Capital gains deduction under section 48(2) must follow section 54E exemption, not the gross computation base.

Section 48(2) deduction for long-term capital gains must be computed on the amount remaining chargeable after giving effect to the exemption under section 54E, not on the gross figure computed only under section 48(1)(a). The capital gains provisions were construed as a single scheme, with section 45 operating subject to the exemption mechanism in section 54E. On that harmonised reading, the exempt portion of gain is excluded before the deduction is worked out, because allowing the deduction on the larger base would extend relief to income not chargeable to tax.

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Issues: Whether deduction under section 48(2) of the Income-tax Act, 1961, in respect of long-term capital gains is to be computed on the capital gain determined after excluding the exemption under section 54E, or on the amount arrived at only under section 48(1)(a).

Analysis: The provisions governing capital gains were read together as a scheme. Section 45 was treated as the charging provision subject to the exemptions specified in that section, including section 54E. Section 54E was understood to exclude from tax the portion of long-term capital gain attributable to eligible investment out of net consideration. The expression "capital gain" in section 54E was linked, through the Explanation to section 53, to the amount computed under section 48(1)(a). On a harmonious construction, the amount remaining chargeable after giving effect to section 54E was held to be the figure on which deduction under section 48(2) must be worked out. Acceptance of the assessee's method would have granted deduction even against income not chargeable to tax.

Conclusion: Deduction under section 48(2) had to be computed after excluding the exemption under section 54E, and the assessee's contrary method was rejected.

Ratio Decidendi: For computing deduction under section 48(2), the capital gain base must be the amount remaining chargeable after applying the exemption provisions under section 45, including section 54E, and not the gross amount calculated merely under section 48(1)(a).

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