Deductions under the Income Tax Act for capital gains must prioritize Section 48 before considering exemptions under Section 54E, reflecting legislative intent and improving taxpayer benefits.

JUDGEMENT

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 288 of 2002 WITH TAX APPEAL No. 356 of 2002 WITH TAX APPEAL No. 357 of 2002 WITH TAX APPEAL No. 358 of 2002 For Approval and Signature:

HONOURABLE MR.JUSTICE K.A.PUJ Sd/- HONOURABLE MR.JUSTICE R.H.SHUKLA Sd/- ====================================

1. Whether Reporters of Local Papers may be allowed to see the judgment ? YES

2. To be referred to the Reporter or not ? YES

3. Whether their Lordships wish to see the fair copy of the judgment ? NO

4. Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO

5. Whether it is to be circulated to the civil judge ? NO ==================================== M/S.SERCON PRIVATE LIMITED. - Appellant Versus ASSTT.COMMISSIONER OF INCOME TAX. - Opponent ==================================== 2/33 JUDGMENT Appearance : MR RK PATEL for Appellant.

MRS MAUNA M. BHATT for Opponent. MR SN SOPARKAR, Senior Advocate as Intervener.

==================================== CORAM : HONOURABLE MR.JUSTICE K.A.PUJ and HONOURABLE MR.JUSTICE R.H.SHUKLA Date : 21/07/2008 COMMON ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE K.A.PUJ)

1. All these four Tax appeals are filed by the different assessees under Section 260A of the Income-Tax Act, 1961 for the assessment year 1992 – 93 proposing substantial question of law arising out of the order of the Income Tax Appellate Tribunal. Tax Appeal No. 288 of 2002 was admitted by this Court on 13.09.2002 and remaining three Tax appeals i.e. Tax Appeal Nos. 356, 357 & 358 of 2002 were admitted by this Court on 29.10.2002. In all the four Tax appeals, similar substantial question of law is formulated for the consideration and determination of this Court, which is as under :-

“Whether on the facts and in the circumstances of the case, the Tribunal is right in law in not holding that while computing long term capital gains, deductions under Section 48 (2) are required to be allowed before deduction under Section 54E of the Income Tax Act, 1961 ?”

3/33 JUDGMENT

2. Since the facts are identical in all the four Tax appeals, the relevant facts are taken from Tax Appeal No.288 of 2002 for convenience.

3. The assessee of Tax appeal No.288 of 2002 is a private limited company being regularly assessed by the Income Tax Officer at Ahmedabad. For the assessment year 1992 – 93, return of income was filed which was processed by the Income Tax department and ultimately assessment under Section 143 (3) of the Income Tax Act, 1961 was framed on 14.03.1995 after making various additions and disallowances. One of the disallowances made pertains to difference in computation of capital gains on application of various provisions under the Act whereby the Assessing Officer has disallowed the claim of the assessee and taxed the capital gain of Rs.16,90,780/-.

4. Being aggrieved by the said order of the Assessing Officer, the assessee preferred first appeal before the Commissioner of Income Tax (Appeals). He examined 4/33 JUDGMENT the provisions of Section 48 (2) and Section 54E of the Act along with allied provisions under the Act for comparing the workings provided by the appellant with that of Assessing Officer since the Assessing Officer was of the view that deduction under Section 48 (2) is allowable only on the taxable capital gains while the assessee claimed deduction on the entire amount without excluding the d