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Punjab Produce and Trading Co. Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 7 of 1977
Judge
Reported in(1985)46CTR(Cal)344,[1986]159ITR376(Cal)
ActsIncome Tax Act, 1961 - Sections 70, 70(2), 71, 71(2), 71(3) and 74
AppellantPunjab Produce and Trading Co. Ltd.
RespondentCommissioner of Income-tax
Excerpt:
- .....and 71(3) of the i.t. act, 1961, the tribunal was justified in law in holding that the short-term capital loss of rs. 2,14,131 should be set off first against the long-term capital gains and the balance against income under other heads ?' 2. the three questions, common to all the assessment years, are covered by a reported decision of this court in the case of the assessee in the earlier assessment year, viz., punjab produce and trading co. ltd. v. c1t : [1984]146itr95(cal) . following the said decision, we answer question no. 1 in the negative, question no. 2 in the affirmative and question no. 3 in the negative, all in favour of the revenue.3. the facts relevant to the remaining question pertaining to the assessment year 1969-70, as on record are as follows :in the said.....
Judgment:

Dipak Kumar Sen, J.

1. This reference arises out of the income-tax assessment of Punjab Produce & Trading Co. Ltd. for the assessment years 1969-70, 1970-71 and 1971-72, the relevant accounting years ending on the 31st March of calendar years 1969, 1970 and 1971. At the instance of the assessee, the following questions have been referred by the Tribunal under Section 256(1) of the Income-tax Act, 1961, as questions of law arising out of its order, for the opinion of this court :

'Assessment years 1969-70 to 1971-72 :

1. Whether, on the facts and in the circumstances of the case, the findings of the Tribunal that no evidence had been produced by the asses-see company to prove that Sri A. V. Birla, Smt. Priyamvada Devi Birla and Smt. Sunanda Devi Birla had rendered any services to the assessee company was perverse and based on no evidence and ignoring the relevant materials on record for the assessment years 1969-70 and 1970-71 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the remuneration paid to Sri A. V. Birla, Smt. Priyamvada Devi Birla and Smt. Sunanda Devi Birla, were not for the purpose of assessee company's business and were not incidental to the business and could not be allowed as business expenditure for the assessment years 1969-70 and 1970-71 ?

3. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the payment made to Smt. Priyamvada Devi Birla was not on account of any services rendered by her and was not incidental to the business of the assessee company was based on any relevant material and not perverse for the assessment year 1971-72 ?'

'Assessment year 1969-70 : Whether, on the facts and in the circumstances of the case and on a proper interpretation of Sections 70(2)(i) and 71(3) of the I.T. Act, 1961, the Tribunal was justified in law in holding that the short-term capital loss of Rs. 2,14,131 should be set off first against the long-term capital gains and the balance against income under other heads ?'

2. The three questions, common to all the assessment years, are covered by a reported decision of this court in the case of the assessee in the earlier assessment year, viz., Punjab Produce and Trading Co. Ltd. v. C1T : [1984]146ITR95(Cal) . Following the said decision, we answer question No. 1 in the negative, question No. 2 in the affirmative and question No. 3 in the negative, all in favour of the Revenue.

3. The facts relevant to the remaining question pertaining to the assessment year 1969-70, as on record are as follows :

In the said assessment year, the assessee derived income from several heads. The assessee suffered loss in respect of its short-term capital assets and made gains in respect of assets other than short-term capital assets. The Income-tax Officer deducted the loss on account of short-term capital assets against the gains made in respect of other capital assets in the first instance and thereafter the balance was set off against the income of the assessee from other heads.

4. The assessee preferred an appeal against the assessment contending, inter alia, that the loss relating to short-term capital assets should have been set off first against other heads of income and not against the gains in respect of assets other than short-term capital. The contention of the assessee was rejected by the Appellate Assistant Commissioner.

