1. In this reference under Section 256(1) of the I.T. Act 1961, the following question has been referred:
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the assessee was entitled, for the assessment year 1973-74, to relief under Section 80T of the Income-tax Act, 1961, on an amount calculated in terms of the aforesaid provisions, with reference to the gross capital gains of Rs. 1,02,740?'
2. The assessee, a HUF, derived capital gains of Rs. 1,02,740 in the relevant previous year for the assessment year 1973-74. There is no dispute about this figure. The assessee claimed that the capital gains should be processed under Section 80T on the entire sum of Rs. 1,02,740, reduced only by the exemption of Rs. 5,000 available under the same provision. The ITO considered that this claim was not tenable and he adjusted the business loss of Rs. 41,892 against the capital gains of Rs. 1,02,740 and brought to tax a sum of Rs. 55,848 as capital gains. How this sum of Rs. 55,848 was arrived at will be clear from the following :
Rs. Capital gains1,02,740Less : Business loss41,892
Balance60,848Less I Exemption u/s., 80T(b) 5,000
3. The assessee appealed to the AAC and submitted that the relief under Section 80T should have been allowed on the gross capital gains of Rs. 1,02,740 after deducting the basic allowance of Rs. 5,000 but without deducting the business loss. The AAC accepted this contention and directed the modification of the assessment accordingly. The department appealed to the Tribunal and the Tribunal held that, as the total amount of capital gains was included for the purpose of computing the gross total income, the assessee was entitled to the deductions from that amount as provided in Section 80T. In this view, the decision of the AAC was considered to be in order and the department's appeal thus failed. This order of the Tribunal has given rise to the reference of the question referred to above.
4. Section 80T, in so far as it is material, runs as follows :
'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............ '
5. Then follows the computation. It is unnecessary to go into the actual percentage to be applied to the capital gains as arrived at in accordance with the portion of the section extracted above. The section, if analysed, would show, (1) that there must be a gross total income of an assessee, (2) the assessee must not be a company, and (3) the gross total income should include any income chargeable under the head 'Capital gains' relating to capital assets other than short-term capital assets. If these conditions are satisfied, then in computing the total income of the assessee, there has to be a deduction from such income of certain amounts as described in the provision. The point presently in dispute is whether, in computing capital gains, the loss should be adjusted first and on the balance alone the rest of the provisions of Section 80T should be applied. While the department contends that the capital gain as reduced by the losses should alone be taken into account, the assessee's point is that we have to see only the amount included in the chargeable income in relation to the capital gains, and the amount included in the total income would only be the gross amount and not any amount as adjusted, in the manner done by the ITO. According to the learned counsel for the assessee, the adjustment would come in at the time of computation of the total income and not at the time of computation of the capital gains.
6. In Addl. CIT v. K. AL. KR. Ramaswami Chettiar (T.C. No. 410 of 1974) by judgment dated February 17,1978 (since reported in : 120ITR694(Mad) (infra)) a similar question came to be considered. In that case, the amount computed as capital gains was Rs. 1,28,344. There was a short-term capital loss to an extent of Rs. 76,650. Both these amounts came to be considered in the assessment for the assessment year 1970-71. The ITO set off against the capital gains the short-term capital loss of Rs. 76,650 and applied the provisions of Section 80T. This dispute reached this court on reference and it was held that the capital gains without adjustment of the short-term capital loss would have to be taken into account in applying Section 80T.
7. Subsequently, a similar question came to be considered in CIT v. M. Seshasayee (T.C. No. 408 of 1975) in a judgment dated February 14, 1979. At the time of the argument in the said case, our attention was drawn to a decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT : 113ITR84(SC) . That was a case which arose under Section 80E. That decision of the Supreme Court was applied in interpreting Section 80T. In doing so, we referred also to another decision of the Karnataka High Court in Dr. T. Ramadas M. Pai v. CIT : 115ITR883(KAR) . We pointed out that though the decision of the Karnataka High Court had not noticed Section 80B(5), nor the decision of the Supreme Court, the conclusion reached was consistent with the reasoning of the Supreme Court in the said case, and we, therefore, agreed with it.
8. When the present reference came up for consideration, while the department wanted us to apply the decision in T.C, No. 408 of 1975, learned counsel for the assessee wanted us to apply the decision in T.C. No. 410 of 1974 (Addl. CIT v. Ramaswami Chettiar--since reported in : 120ITR694(Mad) Learned counsel for the department buttressed his arguments by referring to the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT : 113ITR84(SC) . Our attention was also drawn to the latest decision of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT : 118ITR243(SC) . Learned counsel for the revenue, while relying on the decision in Cambay Electric Supply Industrial Co. Ltd. v. CIT : 113ITR84(SC) submitted that the latest decision did not affect the point now under consideration. We have now to consider which of the decisions will govern the present case.
9. Before proceeding further, we may notice one aspect with reference to the decision of this court relied on by the learned counsel for the revenue, viz., T.C. No. 408 of 1975*. In that case, the capital gains under consideration was Rs. 33,780. The ITO adjusted a sum of Rs. 11,395 which represented the carried forward loss coming under the same head, though relating to a different year. But, in the present case, the only question is whether the business loss which comes in for adjustment under a distinct and different head relating to the same year, would stand on the same footing. We shall discuss the correctness of this decision in the context of the Supreme Court's decision a little later.
