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Issues: (i) Whether business loss could be set off against income under the head "Capital gains" under section 71(2) of the Income-tax Act, 1961, without any prescribed sequence of set-off; (ii) Whether deduction under Chapter VI-A could be claimed from the gross total income as computed by the assessee after such set-off.
Issue (i): Whether business loss could be set off against income under the head "Capital gains" under section 71(2) of the Income-tax Act, 1961, without any prescribed sequence of set-off.
Analysis: Section 71(2) permits a loss under a head other than "Capital gains" to be set off against income under any other head, including "Capital gains", where the assessee has income assessable under that head. The provision does not prescribe any mandatory sequence for first exhausting one head of income before adjusting against another. Read with section 70, the scheme is that intra-head set-off operates first and, where not applicable, inter-head set-off under section 71 governs. On the facts, the assessee had no business income and the adopted set-off of business loss against income from other sources and the balance against capital gains was held to be within the statutory framework.
Conclusion: The set-off of business loss against capital gains under section 71(2) was held to be permissible and the assessee's computation was accepted.
Issue (ii): Whether deduction under Chapter VI-A could be claimed from the gross total income as computed by the assessee after such set-off.
Analysis: Once the set-off under section 71(2) was accepted, the resulting gross total income included income from other sources against which Chapter VI-A deductions were claimed. Section 80A(1) allows deductions specified in Chapter VI-A from gross total income in accordance with that Chapter. The Tribunal held that the assessee's computation, including the Chapter VI-A deductions, was a permissible tax computation and not contrary to the Act.
Conclusion: The deduction under Chapter VI-A was directed to be allowed as computed by the assessee.
Final Conclusion: The Tribunal accepted the assessee's computation of income, upheld the set-off method adopted, and granted the consequential Chapter VI-A relief.
Ratio Decidendi: Where section 71(2) applies, the assessee may set off a loss from a non-capital head against income under any eligible head including capital gains, and the resultant gross total income may be reduced by Chapter VI-A deductions in accordance with section 80A(1).
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