By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants
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Section 74(1) – Amendment with effect from A.Y. 2003-04 restricting set off of long-term capital loss only against long-term capital gain applies only in respect of losses for the A.Y. 2003-04 & onwards and not to losses of prior assessment years.
Facts:
The assessee filed its return of income wherein the brought forward long-term capital loss of A.Y. 2001- 02 was set off against the short-term capital gain arising during the present assessment year (i.e. A.Y. 2003-04). According to the Assessing Officer, the assessee was entitled to set off the brought forward long-term capital loss only against long-term capital gain and not against short-term capital gain by virtue of the provisions of section 74(1) as amended w.e.f. 1st April, 2003. He held that since the said provisions were amended w.e.f. 1st April, 2003, they were applicable to the year under consideration i.e. A.Y. 2003-04. The action of the Assessing Officer in disallowing the assessee’s claim for such set off was upheld by the learned CIT(A).
Held:
In the case of Komaf Financial Services Ltd. vs. ITO [132 TTJ (Mumbai) 359], the Mumbai Bench had taken a view that amended provisions of section 74(1) will apply to the losses under the head capital gains for any assessment year and not only to the losses relating to the A.Y. 2003-04 onwards. A contrary view, however, was taken by another Division Bench at Mumbai in the case of Geetanjali Trading Ltd. vs. ITO [ITA No. 5428/Mum/2007], wherein it was held that the amended provisions of section 74(1) will apply only in respect of losses for A.Y. 2003-04 and onwards. Therefore, the Special Bench was constituted to decide this question of law.
In the provisions of section 74(1) as substituted w.e.f. 1st April, 2003 present tense has been used, which refers to the long-term capital loss of the current year. The said provisions thus are applicable to the long-term capital loss of A.Y. 2003-04 onwards and not to the long-term capital loss relating to the period prior to A.Y. 2003-04. Therefore, the provisions of section 74(1) as substituted w.e.f. 1st April, 2003 are not applicable to the long-term capital loss relating to the period prior to A.Y. 2003- 04 and set off of such loss is therefore governed by the provisions of section 74(1) as stood prior to the amendment made by the Finance Act, 2002 w.e.f. 1st April, 2003.
The right accrued to the assessee by virtue of section 74(1) as it stood prior to the amendment made w.e.f 1st April, 2003 thus has not been taken away either expressly by the provisions of section 74(1) as amended w.e.f. 1st April, 2003 or even by implication. The golden rule of construction is that, in the absence of anything in the enactment to show that it is to have retrospective operation, it cannot be so construed as to have the effect of altering the law applicable to a claim in litigation at the time when the Act was passed. The right accrued to the assessee by virtue of section 74(1) as it stood prior to the amendment made w.e.f. 1st April, 2003 to set off brought forward long-term capital loss relating to the period prior to A.Y. 2003-04 against short-term capital gain of subsequent year/s has not been taken away by the provisions of section 74(1) substituted w.e.f. 1st April, 2003. The provisions of section 74 which deal with carry forward and set off of losses under the head “Capital gains” as amended by Finance Act, 2002, will apply only to the unabsorbed capital loss for the A.Y. 2003-04 and onwards and will not apply to the unabsorbed capital losses relating to the assessment years prior to the A.Y. 2003-04.
