TMI Blog2008 (11) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... off long term capital loss first against the short term capital gains of the current year and the balance long term capital loss was further set off against the long term capital gain of the current year which was incorrect as per the provisions of section 74 of the Act. (ii) Proportionate disallowance u/s. 14A were made to the tune of ₹ 3,45,614/-. 4. According to the Assessing Officer, the long term capital loss was to first set off against the long term capital gain of the current year. Secondly proportionate disallowance under s 14A was made to the tune of ₹ 3,45,614/-. In quantum appeal, the appeal was filed and the CIT(A) confirmed the mode of calculation adopted by the Assessing Officer with regard to the proportionate disallowance under section 14A. The Order of the CIT(A) was not challenged by the assessee. During the penalty proceedings, the assessee has contended that it has not been explained under section 74 of the Act as to which capital loss is required to be set off against which capital gain. It has been clarified only after the amendment with effect form 1.4.2003 by the Finance Act, 2002. Since the assessee has claimed the set off of long ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares. 6. The learned Departmental Representative on the other hand has placed a reliance upon the reliance upon the Order of the lower authorities. 7. Having carefully examined the Order of the lower authorities and the Order of the Special Bench of the Tribunal in the case of JCIT vs. Montgomery Emerging Market Funds (supra) we find that before this amendment in section 74, nothing was specifically mentioned in the section as to how capital gain under on sub head is to be adjusted against the others. After the amendment under section 74, it has been made clear that if the carry forward capital loss relate to short term capital asset, it shall be set off against the capital gain in respect of any other capital asset. If it relates to long term capital asset, it shall be set off against the capital gain in respect of any other capital asset not being a short capital asset. Meaning, thereby, any type of capital loss can be set off against the short term capital gains, but, the long term capital loss cannot be set off against the short term capital gain. This was not the position prior to the amendment. The Special Bench of the Tribunal has examined this issue in the light of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputed under the head 'capital gains' for the aggregation of income culminating into total income which is taxable under the Income-tax Act. What it taxed by the Income-tax Act is not different sources of income independently, but income from different sources clubbed under respective heads and finally aggregated into the total income. The classification of income under different heads for computing the total income does not interfere with the independent character of different source of income available to an assessee. Both, short term capital gains/loss and long term capital gains/loss are different sources of income, falling under the same head 'capital gains'. Even under short term capital gains, different transactions will be different sources of income resulting in short term capital gains/loss. Likewise, different transactions of long term capital assets will be different sources of income for an assessee to arrive at long term capital gains/loss. This is reflected in the scheme of computation of capital gains provided in section 48 where gains or loss is computed on the basis of individual asset and transaction and not on the basis of class of assets. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28-7-2002 issued as explanation notes on provisions relating to direct taxes brought in by the Finance Act, 2002. The circular stated that the existing provision contained in section 70 provides that where the net result for any assessment year in respect of any source falling under any head of income is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from another source under the same head. Further, section 74 of the Income-tax Act provides that loss under the head 'capital gains' can be carried forward and set off against capital gains in the following eight assessment year. The legislature found that this position has created on anomaly inasmuch as assessee can get the benefit of concessional rate of tax in respect of long term capital gains coupled with the freedom to choose the mode of set off of capital loss. Therefore, the amendment has been brought in and the circular states that since long term capital gains are subjected to lower incidence of tax, the Finance Act, 2002 has rectified the anomaly by amending Section 70 to provide that while losses from transfer of short term capital assets can be set off against any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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