Case: Commissioner of Income Tax Vs. V. Venkatachalam

2. The assessee, a Hindu Undivided Family, derived capital gains in a sum of Rs. 1, 02, 740 during the previous year relevant to the assessment year. It claimed deductions thereon under and as provided by SectionT of the Income Tax Act. The Income Tax Officer, however, adopted a different method. He found that during the said previous year the assessee had suffered a business loss of Rs. 41, 892. He set off the said loss against the capital gains of Rs. 1, 02, 740 and applied the deductions provided in SectionT to the balance figure. The assessees appeal was allowed by the Appellate Assistant Commissioner, who held that the deductions provided by SectionT should be applied to the sum of Rs. 1, 02, 740. An appeal preferred by the Revenue failed in the Tribunal. Thereupon, the aforesaid question was referred at the instance of the Revenue

Reasoning: 6. Evidently, the deductions provided for by the said provision had to be made from out of the capital gains. In this case the capital gain was Rs. 1, 02, 740. It is on the said sum that the deductions provided for by SectionT had to be applied. In such a case, no question can arise of the business loss being set off against this capital gain. The profits and gains (and loss) from business had to be computed in accordance with a different set of provisions namely Section 30 to, as they obtained at that time. Room of argument has arisen on account of the use of the words from such income in the main limb of Section. Relying upon the said words, the Revenue contends that the Income Tax Officer must apply the deductions under SectionT to the total income computed by him in accordance with the Act. The order of the Income Tax Officer is sought to be justified on this basis. It is not possible to agree. The language of the Section, reasonably understood, is not capable of and does not admit such construction. Probably, the placement of SectionT is wrong. It ought to have been placed alongside Section 48, as has since been done by the Finance Act, 1987, with effect from April 1, 1988. By the said Act, SectionT has been omitted and its provisions, with certain changes, have been placed in Section 48. (Of course, Section 48 has been totally recast with effect from April 1, 1993 by Finance Act, 1992.) The words "such income", in our opinion meant and referred to the capital gains and not the total income of the assesseeIn our opinion, the said argument is beside the point. The character of deduction provided by Section, which was the provision considered in the said two decisions of this Court, is different from the character of deduction provided by Section. Because the same words occur in both the sections, it does not necessarily follow that they must carry the same meaning. The High Court has referred to the decision in Cloth traders by way of an additional factor supporting is understanding and nothing more. The fact Cloth Traders has since been overruled makes no difference to the ration of the decision of the High Court8. Reliance is then placed upon the decision of this Court in Cambay Electric Supply Industrial Co. Ltd. v. C. I. T. That said decision was rendered with reference to Section, as it then stood. Two questions arose for consideration in that case viz. (i) Whether the balancing charge (i. e. deemed profits) computed under Section 41 (2) of the Income Tax Act should be added to the business income before applying the deduction provided by SectionE and (ii) Whether the unabsorbed depreciation and development rebate should be deducted out of such income before applying the deduction provided by Section. This Court held on the first question that the deemed profits arising under Section 41 (2) shall have to be added to the business income before making the said deduction. On the second question, it was held that unabsorbed depreciation and development rebate shall have to be deducted before making the said deduction. In short, the principle of the decision is that the Income Tax Officer must first have to arrive at the profits and gains of the business in accordance with Sections 28 toA before granting the deduction provided for by Section. We do not think that the principle of the said decision has any relevances herein