TaxTMI 
TaxTMI 
1983 (10) TMI 30
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....e AAC confirmed the ITO's order. On further appeal before the Income-tax Appellate Tribunal, the assessee contended that the capital gains for the purpose of s. 45 could only mean a positive figure of income obtained on the transfer of a capital asset as defined in the I.T. Act and that as such the figure of loss cannot be added for arriving at the chargeable profits. The Revenue, on the other hand, contended that capital gains included capital loss also. The Tribunal, after considering the rival contentions, held that for the purpose of computation of chargeable profits for purpose of surtax, the ITO was not justified in adding back to the income the capital loss suffered. The correctness of the said view of the Tribunal has been challenged in this reference. The contentions of the assessee urged before the Tribunal and accepted by it are these : Rule 1(i) of the First Schedule to the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as the " Surtax Act "), requires exclusion of any income chargeable under the I.T. Act under the head " Capital gains " only and not capital losses, that on a correct reading of the provisions of ss. 70 and 71 of the I.T. Act, the signi....
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....ing s. 16(3) as that section created an artificial liability and, therefore, having regard to the concept of adding rather than subtracting, deducting or setting off the income referred to therein, should be understood as referring to a positive figure. Though the learned counsel for the assessee relies on the said decision of the Gujarat High Court in support of his contention that in the interpretation of rule 1(i), the income by way of capital gains should normally be taken to comprehend only positive income and not a negative income, that is loss, we are not inclined to agree with the said contention. The learned counsel for the assessee himself concedes that the expression " income " occurring in the I.T. Act has been normally understood as including a negative income, that is loss, for purposes of computation of the total income under the Act. However, he contends that having regard to the object of rule 1(i) of the First Schedule to the Surtax Act, it should be understood as only referring to positive income and not a negative income, namely, loss. The learned counsel for the assessee contends that chargeable profits has been defined in s. 2(5) of the Surtax Act, and the adj....
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....the balance of the total income arrived at after making the exclusions mentioned in rule should be reduced by the amount of income-tax, if any, payable by the company in respect of any income referred to in clauses (i) to (iii) or clause (viii) of rule 1 included in the total income. Thus, the First Schedule excludes income from some sources from the total income and thereafter reduction is made towards the income-tax payable in respect of income from some of the sources excluded in clause (i). Thus having regard to the method of computation of chargeable profits contemplated by the First Schedule, the income from the head " Capital gains " has to be excluded. According to the Revenue, income from capital gains has been shown as one of the heads of income under s. 14E of the I.T. Act, and, since, in the computation of total income, the income from capital gains forms part, rule 1(i) of the First Schedule to the Surtax Act excludes that head of income from the total income for purpose of computing the chargeable profits as defined in s. 2(5) of that Act. Having regard to the classification of the heads of income in s. 14, the expression " income from capital gains " will have to tak....
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....etting off. We do not see how the said decision will come to the aid of the assessee in this case. There, s. 16(3) of the 1922 Act was considered and having regard to the object of that section, it was held that unless there is positive income in the hands of the minor, there is no question of its addition to the income of the parent. Further, s. 16(3) contemplates income accruing from the assets transferred directly or indirectly by the parent to the minor child otherwise than for adequate consideration and, therefore, the addition contemplated in that section can only be of income from the property transferred which can only be a positive figure. Therefore, the principle of that decision cannot apply while determining the scope of rule 1(i) of Schedule to the Surtax Act. In CIT v. Harprasad & Co. P. Ltd. [1975] 99 ITR 118, the Supreme Court had occasion to consider the scope of the words " income " and " total income " occurring in the Indian I.T. Act of 1922. After referring to the various provisions of that Act, the Supreme Court observed thus (p. 124): " From the charging provisions of the Act, it is discernible that the words 'income' or 'profits and gains ' should be u....