Section 54F exemption prevails over set-off rules, allowing carry forward of long-term capital loss.

Long-term capital loss can be carried forward without first being set off against a long-term capital gain eligible for exemption under section 54F. The computation provisions in sections 45 to 55A apply before the set-off mechanism in section 70(3), so an exempt capital gain is not required to be reduced to absorb a separate long-term capital loss. The exemption under section 54F takes precedence over the carry-forward set-off exercise. The issue was decided in favour of the assessee, and carry forward of the long-term capital loss was held allowable.

---

---

Issues: Whether long-term capital loss could be carried forward without first setting it off against long-term capital gains that were eligible for exemption under section 54F.

Analysis: The scheme of sections 45 to 55A governs computation of capital gains and specifically carves out the exemption available under section 54F. Once the capital gain qualifies for exemption under section 54F, section 70(3) operates only after the capital gains computation under sections 48 to 55A. The loss arising from one long-term capital asset can therefore be carried forward without reducing the exempt capital gain first. The computation of exemption under section 54F takes precedence over the set-off mechanism under section 70(3).

Conclusion: The carry forward of long-term capital loss was held to be allowable and the issue was decided in favour of the assessee.

Ratio Decidendi: For purposes of capital gains computation, exemption provisions under section 54F are applied before the set-off mechanism under section 70(3), and an exempt long-term capital gain cannot be reduced first to deny carry forward of a separate long-term capital loss.

---