Judgment

BHARUCHA

( 1 ) THE assessee made long-term capital gains during the accounting year relevant to the Assessment Year 1970-71. He had brought for Ward a long term capital loss from previous assessment years to be set off there against. The assesses claimed a deduction under Section 80-T of the Income-tax Act, 1961 (hereinafter referred to as the said Act ). For the purposes of determining the amount on which such deduction was available to the assesses, the Income-tax Officer took into account the figure arrived at after setting off the capital loss of previous assessment years against the capital gains for the Assessment Year 1970-71. He rejected the contention of the assesses that for the purposes of the deduction under Section 80-T that figure of capital gains should be taken as it stood before set off of the capital loss of previous assessment years. The Appellate Assistant Commissioner allowed the assessees appeal. The Revenue preferred an appeal to the Income-tax Appellate Tribunal against the order of the Appellate Assistant Commissioner. The Tribunal allowed the appeal.

( 2 ) ARISING out of the judgment and order of Tribunal, the following question was referred to the High Court of Kerala:

"whether Section 80t relief is to be given only for the amount of capital gains after the capital loss is set off?"

THE High Court answered the question in the affirmative, that is to say, in favour of the Revenue and against the assesses. (The judgment of the High Court is reported in 129 ITR 156 : (1979 Tax LR 852) (Kerala) ). This appeal is preferred by the assessee by special leave.

( 3 ) ON behalf of the assessee it was submitted that the High Court had erred in holding that the words "such income" in Section 80-T referred to the amount which was arrived at after set off of the capital loss brought forward from earlier years. The submission was that the words "such income" referred only to the capital gains received in the relevant accounting year. It was submitted also that the placement of Section 80-T in the said Act was not to be emphasised and that the capital loss carried forward was required to be set off only after the chargeable capital gains had been assessed as reduced by the deduction provided by Section 80t.

( 4 ) LEARNED counsel for the Revenue submitted that the view that had been taken by the Kerala High Court in the judgment under appeal was correct and that it had also been taken by the Gujarat High Court in C. I. T. , Gujarat v. Gautam Sarabhai, (1981) 129 ITR 133: (1982 Tax LR 613); by the Madras High Court in C. I. T. v. M. Seshasayee, (1981) 129 ITR 166; by the Bombay High Court in C. I. T. v. Vimla P. Kapadia, 181 ITR 394: (1990 Tax LR 1124) (to which judgment one. of us, Bharucha, J. , was a party); and by the Calcutta High Court in Gouri Prasad Goenka V. C. I. T. , (1991) 190 ITR 81. He also pointed out that this Court had in a recent judgment, in C. I. T. v. V. Venkatachalam, (1993) 201 ITR 737: (1994 AIR SCW 612) (to which one of us, B. P. Jeevan Reddy, J. , was a party) held that the words "such income" in the main limb of Section 80-T meant and referred to the capital gains and not the total income of the assessee.

( 5 ) IN the case of Gautam Sarabhai (1982 Tax LR 613) (ibid), the Gujarat High Court said :

"thus, before S. 80t contingency can arise, it must be shown that in a given assessment year, the gross total income of the assessee includes income chargeable under the head "capital gains". But if because of supervening event of operation of S. 74 of the Act, the carried forward capital losses from earlier years completely drown and wipe off the capital gains for the given year, as assessable under S. 45 read with S. 48, then, no income from that head would be left for being added as a head of income for computing the gross total income out of which special deductions could be effected under Chap. VI-A for arriving at the net total income exigible to tax. It is only in cases where the capital g