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2006 (3) TMI 202 - AT - Income TaxComputation tax under the head 'capital gains' - Set Off - Losses - Setting off of short-term capital gains against long term capital losses is permissible? - HELD THAT:- We find that there is no basis in grouping short term capital assets as a separate source of income and long term capital assets as a separate source of income. Not only short term and long term assets are different sources of income, but even the different short term assets and different long term assets involved in the respective transactions are again different sources of income. When section 70 provides that a loss falling under a source of income can be set off against income from any other source under the same head, it means that the long term capital loss being a separate source can be set off against short term capital gains, which is another separate source of income. Within the provisions of law contained in section 70, there is no further identification of sources of income against which alone loss of a particular source can be set off. Therefore, the contention of the assessee that irrespective of the identity of the source of income, it is possible for the assessee to set off the loss of a particular source against income from another source, both falling under the same head of income is tenable in law. Accordingly, the computation made by the assessee by setting off the long term capital loss against short term capital gains and in that way saving the differential tax benefit available to long term capital gains is supported by law. The CBDT Circular No. 8 of 2002 issued as explanatory notes, is a speaking testimony to the arguments advanced by the learned senior counsel that there is no hitch in the law existed for the assessment years 1988-89 to 2002-03 in selling off long term capital loss against short term capital gain. When the statute provide such a freedom to the assessee, the Assessing Officer is not justified in making a further grouping of sources and to hold that long term capital loss must be set off first against long ten n capital gains. The Assessing Officer is in fact bringing out an order of priority of his own relating to the manner in which a loss has to be set off when the statute has not provided any such order of priority. The statute has not prescribed any order of precedence according to which the loss out of one source has to be set off against income from any other source. There is no provocation to visualize that the long term capital loss must first be set off against long term capital gains. That could only be an extreme case of logical argument. Such an argument cannot find support from the provisions of law contained in section 70 as it stood for the relevant time. Thus, we find that the assessee had its right to set off the long term capital loss against short term capital gains for the reason that every transaction relating to the assets brought under the common head of income "capital gains" is to be treated as separate source of income. Every transaction is, for that matter, a source of income with reference to transfer of that asset. Further, during the relevant period, statute has not placed any distinction between long term asset and short term asset or for that matter long-term capital gains and short term capital gains. It was within the legitimate right of the assessee to choose the option which is more favourable to it so that it could avail the benefit of concessional rate of tax on the long term capital gains. Therefore, the question is answered in favour of the assessee and against the Revenue. Therefore, we find that the orders of the CIT(A) are just and in accordance with law and the ground raised by the Revenue in both the appeals are liable to be dismissed. In result, both the appeals filed by the Revenue are dismissed.
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