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| DATE: | August 10, 2012 (Date of publication) |
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| Click here to download the judgement (kotak_mahindra_set_off_capital_loss.pdf) |
Right to set-off capital loss is a “vested right” not affected by amendment
In AY 2003-04, the assessee earned short-term capital gains (“STCG”) of Rs. 2.21 crores and set it off against the long-term capital loss (“LTCL”) relating to AY 2001-02. S. 74 was amended w.e.f. AY 2003-04 to provide that brought forward LTCL could only be set-off against LTCG and not against STCG. The assessee claimed, relying on Shah Sadiq 166 ITR 102 (SC) that the amendment to s. 74 w.e.f. AY 2003-04 did not affect the assessee’s vested right in AY 2001-02 to have the LTCL set-off against the STCG. The AO & CIT(A) relied on Reliance Jute Industries 120 ITR 921 (SC) where it was held that the assessment for one AY cannot be affected by the law in force in another AY and that the law prevailing in AY 2003-04 alone had to be considered. On appeal to the Tribunal, the issue was referred to a Special Bench. HELD by the Special Bench:
(i) S. 74(1), as substituted w.e.f. 01.04.2003, uses the present tense and refers to the long-term capital loss of the current year. It applies to the long-term capital loss of AY 2003-04 onwards and not to the long-term capital loss relating to the period prior to AY 2003-04. The set-off of long-term capital loss relating to a period prior to AY 2003-04 is governed by s. 74(1) as it stood in that AY;
(ii) The assessee’s contention, relying on Shah Sadiq, that it had a “vested right” in AY 2001-02 to carry forward the LTCL & set it off against the STCG and that this right cannot be defeated without express language in the statute is also acceptable. In Govinddas 103 ITR 123 (SC) it was held that unless the terms 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 otherwise than as regards the matters of procedure (Reliance Jute Industries 120 ITR 921 (SC) distinguished; SSC Shoes 259 ITR 674 (Mad) followed; Geetanjali Trading (ITAT Mumbai) approved)
welcome decision though but at the same risky if one go by the literal construction of section 74 (1) and further in the absence of any transitional provisions in the Act.