO to set off the business loss against the income from dividends and then against the income under the head 'Long-term capital gains' before working out the deduction under Sections 80K and 80T and in setting aside the assessment for this purpose. The order of the Commissioner was, therefore, not justified and is hereby cancelled.


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