5. The assessee preferred a further appeal before the Income-tax Appellate Tribunal and contended that the loss in respect of its short-term capital assets was required to be set off against income other than capital gains under Section 71(3) of the Income-tax Act, 1961. It was contended on behalf of the Revenue that loss in respect of short-term capital assets was required to be set off first against the gains in respect of other capital assets under Section 70(2)(i) of the Act.

6. The Tribunal held that Section 71(3) was subject to the other provisions of the relevant chapter of the Act including Section 70(2)(i). It was held further that a loss suffered on short-term capital assets had to be set off first against the gains from other capital assets and thereafter the balance, if any, could be set off against other heads of income. The contentions of the Revenue were upheld and the appeal of the assessee was rejected.

7. It will be convenient to note the relevant sections of the Act :

'Section 70(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 assets.

(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. Section 71(2) : Where in respect of any assessment year the net result of the computation under any head of income other than 'Capital gains' is a loss and the assessee has income assessable under the head 'Capital gains', such loss may, subject to the provisions of this Chapter, be set off-

(i) against the income, if any, of the assessee assessable for that assessment year under any head including income assessable under the head 'Capital gains' (whether relating to short-term capital assets or any other capital assets), or

(ii) if the assessee so desires, only against his income, if any, under the head 'Capital gains', in so far as such income relates to short-term capital assets, and income under any other head.

(3) Where in respect of any assessment year the net result of the computation under Sections 48 to 55 in respect of capital gains relating to short-term capital assets is a loss and the assessee has income assessable under any head of income other than 'Capital gains', the assessee shall, subject to the provisions of this Chapter, be entitled to have such loss set off against the income aforesaid.

Section 74(1)(a) : Where in respect of any assessment year, the net result of the computation under the head 'Capital gains' is a loss, such loss shall, subject to the other provisions of this Chapter, be dealt with as follows :

(i) such portion of the net loss relating to short-term capital assets as cannot be or is not wholly set off against income under any head in accordance with the provisions of Section 71 shall be carried forward to the following assessment year and set off against the capital gains, if any, relating to short-term capital assets assessable for that assessment year year and, if it cannot be so set off, the amount thereof not so set off shall be carried forward to the following assessment year and so on ; (ii) such portion of the net loss as relates to capital assets other than short-term capital assets shall be carried forward to following assessment year and set off against the capital gains, if any, relating to capital assets other than short-term capital assets assessable for that assessment year and, if it cannot be so set off, the amount thereof not so set off shall be carried forward to the following assessment year and so on. '

8. From the said sections, it appears that the Legislature intended to draw a distinction between short-term capital assets and other capital assets and income or loss arising out of the two types of capital assets have been treated as if falling under different heads.

9. Under Section 70(2)(i) of the Act, on a computation made under Sections 48 to 55 in respect of any short-term capital asset resulting in loss, the assessee becomes entitled to set off such loss against the income arising out of any other capital asset on a similar computation. Under Section 71(3) of the Act, where the net result of computation under Sections 48 to 55 of the Act relating to short-term capital assets is a loss, the assessee is entitled to have such loss set off against the income under any head except capital gains.

10. To construe Section 70(2)(i) and Section 71(3) harmoniously, it must be held that the expression 'any other capital asset' in Section 70(2)(i) refers only to a short-term capital asset. The set-off provided under Section 70 appears to be item wise or sourcewise whereas the set-off of the loss under Section 71 appears to be headwise.

11. Under Section 71(2), it appears that choice has been given to the assessee in respect of loss arising from any other head except capital gain to set off the same either against the entire capital gain or only against its income relating to short-term capital assets. Similar choice has not been made available to an assessee under Section 71(3),

12. In any event, two several and separate rights have been conferred on the asseseee under Sections 70(2)(i) and 71(3) and, in case of any ambiguity, the construction beneficial to the assessee should be adopted.

13. For the above reasons, the question specifically referred for the assessment year 1969-70 is answered in the negative and in favour of the assessee. There will be no order as to costs.

Ajit Kumar Sengupta, J.

14. I agree.


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