TaxTMI 
TaxTMI 
2012 (8) TMI 339
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....business of investment banking and dealing in Government securities. The return of income for the year under consideration was filed by it on 20.11.2003 declaring total income of Rs. 45,80,01,886/-. In the said return, short-term capital gain of Rs. 2,21,91,307/- earned during the year under consideration was declared by the assessee and the same was set off against brought forward long-term capital loss to the extent of Rs. 42,91,526/- relating to A.Y. 2001-02. According to the A.O., the assessee was entitled to set off the brought forward longterm capital loss only against long-term capital gain and not against short-term capital gain by virtue of the provisions of sec.74(1) as amended w.e.f. 01.04.2003. He held that since the said provisions amended w.e.f. 1.4.2003 were applicable to the year under consideration i.e. A.Y. 2003-04, the assessee was not entitled to claim the set off of brought forward long-term capital loss relating to A.Y. 2001-02 against short-term capital gain for the year under consideration i.e. A.Y. 2003-04. He, therefore, disallowed the claim of the assessee for set off of long-term capital loss brought forward from A.Y. 2001-02 against short-term capital g....
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....ion, he relied on the decision of Hon'ble Supreme Court in the case of Reliance Jute Industries vs. CIT 120 ITR 921 wherein it was held that assessment for one assessment year cannot be affected by the law in force in another assessment year in the absence of a contrary provision specifically made. He held that the right claimed by the assessee under the law in force in a particular assessment year thus was available only in relation to the proceedings pertaining to that year. He noted that the amendment made in sec.74(1) w.e.f. 1.4.2003 restricted the set off of the long-term capital loss only against longhttp:// term capital gain and since the said amendment was applicable to the year under consideration i.e. A.Y. 2003-04, the assessee was not entitled for the set off of brought forward long-term capital loss relating to A.Y. 2001-02 of Rs. 42,91,526/- against short-term capital gain of Rs. 2,21,91,308/- for the year under consideration i.e. A.Y 2003- 04. Accordingly, the action of the A.O. in disallowing the assessee's claim for such set off was upheld by the Ld. CIT (A). Aggrieved by the order of the Ld. CIT (A), the assessee has preferred this appeal before the Tribunal. 5.....
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....ny assessment year, the net result of the computation under the head "Capital gains" is a loss to the assessee, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and (a) in so far as such loss relates to a short-term capital asset, it shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year in respect of any other capital asset; (b) in so far as such loss relates to a long-term capital asset, it shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year in respect of any other capital asset not being a short-term capital asset; (c) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on;" 7. Shri Farrokh Irani contended that the language used in the amended provisions especially the highlighted words used therein leave no doubt that the amended Section 74 does not affect LTCL for assessment years prior to AY 2003-04 and that it applies only to LTCL made in AY 2003-04 and subsequent years. In support of this conten....
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..... Y. 2002-2003 onwards is made in which depreciation allowance for the current year u/s. 32(1) cannot be given full effect to owing to the inadeguacu of the profit, that the directive of the deeming provision u/s. 32(2) shall apply. The mention of the words "cannot be" and 'has not been' indicates that it speaks of the deprecation allowance u/s. 32(1) for the current year. ............... In the like manner, other sections such as 74 and 74A etc., to the extent thezj talk of loss for the current year, refer to "cannot be" and "has not been" set off. On going through these sections it is palpable that wherever there is mention to loss under a particular head for the current year which is sought to be set off against the income under the same head or other heads of the income for that very year, the set of words 'cannot be' and 'has not been' have been brought into play. ................ In order to make reference to such losses of earlier years, the words used have been 'could not be set off'. Thus it is manifest that the words "cannot be" as used in section 32(2) in the third period, refer only to the current year's depreciation, which is parallel to section 75 before substituti....
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....he speculation loss to be carried forward to the subsequent years and in the very nature of things it cannot apply to speculation loss quantified in any assessment year before the assessment year 2006-07. ..............Herein we are concerned with the assessee's right to set off the brought forward speculation losses against the speculation profits for the assessment year 2006-07. Sub-section (4) of section 73 does not deal with this situation. Hence, it has no application." 11. Shri Farrokh Irani submitted that the above decision of the Tribunal clearly supports the assessee's case that the amended provisions of Section 74 of the Act do not adversely affect the set off of brought forward LTCLs of AY 2001-02 against STCG of AY 2003-04. He submitted that the said decision has also been followed by the ITAT in the case of Gloria Securities Pvt. Ltd., Vs. ITO (ITA No. 680/Mum/2010 dated 31/08/02010). He reiterated that a bare construction of Section 74 of the Act, as amended by the Finance Act, 2002, itself thus makes it clear that the set off of LTCL made in AY 2001-02 against STCG made by it in AY 2003-04, is not affected. 12. As a second and independent proposition, Sh....
