ORDER
A. Kalyanasundharam, Accountant Member
1. The assessee, a limited company has filed this appeal and had raised a few issues.
1 to 9. [ These paras are not reproduced here, as they involved minor issues.]
10. The assessee has raised the issue of setting off the ‘short-term capital loss’ against the income from other sources and not against ‘long-term capital gain’. Shri Dinodia, submitted that, in the previous year relevant to the asst. year under appeal, the assessee had long-term capital gain of Rs. 1,27,654. The company also suffered loss of Rs. 1, 19,522 on sale of short-term capital asset. The assessing officer while arriving at the total taxable income of the assessee, adjusted the short-term capital loss against the long-term capital gain. He submitted that, the tax rate on long-term capital gains of companies, is only 40%, while the normal rate of tax ranges from 50% and above. The lower rate of tax on long-term capital gain is provided specifically and this could not be denied to the assessee. He pleaded that, the calculation of the tax has to be made separately for other incomes and for the long-term capital gain. He pleaded that, this was the intention of the Legislature. He contended that, the provisions of Sections 70 and 71 are provided with the view for the tax-payer does benefit from them. Shri Dinodia pleaded that, the relevant sections as are applicable in the present situation are Sections 70(2) and 71(3) of the Act. Shri Dinodia submitted that, the Section 70 of the Act, talks of adjusting of the loss under the same head, though the sources may be different. He further submitted that Section 70(2) of the Act provides the setting off the loss under the head ‘short-term capital asset’. He pleaded that, the words ‘the assessee shall be entitled to have the amount of loss against the income’ clearly shows that, the option for the set off is with the assessee. He contended that, the action of the authorities in impressing their opinion in deference to the law was not at all justified. He also contended that, the assessee having exercised its option of not setting off its short-term capital loss against the long-term capital gain, then, the next section that would into operation is Section 71 of the Act. He drew specific reference to Section 71(3) of the Act. He submitted that, this sub-section is specific to a situation similar to the one in which the assessee is placed. He submitted that, by this sub-section, the assessee is entitled to set off its short-term capital loss against its income from other sources, excluding income from long-term capital gain. He pleaded that, this is amply clear from the plain reading of the section, for the benefit of lower rate of taxation cannot be denied to the assessee. He placed reliance on the decision of the Third Member in Second Addl. ITO v. C.J. Shah [1984] 10 ITD 151 (Bom.). Reliance was placed on the ruling of the Delhi High Court in Mahalaxmi Sugar Mills Co. Ltd. v. CIT [1974] 94 ITR 592. Shri Dinodia referred to the Third Member’s decision in C.J. Shah’s case (supra) and submitted that, he finds that, the claim as advanced by the assessee gets support from that decision. He finally submitted that, in view of the plain reading of the Act and the decision of the Third Member in the case of C.J. Shah (supra), his plea should be upheld.
11. Shri Jha for the revenue contended that, the provision in Sections 70 and 71 are for specific purposes. He referred to the Eighth edition of Sampath Aiyangar’s Law of Income Tax, Volume III, at page 2941. He submitted that, the book is revised by Justice Shri S. Ranganathan of the Supreme Court. He pleaded that, the views as expressed by the author are his own, but they need to be given some credence. He pleaded that, the author’s opinion may be treated as his arguments. He also placed reliance on the Third edition of Chaturvedi & Pithisaria’s The Income Tax Law, Volume II, at page 1954. He contended that, the decision of the Third Member has no relevance to the present situation.
12. The rival contentions and the case laws referred are very carefully considered. We shall to begin with bring out the provisions of the Sections 70 and 71 of the Income-tax Act.
Section 70 provides that, upon the assessee suffering loss in respect of any source under any head of income, then, he shall be entitled to have such loss set off against his income from any other source under the same head. Sub-section (2) of Section 70,contained two situations. First the result of the computation made under Sections 48 to 55 in respect of any short-term capital asset is a loss. The assessee is entitled to have that loss set off against the income computed in a similar manner for that assessment year in respect of any other capital asset. Second relates to a situation of the computation as referred to Sections 48 to 55 results in a loss in respect of an asset, which is not a short-term capital asset, then, the assessee is entitled to have such a loss set off against the income from a similar computation of an asset that is not a short-term capital asset.
