Capital loss set-off must precede Chapter VI-A deduction under the statutory income computation scheme.

Brought forward capital loss under section 74 must be set off against current capital gains before the deduction under section 80T is computed. The statutory scheme treats gross total income as income computed after giving effect to non-Chapter VI-A provisions, and Chapter VI-A deductions then operate only on that gross total income. On that basis, section 80T cannot be applied before the section 74 adjustment, because the capital gains available for deduction are first reduced by the carried-forward capital loss.

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Issues: Whether the set-off of brought forward capital loss under section 74 is to be made before allowing the deduction under section 80T from capital gains.

Analysis: Deductions under Chapter VI-A are allowed in computing total income from gross total income, and gross total income means total income computed before making deductions under Chapter VI-A. The computation of gross total income therefore takes place after applying section 74, while section 80T operates only at the stage of deduction from the gross total income. On that scheme, the brought forward capital loss must first be set off against current capital gains, and only thereafter can the deduction under section 80T be worked out. The view accords with the statutory sequence and the reasoning adopted in the cited High Court decision.

Conclusion: The set-off under section 74 has to be made before the deduction under section 80T, and the question was answered in the negative, in favour of the Revenue.

Ratio Decidendi: For computing taxable income, brought forward capital loss must be adjusted before Chapter VI-A deductions are allowed, because gross total income is determined only after giving effect to non-Chapter VI-A provisions.

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