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....000 SC 811; (2000) 2 SCC 536, as the assessee had secured a right to carry forward the unabsorbed deduction deeming the same as the deduction of the next following assessment year when section 8OVVA was in existence and in full force, which was not taken away by the omission of the provision from the statute book. Following the principle laid down bu the Supreme Court, we hold that the Appellate Tribunal was correct in holding that a vested right had accrued to the assessee to treat the deduction disallowed as a part of deduction for the next assessment year to be allowed in the computation of the total income for the next following assessment year and the assessee is entitled to carry forward the deduction for the subsequent assessment years, if not allowed, as the deduction disallowed would join the main stream of deduction". Shri Farrokh Irani submitted that it is important to note that the Madras High Court decided the issue in favour of the assessee de-hors Section 6 of the General Clauses Act but on the general principle that vested rights could not be affected. 13. Shri Farrokh Irani also relied on the decision of three Judge Bench of the Hon'ble Supreme Court in Govindda....
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....nded Act 2002, which withdrew this vested right of the assessee. 11. Coming to the case laws, the Hon'ble Supreme Court in the case of Govinddas and others (supra), held that it is a well settled rule of interpretation, that unless the term of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matter of procedure. If the enactment is ambiguous in language, which is fairly capable of either interpretation, it ought to be construed as prospective only". 15. As a third proposition, Shri Farrokh Irani submitted that the Department's attempt to apply the amended provisions of Section 74 to deny the assessee a set off of the LTCL relating to A.Y. 2001-02 against the STCG for A.Y. 2003-04 would amount to giving retrospective effect to Section 74 of the Act which is impermissible without a clear and specific legislative indication to that effect. He contended that this proposition is also supported by the decision of the Supreme Court in Govinddas's case (supra) and relied upon the relevant observ....
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....tted that the comparative analysis of these provisions clearly shows that the assessee gets right of carry forward in the year of loss, if it is not set off fully in the year of loss. He submitted that the long term capital loss carried forward thus has to be dealt with in two way i.e. it would be set off under the head 'Capital Gains' in the following assessment year and if not, it would be carried forward with no provision dealing specifically with set off. He contended that the relevant provisions of section 74 thus provide for both carry forward and set off in the immediately succeeding year; but the section provides only for carry forward and not for set off for the assessment year following the succeeding assessment year. 19. Shri Pawan Ved contended that it is settled law that no assessee has any vested right against the State and / or Parliament. Parliament can legislate both prospectively and retrospectively. Therefore it cannot be said that the current law would not apply to the assessee because of past vested right. Without prejudice to this main contention, he submitted that even if it is assumed that the assessee gets vested rights as per the provisions of section 7....
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....revenue's case in the case of Reliance Jute (supra), on the other hand, has nothing to do with the situation of repeal of whole Act and the same therefore should be held to hold the field. He also relied on the decision of Hon'ble Supreme Court in the case of General Finance Company vs. Asst. C.I.T. 257 ITR 338. In this case, the issue was regarding continuance of prosecution initiated u/s.276DD after omission of section 276DD from the Act. The Hon'ble Supreme Court held that once section is omitted, prosecution cannot continue. It means, new provisions should take over the old provisions. Finally, prosecution was quashed. Shri. Ved contended that the Hon'ble Supreme Court in this decision has explained the implication of omission of provisions and repeal of provision. 22. In the rejoinder, Shri. Irani submitted that in the decision of the Supreme Court in the case of General Finance Co. Vs. ACIT (supra) cited by the learned DR, it was held that Section 6 of the General Clauses Act does not apply to amendments but only to repeals. He contended that the principle of vested right, however, has been recognized de-hors Section 6 of the General Clauses Act by the Hon'ble Madras High ....
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.... claim of the assessee for set off of long-term capital loss made prior to AY 2003-04 against short-term capital gains of subsequent years as was permissible by virtue of the provisions of sec.74(1) prior to its amendment made w.e.f. 01.04.2003. In support of this contention, he has mainly relied on the language used in sec.74(1) as amended w.e.f. 01.04.2003 which reads as under: "Losses under the head "Capital gains" Where in respect of any assessment year, the net result of the computation under the head "Capital gains" is a loss to the assessee, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and (a) in so far as such loss relates to a short-term capital asset, it shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year in respect of any other capital asset; (b) in so far as such loss relates to a long-term capital asset, it shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year in respect of any other capital asset not being a short-term capital asset; (c) if the loss cannot be wholly s....