Section 71 refers to the procedure for setting off loss under one head against the income from any other head of income. Sub-section (1) of Section 71, refers to a situation of the assessee having loss under any head other than capital gains and having no income under the head capital gains. In that situation, the assessee is entitled to set off his loss against his income that is assessable and arising under any other head of income. Sub-section (2) talks of a situation where, the assessee has suffered loss under any head of income other than capital gains and has income from capital gains. This sub-section has two options. First, the assessee is entitled to set off his loss under any head against his other incomes including from capital gains, whether, it has arisen owing to short-term or long-term. Second, if the assessee so desires, the set off be made against his income from short-term capital asset and any other head. In the second sub-section, the Legislatures have added the words ‘if the assessee so desires’. In the third sub-section, the result of the computation made under Sections 48 to 55 of a short-term capital asset being a loss and there is income assessable under any head other than capital gains, then, the assessee is entitled to get the loss adjusted his incomes. According to this sub-section, if an assessee has suffered a short-term capital loss and has income from any other source, not being from capital gains, then, he is entitled to get his loss adjusted against his other incomes.
The words used are the assessee shall be entitled to’. The meaning of the word ‘entitle’ is defined as ‘to give a right or claim to’. (Chamber’s Twentieth Century Dictionary, 1972 edition, page 435).
The first of the alternatives of Sub-section (2) of Section 70, clearly show that, if in an assessment year, the assessee has suffered a short-term capital loss, then, he is entitled to get that loss set of for adjusted against the income from short-term capital asset. The second alternative is for the adjustment of the short-term loss against the long-term capital gain. The first of the alternatives do not apply to the present case. The second alternative is attracted. Since it is for the assessee to stake his right or claim for the adjustment of the loss against the income, and if he chooses not to take shelter under the second alternative, then, it cannot be thrust upon him by the tax administrators. The assessee, therefore, by not exercising his right or claim of adjustment of the loss under Section 70, he can bypass its provisions.
Section 71, has provided for three methods for making the claim or enforcing one’s right for adjustment of the loss suffered under one head of income against the income from any other head. First, the assessee suffering loss under one head, and he not having any income from capital gain, he has the right to make his claim of adjustment of the loss from income under any other head. Second, the assessee having a loss under the head capital gains and has income from capital gains, then the assessee can stake his right or claim for adjustment of the loss against the income from any other head, including from capital gains. This has an alternative, ‘if the assessee so desires’. According to this alternative, he can stake his right or claim for adjustment of the loss against the income from short-term capital assets and the income from any other head. The third, is a situation of the assessee having income from any other head, other than the capital gains. In this case, he can stake his right or claim for adjustment of the loss against the income from any other head.
The first of the alternatives is not attracted to the instant case because, the condition that, the assessee should have no income from capital gains is not satisfied. The condition specified in the second alternative, is that, the loss must be from any head other than capital gains and the assessee should have income from capital gains. This being not the situation in the instant case, this would have no applicability. The last of the alternatives is specific to a situation of loss due to the computation referred to Sections 48 to 55 and that too of a short-term capital asset and therefore, this alternative is clearly attracted. According to this alternative, the assessee can stake his right or claim for the adjustment of the short-term capital loss against his income from any head other than from capital gains. The assessee in the instant case, has suffered a loss on short-term capital asset, and has income from other sources and from long-term capital gain. The assessee has staked its right or claim for adjustment of the short-term capital loss against its income from other sources. The third alternative allows or permits such a claim or right being entertained by the tax administrators and therefore, the plea of the assessee is justified. Accordingly we hold that, the assessee has the right or claim to get its short-term capital loss of Rs. 1, 19,522 adjusted against its income from other sources. T/he tax administrators have to only permit or carry out such a right or claim of the assessee. This issue is therefore, decided in favour of the assessee.
The plea of the assessee that, a company has to pay a lower rate of tax on its long-term capital gain and the same cannot be denied to it, is also true. This is because, the tax administrators are instruments of the law, have to apply the law as such and if a benefit is conferred upon a tax-payer by the Act, such benefit has to be passed over to the tax-payer. In the Third Member’s case, the issue was whether, the assessee could claim for carry over of his business loss, without getting it adjusted against his other incomes of the assessment year. The conclusion was that, the term ‘entitled to’ meant that, the option lay with the assessee and not with the revenue authorities. The relevance of this decision to the instant case, is only to this extent.
13 and 14. [These paras are not reproduced here, as they involved minor issues.]