10. In Section 80T, the language of the statute is 'where the gross total income of an assessee, not being a company includes any income chargeable under the head 'Capital gains',..... '. We have to see what is the income chargeable under the head ' Capital gains ' under the Act. Section 45 provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head 'Capital gains'. How this capital gain is to be computed is provided in Section 48. The language of Section 48 is : 'The income chargeable under the head ' Capital gains' shall be computed by deducting from the full value of the consideration......the following amounts.' Having regard to the language of Section 80T and reading it along with the language employed in Sections 45 and 48, it is clear that the amount chargeable under the head'Capital gains' would only be the amount computed in accordance with the provisions of Sections 45 and 48. These two provisions do not envisage adjustment of any other loss, either of the same year or of a different year. Therefore, on the plain language of the provisions, it would be clear that, in the present case, the whole of the amount of capital gains would have to be taken into account even without reference to any other authority.
11. We may consider whether the present case is, in the least, governed by the reasoning of the decision in Cambay Electric Supply Industrial Co. Ltd. v. CIT : 113ITR84(SC) . In that case, the Supreme Court was concerned with the provisions of Section 80E. That section, in so far as it is material, ran as follows :
' In the case of a company to which this section applies, where the total income (as computed in accordance with the other provisions of this Act) includes any profits and gains attributable to the business of generation or distribution of electricity......there shall be allowed a deduction from such profits and gains of an amount equal to eight per cent. thereof, in computing the total income of the company.'
12. We have omitted that part of the provision which refers to the particular types of industries which are eligible for the reliefs under Section 80E. Those industries can be called priority industries which are described in the Fifth Schedule to the I.T. Act. It is in the light of this provision that the question arose for the consideration of the Supreme Court as to what is the amount of which 8% was to be taken. In that case, the income from business came to Rs. 8,02,126. The eight per cent. relief available under Section 80E, if calculated on the sum of Rs. 8,02,126, would have yielded a sum of Rs. 64,170. There was unabsorbed depreciation and development rebate referable to earlier years amounting to Rs. 2,54,613. After adjustment of these amounts, the net income chargeable to tax was Rs. 4,83,343. While the assessee wanted a rebate on the total amount of the income from the business, the revenue would give the relief of eight per cent. only on the net amount after adjustment of the unabsorbed depreciation and development rebate. It is this aspect which was considered by the Supreme Court and it was held that having regard to the language of the provisions, the relief would be available to the assessee only on the net amount.
13. But the provision with which we are now concerned is differently worded. This occurs in a Chapter which starts with the heading 'Deductions to be made in computing total income'. The Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT : 118ITR243(SC) had to construe Section 80M which occurs in this Chapter which contains Section 80T, and also Sections 80A(2), 85A and 99(1)(iv). Their Lordships also referred to the other provisions like Sections 80K, 80MM, 80N and 80-O, which form part of the same group of sections as Section 80T, thereby showing that the scheme behind these provisions is the same. Section 80M runs as follows:
'Where the gross total income of an assessee, being a domestic company, includes any income by way of dividends received by it from a domestic company, there shall in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends of an amount equal to......'
14. The rest of the provision is omitted because it gives only the percentage to be applied on the amount arrived at under this provision. The only difference between Section 80M and Section 80T is that in the case of Section 80M it refers to the income by way of dividends while Section 80T refers to the income chargeable under the head 'Capital gains'. In the context of Section 80M, the Supreme Court held that it referred only to a particular category of income, viz. income by way of dividends from a domestic company and that category of income should be taken in gross and not net. Having regard to the close similarity in the language of Section 80M and Section 80T, we consider that this decision of the Supreme Court would squarely apply. In fact, the present case would even be an a fortiori case because, in the present case, we have to take the head of the income 'Capital gains' and the provisions relating thereto, while in the Supreme Court decision it was the dividend income that was intended to be taken into account. Except for the difference in the category of income, there is no other distinction between these provisions. The scheme of allowance is identical. In the light of the above reasoning, we consider that the decision in Cloth Traders (P.) Ltd. v. Addl. CIT : 118ITR243(SC) would have to be applied here.
15. Learned counsel for the revenue argued that what is included in the total income in the present case was only the capital gains of Rs. 1,02,740 after deduction of the business loss of Rs. 41,892, leaving a balance of Rs. 60,848 and that that amount alone would qualify for the relief under Section 80T. An identical contention was advanced before the Bombay High Court in CIT v. New Great Insurance Co. Ltd. : 90ITR348(Bom) and was rejected by the Bombay High Court. This decision of the Bombay High Court was rendered in the context of Section 99(1)(iv). This decision of the Bombay High Court has been approved by the Supreme Court in the case of Cloth Traders : 118ITR243(SC) in the context of this group of provisions, We do not think it necessary to labour farther on this point as the matter is directly covered by the latest decision of the Supreme Court. We would only add that, in the light of the latest decision of the Supreme Court, T. C. No. 408 of 1975* would have to be taken as not correctly decided. The consequence of the above reasoning is that the amount of capital gains in the present case is Rs. 1,02,740 subject to the deduction of Rs. 5,000, and that amount will be taken for applying Section 80T. The question is, accordingly, answered in the affirmative and in favour of the assessee. The assessee will be entitled to his costs. Counsel's fee Rs. 500.