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....s of the current year. The Special Bench held that it is thus palpable that wherever there is a mention of the loss under the particular head in the current year which has sought to be set off, the present tense has been brought into play. It was held that the necessary corollary which therefore followed is that the engaging the same set of words in sec.32(1) fairly suggested that the reference to depreciation allowance u/s.32(1) which could not be adjusted due to inadequacy of profit, was for the current year alone starting from assessment year 2002-03 onwards. To further support this conclusion, the Special Bench referred to the provisions of sec.75 as substituted by the Finance Act, 1992 w.e.f. 01.04.1993 dealing with losses of funds and providing that where the assessee is a firm, any loss in relation to the assessment year commencing on or before 01.04.1992, which could not be set off against any other income of the firm and which had been apportioned to the partner of the firm, and, "could not be" set off by such partner prior to the assessment year commencing from 01.04.1993, then, such loss shall be allowed to be set off against the income of the firm subject to certain con....
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.... this Chapter, be carried forward to the following assessment year, and- (a) it shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year ; and (b) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year, and so on." 30. Referring to the above provisions, the Ld. DR has contended that the analysis of the said provisions clearly shows that the assessee gets write off carry forward in the year of loss if it is not set off fully in the year of loss. He has contended that such carry forward loss has been dealt with two ways; Firstly, it would be set off against the income under the head "capital gains" in the following assessment year and if not, it would be carried forward. He has contended that the pre-amended provisions of sec.74(1) thus provide for both carry forward and set off in the immediately succeeding year but in so far as the year following the succeeding year is concerned, the said section provides only for carry forward and not for set off. We find no merit in this contention of Ld. DR. In our opinion, the expression "and so on" used in c....
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....s. In other words, the restriction imposed therein in terms of setting off the long-term capital loss only against long-term capital gain and not against the short-term capital gain is applicable only in relation to the long-term capital loss incurred by the assessee in AY 2003-04 and subsequent years and the same is not applicable to the long-term capital loss relating to and brought forward from the period prior to AY 2003-04 which shall be governed by the provisions of sec.74(1) as stood prior to amendment made w.e.f. 1.4.2003. The words used in the amended provisions of sec.74(1) clearly indicate this position and it appears to be the intention of the legislature. If that was not the intention of the legislature, nothing would have prevented the legislature from employing the appropriate language. Having regard to the language used in the provisions of sec.74(1) amended w.e.f. 1.4.2003, it seems clear that the intention was that the said provisions would deal with the carry forward and set off of long-term capital loss relating to AY 2003-04 and onwards. 33. Having accepted the first contention of the Ld. Counsel for the assessee that the provisions of sec.74(1) as amended w....
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....rs as per the law applicable to the year in which the loss was actually incurred and that the same could not be taken away by the amendment made in the relevant provisions restricting the carry forward and set off only for eight assessment years, was not accepted by the Hon'ble Supreme court and the claim of the assessee for set off was disallowed by the Hon'ble Supreme Court holding that the law as on 1st day of the relevant assessment year was applicable. 35. We have carefully gone through the judgment of Hon'ble Supreme Court in the case of Reliance Jute & Industries Ltd. (supra) cited by the Ld. DR in support of the revenue's case on this issue. In the said case, the unabsorbed business loss of AY 1950-51 was set off by the assessee against the business income of the assessment year 1960-61 which claim was disallowed by the AO relying on the provisions of section 24(2)(iii) of the Indian Income-tax Act, 1922 as amended w.e.f. April 1, 1957 restricting carry forward and set off of unabsorbed business loss only for 8 years. The stand of the assessee was that by virtue of section 24(2)(iii) of 1922 Act as it stood before its amendment w.e.f. April 1, 1957, it had acquired a ves....
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....this issue involved in the present case is more similar to the issue involved in the case of Govind Das and Others vs. ITO (supra) decided by the Hon'ble Supreme Court and relied upon by the Ld. Counsel for the assessee in support of the assessee's case. It is pertinent to note here that the said decision was rendered by the bench of three judges of Supreme Court and that too on 18th December, 1975 that is well before the decision rendered by the Bench of two judges of Hon'ble apex Court in the case of Reliance Jute and Industries Ltd on October 10, 1979. 37. In the case of Govinddas & Ors. (supra), the HUF was a partner in the export firm and in the mining firm. During the course of assessment proceedings for the AY 1957-58, the claim was made on behalf of the members of the HUF that they had effected the partial partition of their immovable property on 15th November, 1955. This claim was accepted by the AO after due enquiry and finding was recorded by him in the order of assessment. Consequent to its partial partition, the HUF ceased to be a partner in the export firm and the mining firm and two Members of the HUF namely Gulabdas and his son Govinddas continued to be partners ....
