COMMISSIONER OF INCOME TAX Vs. MAHENDRA COMPANY LTD

JUDGEMENT

(1.) ON an application under Section 256 of the IT Act, the Tribunal has referred the following questions for the opinion of this Court :

(2.) THE assessee, M/s Mahindra Co. Ltd., Khetan Bhawan, M.I. Road, Jaipur, is a limited company which derives income from interest on securities, house property and business. The relevant assessment year is 1985 -86. In this year, the assessee suffered short -term capital loss amounting to Rs. 29,700. It also had long -term capital gain amounting to Rs. 17,178. The assessee's incomefrom 'other sources' was Rs. 1,77,618. The question before the ITO was as to how the short -term capital loss was tobe set off. The assessee wanted it to be set off against 'income from othersources' as required under Section 71(3) of the IT Act, 1961 (hereinafter referred to as 'the Act, 1961'). The AO first set off the short -term capital loss against the long -term capital gain of Rs. 17,178 and, thereafter, he has set off the balance against the 'income from other sources'. In appeal before the CIT(A), the CIT(A) has confirmed the view taken by theITO. In appeal before the Tribunal, the Tribunal has allowed the claim of theassessee holding that since the short -term capital loss was not capable of beingset off against long -term capital gains under Section 70(2)(i), Section 71(3) would get attracted and it would enable the assessee to be entitled to have loss set off against 'income from other sources'. The Tribunal was of the view that two separate rights had been conferred onthe assessee under Section 70(2)(i) and Section 71(3) of the Act. The construction beneficial to the assessee should be adopted.

(3.) MR . Anuroop Singhi, learned counsel for the Department, submits under Section 71(2)(i) where the result of the computation made for any assessment year under Sections 48 to 55 in respect of any short -term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income from any other capital asset in that year. Mr. Anuroop Singhi, learned counsel for the Department, further submits thatunder Section 71(3), where the result of the computation under Sections 48 to 55 in respectof capital gains relating to short -term capital assets is a loss and the assesseehas income assessable under any head of income other than 'capital gain', theshort -term capital loss should be first set off against the short -term capital gainor long -term capital gain, then the balance loss be set off against the 'incomefrom other sources'.