By Jagdish D. Shah
Jagdish T. Punjabi
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New Page 1
29 G. K. Ramamurthy vs JCIT
ITAT Mumbai `G’ Bench
Before N. V. Vasudevan (JM) and
A. L. Gehlot (AM)
ITA No. 1367/Mum/2009
A.Y.: 2005-06. Decided on: 9.2.2010
Counsel for assessee / revenue: K. Shivram & Paras Savla / K.
R. Das
s. 10(38), 70(3), 74 — Non-exempt long-term capital loss
cannot be set-off against exempt long-term capital gains.
Per A. L. Gehlot:
Facts:
The assessee had made a long-term capital gain of Rs.
33,01,57,200 on sale of certain shares between the period 1.10.2004 and
31.3.2005, in respect of which, security transaction tax (STT) was paid by him
and the same was exempted u/s 10(38) of the Act. The assessee was also having a
long-term capital loss in respect of redemption of units and other loss
pertaining to the period prior to 1.10.2004, amounting to Rs. 9,23,55,945. The
assessee claimed carry forward of long-term capital losses of Rs. 9,23,55,945 to
subsequent years.
The Assessing Officer (AO) held that there was a loss and
also a gain under the same head of income, i.e., Long Term Capital Gain, and
consequently the loss of Rs. 9,23,55,945 had to be set-off against exempt income
of Rs. 33,01,57,200.
Aggrieved, the assessee preferred an appeal to the CIT(A) who
confirmed the order of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
(i) It is clear from the scheme of the Act that incomes
which do not form a part of the total income as laid down in Chapter III of
the Act, do not enter the computation of total income at all.
(ii) The case of the revenue that long-term capital gain is
income notwithstanding the fact that it is exempt u/s 10(38) of the Act, is
based on a reasoning which is fallacious.
(iii) Since income which is exempt from tax does not enter
the computation of total income at all, the question of aggregating them under
Chapter VI at all does not arise. Therefore, the question of set-off of the
same u/s 70(3) of the Act also does not arise for consideration. Therefore,
the right of carry forward u/s 74(1) of the Act, in respect of the long-term
capital loss suffered by the assessee, remains unaffected by the provisions of
s. 70(3) of the Act.
(iv) Section 10(38) has been inserted with a particular
object: to grant exemption to such income, as tax has already been levied on
some different footings. If we accept the contention of the revenue to adjust
long-term capital loss against exempt income (long-term capital gain), it will
be contrary to the law and contrary to the intention, object and purpose of
the legislature in introducing clause (38) to s. 10 of the Act. Further,
acceptance of the revenue’s view on the issue, gives rise to an absurd outcome
of interpretation. If the facts are reversed, then, long-term capital loss
from taxable assets will have to be adjusted against the long-term capital
gains exempt u/s 10(38) of the Act.
The Tribunal allowed the appeal filed by the assessee.
