Capital Gains Nuances in Set Off Provisions Under Capital Gains

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The Tax Publishers Income Tax--Capital Gains Nuances in Set Off Provisions Under Capital Gains Srivatsan Ranganathan Intra head set off provisions under capital gains offers many points to ponder. The author has discussed some of the nuances in this write up. 1. First take Section 70 of the Income Tax Act, 1961 talks about intra-head set off provisions under the law. By intra-head set off we mean set off provisions within the same head of income. Section 70(1) talks of intra head set off of other incomes other than capital gains. Section 70(2) talks of intra head set off of short term capital gains which explicitly says that short term capital losses are allowed to be set off against any type of capital gains be it long/short term. Section 70(3) then carves out an exception that long term capital losses can only be set off against long term capital gains. The above principle applicable for intra-head set offs (gains and losses within one financial year) also apply equally for the carry forward of capital losses which is limited to 8 years. 2. The interpretational issue What is important to realize is that both the sub-sections 70(2) and (3) make a reference to a phrase, 'if any as arrived at under a similar computation made for the asst. year in respect of any other capital asset'. The computation method prescribed under both the sub-sections also make a reference to section 48 to 55 which are the core computational provisions for capital gains. The devil appears to be in the way this phrase is interpreted by the assessee and by the revenue. 3. Rating sections The rates for the capital gains are not enshrined in section 48 to 55 but are mentioned in sections 112, 111A and 112A based on the nature of the capital asset like listed securities, other capital assets etc. The rate prescribing sections viz. 112,111A and 112A simply prescribe the rates applicable for different types of capital asset. Except for the concept of block of asset defined under section 2(11) there is no Section in the Act which cluster assets into defined categories under the law. Block of asset means a group of assets falling within a class of assets having the same rate of depreciation. By this very definition the concept of block of asset is limited only for computation of depreciation purpose. It is also to be remembered that once an asset forms a part of a block of an asset, the individual identity of the asset is lost. 4. The summation The combined reading of the above would mean - (a) Category of different capital asset is used only for rate application SUBSCRIBE FOR FULL CONTENT OR Try Reload the Page

The Tax Publishers

Income Tax--Capital Gains

Nuances in Set Off Provisions Under Capital Gains

Srivatsan Ranganathan

Intra head set off provisions under capital gains offers many points to ponder. The author has discussed some of the nuances in this write up.

1. First take

Section 70 of the Income Tax Act, 1961 talks about intra-head set off provisions under the law. By intra-head set off we mean set off provisions within the same head of income.

Section 70(1) talks of intra head set off of other incomes other than capital gains.

Section 70(2) talks of intra head set off of short term capital gains which explicitly says that short term capital losses are allowed to be set off against any type of capital gains be it long/short term.

Section 70(3) then carves out an exception that long term capital losses can only be set off against long term capital gains.

The above principle applicable for intra-head set offs (gains and losses within one financial year) also apply equally for the carry forward of capital losses which is limited to 8 years.

2. The interpretational issue

What is important to realize is that both the sub-sections 70(2) and (3) make a reference to a phrase, 'if any as arrived at under a similar computation made for the asst. year in respect of any other capital asset'. The computation method prescribed under both the sub-sections also make a reference to section 48 to 55 which are the core computational provisions for capital gains. The devil appears to be in the way this phrase is interpreted by the assessee and by the revenue.

3. Rating sections

The rates for the capital gains are not enshrined in section 48 to 55 but are mentioned in sections 112, 111A and 112A based on the nature of the capital asset like listed securities, other capital assets etc. The rate prescribing sections viz. 112,111A and 112A simply prescribe the rates applicable for different types of capital asset.

Except for the concept of block of asset defined under section 2(11) there is no Section in the Act which cluster assets into defined categories under the law. Block of asset means a group of assets falling within a class of assets having the same rate of depreciation. By this very definition the concept of block of asset is limited only for computation of depreciation purpose. It is also to be remembered that once an asset forms a part of a block of an asset, the individual identity of the asset is lost.

4. The summation

The combined reading of the above would mean -

(a) Category of different capital asset is used only for rate application

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