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....sec.121 of the New Act for the purpose of recovery of the tax or any part thereof personally form any members of the joint family including the petitioner. 38. At the time of hearing before us, the Ld. DR has contended that the decision of Hon'ble Supreme Court in the case of Govinddas (supra) was rendered on the interpretation of the provisions of sec.297(2)(d)(ii) of 1961 Act and relying on these specific provisions, the Hon'ble Supreme Court held that the right vested in the assessee as per 1922 Act had been saved. He has contended that in the situation as obtained in the case of Govind Das, the rights were accrued under 1922 Act and they were held to have been saved because of repeal of old Legislature keeping in view the specific provisions contained in sec.297(2)(d)(ii). 39. After having perused carefully the entire text of the judgment of the Hon'ble Supreme Court in the case of Govinddas & Ors. (supra), we are unable to agree with this contention of Ld. DR. It is observed that the entire discussion in the case of Govinddas & Ors. was made by the Hon'ble Supreme Court without referring to the provisions of sec.297(2)(d) and even the issue was decided in favour of the a....
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....(6) as applicable in such case with consequential effect of casting on the members personal liability which did not exist under sec.25A, would be to give retrospective operation to the said provision which is not warranted either by the express language of that provision or by necessary implication. 40. In the present case, the provisions of sec.74(1) as amended w.e.f. 1.4.2003 have been relied upon by the revenue authorities to disallow the assessee's claim for set off of long-term capital loss relating to AY 2001-02 against short-term capital gain of the year under consideration and as already noted by us, the plain grammatical construction of the language of sec.74(1) as amended w.e.f. 1.4.2003 makes it clear that the same are applicable and deal with carry forward and set off of loss under the head "capital gain" incurred in AY 2003-04 and subsequent years. The right accrued to the assessee by virtue of sec.74(1) as it stood prior to the amendment made w.e.f.1.4.2003 thus has not been taken away either expressly by the provisions of sec. 74(1) as amended w.e.f. 1.4.2003 or even by implication. 41. The golden rule of construction is that, in the absence of anything in the ....
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.... firm, to have its loss carried forward and set off under the provisions of the aforesaid sections. The matter was carried by the assessee in an appeal before the Tribunal which held that the assessee was entitled to set off the speculation losses suffered in the assessment years 1960-61 and 1961-62 against the speculation profits of the previous year 1962-63. The Hon'ble Allahabad High Court upheld the decision of the Tribunal and while disposing off the appeal filed by the revenue against the order of the Hon'ble Allahabad High Court, the Hon'ble Supreme Court held that under the Income-tax Act, 1922, the assessee was entitled to carry forward the losses of the speculation business and set off such losses against the profit made from that business in future years. It was held that the fact that right created by operation of sec.24(2) was a vested right could not be disputed and such a right which had accrued and had become vested continued to be capable of being enforced notwithstanding the repeal of the statute under which that right accrued unless the repealing statute took away such right expressly. It is worthwhile to note here that in the case of Shah Sadiq and Sons (supr....
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....uction for the succeeding assessment years. Sec.80VVA was deleted by the Finance Act, 1987 w.e.f. April 1, 1988 and as a result of the said deletion, the AO held that the assessee was not entitled to carry forward and set off the deduction u/s.80HHC relating to AY 1987-88 and 1988-89 in the assessment year 1989-90. The Ld. CIT (A) confirmed the view taken by the AO. The Tribunal however took a different view that a vested right had accrued to the assessee to carry forward and set off the unabsorbed deduction u/s.80HHC to which it was entitled to during the subsequent years. The Hon'ble Madras High Court upheld the decision of the Tribunal holding that a vested right u/s.80VVA(4) of the Act had accrued in favour of the assessee and that right was not taken away either expressly or by necessary implication by deletion of sec.80VVA of the Act. For this conclusion, the Hon'ble Madras High Court relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Shah Sadiq and Sons (supra). It was noted by the Hon'ble Madras High Court that the decision in the case of Shah Sadiq and Sons (supra) was rendered by the Hon'ble Supreme Court with reference to sec.6 of General Clauses Act ....
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....hargeable to tax is covered against the assessee by the decision of Hon'ble Madras High Court in the case of Smt. B. Seshamma vs. CIT 119 ITR 314 wherein it was held that the interest paid being a statutory obligation with respect to an amount found refundable, it would be assessable under the head " Income from other sources". Following the said decision of Hon'ble Madras High Court, the coordinate bench of this Tribunal at Pune in the case of Sala Mining Industries Ltd. vs. Dy. CIT 61 ITD 105 held that once the income-tax has been paid by the assessee, it ceases to be the money of the assessee and whatever refund is issued after final adjustment it would be a general debt due to the assessee arising under the statute. It was held that the interest arising on such debt cannot be said to have any connection with the business activities carried on by the assessee and therefore such interest is assessable as income from other sources. Keeping in view these judicial pronouncements, we uphold the impugned order of the Ld. CIT (A) confirming the action of the AO in assessing the interest received by the assessee on income-tax refund as income from other sources and not as business incom....