Section 74 – Even though loss arising from transfer of short-term capital assets (on which STT is paid) is assessed at 15% tax rate, the said loss can be brought forward and set off against the long term capital gains which are assessed at 20% tax rate.
Facts
The assessee-company was a member of the Bombay Stock Exchange and engaged in the business of share broking, trading and dealing in shares and securities
The assessee had claimed set-off of brought forward short term capital loss against the long term capital gains during the relevant assessment year.
The AO opined that loss arising from transfer of shortterm capital assets (on which STT is paid) was assessed at 15 per cent tax rate while the long-term capital gain was assessed at 20 per cent tax rate and hence it could not be set-off in view of section 70(3).
The CIT(A) upheld the order of AO.
On appeal before Tribunal.
Held
Section 70 deals with the set-off of losses from one source against the income from another source under the same head of income and deals with intra-head adjustment of losses during the same assessment year under the different heads of income.
On the other hand, section 74 which deals with the carry forward of capital losses and set-off against the income of the subsequent financial year, clearly stipulates that loss arising from transfer of short-term capital asset which is brought forward from earlier years, can be set-off against the capital gain assessable for subsequent assessment year, in respect of any other capital asset which could be either long-term capital gain or short-term capital gain.
Circular no. 8 of 2002, dated 27-08-2002 issued by CBDT explains the amendment made by the Finance Act, 2002 as follows:
“Since long-term capital gains are subject to lower incidence of tax, the Finance Act, 2002 has rectified the anomaly by amending the sections to provide that while losses from transfer of short-term capital assets can be set-off against any capital gains, whether short-term or long-term, losses arising from transfer of long-term capital assets, will be allowed to be set-off only against long-term capital gains. It is further provided that a long term capital loss shall be carried forward separately for eight years to be set-off only against long-term capital gains. However, a short-term capital loss, may be carried forward and setoff against any income under the head Capital gains”.
Thus, in view of our above discussions and reasoning, it was held that the assessee had rightly claimed set-off of brought forward short term capital loss against the long term capital gains during the relevant assessment year.
In result, the appeal filed by the assessee-company was allowed and the orders of CIT-(A) and AO were set aside.
