Commissioner of Income Tax vs S.R.M.S. Narayanan Chettiar

Veeraswami, J.—These two references are connected and come before us at the instance of the Commissioner. They pertain to the

assessment year 1958-59. The two questions are:

Whether on the facts and in the circumstances of the case, the capital gains of $ 17,576 (Rs. 27,243) is liable to capital gains tax ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in not considering the amount as capital gains on the

score that no tax was payable on such capital gains in view of the net loss computed under other heads ?

So far as the first question is concerned, it is clear it should be answered in favour of the assessee. It is true the assessee made the capital gains.

But the total effect of the return made by him was one of loss which absorbed the capital gains, so that no levy of tax on capital gains could arise.

As to the second question, it has not been properly phrased. We modify it to read as follows :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal should not have set off the capital gains against the business

loss to be carried forward ?

What the Appellate Assistant Commissioner did was, he added the capital gains to the net business loss for purposes of carrying over. One of

the grounds of appeal by the Commissioner before the Tribunal was that the capital gains should be treated as on the revenue side and charged to

tax under the head of business. That ground was rejected with the result the appeal failed. The Tribunal, in disposing of it, said that it confirmed the

order of the Appellate Assistant Commissioner. In the appeal preferred by the Commissioner he had taken the ground which is covered by the

question as modified by us. There is some doubt expressed at the Bar whether the ground, though taken by the Commissioner in the memorandum

of appeal, was argued before the Tribunal. But it is rarely that the representative of the Commissioner of Income Tax overlooks or omits a ground

or gives up, for, the decision in that direction he would expect from the Commissioner himself. We are, therefore, inclined to take it that the ground

was argued before the Tribunal by the departmental representative but not dealt with by it. Even so, in the circumstances of this case, as it appears

to us, it is not necessary to dispose of the reference in such a way as to enable the Tribunal to deal with the appeal afresh on the present ground. It

is obvious in view of Section 24(1) of the Income Tax Act, 1922, that though capital gains constitute a different head of income, nevertheless the

gains made under that head can well be set off against the loss incurred under another head. That being the case, the Commissioner is entitled to

succeed in Tax Case No. 57 of 1967.

The question in that case is answered in favour of the revenue but with no costs. The question in Tax Case No. 127 of 1965 is answered in

favour of the assessee with costs. Counsel''s fee, Rs. 250.