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Issues: Whether the Revenue could deny carry forward and set-off of short-term capital loss of earlier years by a rectification order passed in a subsequent assessment year, and whether the assessee's claim was affected by the alleged invocation of treaty benefits.
Analysis: The assessee had computed the current year's income without availing treaty protection and had merely carried forward the net short-term capital loss under the Act. The dispute relating to brought forward loss turned on losses that had arisen in earlier assessment years. The right to carry forward capital loss under section 74 of the Income-tax Act, 1961 has to be examined in the year in which the loss is first incurred and determined, and the denial of such carry forward cannot validly be made by a rectification order in a later year. Since the Revenue did not controvert the factual position that the losses stood claimed in the relevant earlier years, the basis adopted to disallow them in the subsequent year was unsustainable.
Conclusion: The denial of carry forward and consequential set-off of the earlier years' short-term capital loss was rejected, and the assessee's claim was upheld.
Ratio Decidendi: A capital loss must be tested for carry forward in the assessment year in which it is first incurred, and a later rectification order cannot deny that right for an earlier year's loss.
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