1. This appeal by the assessee for the asst. yr. 1988-89 involves only one point relating to computation of capital gain.
2. During the period relevant for the asst. yr. 1988-89, the assessee sold 1/4th share in Flat No. 91, Bennett Villa, 27, Woodhouse Road, Bombay-39, for total consideration of Rs. 8,50,000. The assessee was entitled to benefit of s. 53(b) and also of the provision of s. 54 of the IT Act. The capital gain was also to be computed after having regard to the provision of s. 48(2) of the IT Act. It was claimed by the assessee that deduction under s. 48(2) is to be allowed first and thereafter, relief permissible under ss. 53(b) and 54 is to be computed. The computation of the assessee is as under : 1. Sale proceed of 1/4th share in the Flat No. 91 in Benette Villa, 27, Woodhouse Road, Bombay-400 039 [under s. 48(1)(a)(ii)] 44,563 (b) Expenditure on transfer [under s. 48(1)(a)(i)] 12,899 -------- 57,462 ---------- 3. Long-term capital gain 7,92,538 [as per s. 48(1)(a)] (a) Basic 10,000 (b) 50 per cent of balance of Rs. 7,82,538 3,91,269 --------- 4,01,269 ---------- 5. Balance (3-4) 3,91,269 Exemption = Rs. 2,00,000 x Total capital gain* *(As per s. 48(1)(a) i.e., item 3 above - See s. 53 Explanation) 2,00,000 1,86,480 --------- = 7,92,538 8,50,000 *(a) Amount deposited in bank under s. 54(2) 2,05,000 (b)(i) Long-term capital gain [as per s. 48(1)(a) - See s. 53 Explanation 7,92,538 (ii) Cost of new asset 2,05,000 Amount exempt under s. 54(1) r/w. s. 54(2) : Lower of the above i.e., 2,05,000 Exemption limited to balance of the long-term capital gain i.e. 2,04,789 ---------- 9. Amount of capital gain chargeable to tax under s. 45 (7-8) Nil ---------- 3. The AO however, did not agree with the submission of the assessee and deducted first the amount deductible under ss. 53(b) and 54 of the IT Act. He computed the capital gain at Rs. 2,02,459 as follows : Sale proceeds 8,50,000 Less : Cost 57,462 --------- Capital gain 2,00,000 1,86,479 ---------- = 7,92,538 8,50,000 7,92,538 x 2,05,000 1,91,142 3,77,621-------------------- --------------------- 8,50,000 4,14,917 Less : Under s. 48(2) 10,000 --------- 50 per cent thereof 2,02,459 --------- Long-term capitalgains 2,02,458 --------- 4. The assessee impugned the above assessment in appeal before the CIT(A) and contended that out of the sale proceeds, the assessee had invested Rs. 2,05,000 in Capital Gains Scheme. It was argued that benefit of the above provision should have been given after allowing deduction under s. 48(2) of the IT Act. The learned CIT(A) found that statutory provision of the IT Act, 1961, stood amended by the Finance Act, 1987, w.e.f. 1st April, 1988, and deduction earlier permissible under s. 80T were incorporated in s. 48(2) of the IT Act. The learned CIT (A) was of the view that first proviso to ss. 53 and 54 is to be applied and thereafter on the balance amount deduction under s. 48(2) is to be allowed. In support of the above view, he referred to Circular of the CBDT No. 495, dt. 22nd September, 1987, and observations of Kanga & Palkhiwala in Treatise of Income-tax, 8th Edition. The learned CIT(A), accordingly, upheld the order of the AO.5. The assessee has come up in appeal. The appeal was heard on 10th August, 1998. The learned counsel for the assessee had argued that the matter stood fully covered in favour of the assessee by the decisions of the Tribunal in the cases of Dinesh Hotel [IT Appeal No. 1323 (Bom) of 1991, dt. 16th July, 1997], Mrs. Pushpa B. Sheth [IT Appeal No. 5646 (Bom) of 1995, dt. 28th April, 1998] and Smt. Kamladevi B. Todi [IT Appeal No. 3687 (Bom) of 1996, dt. 10th February, 1998]. The learned Departmental Representative then had opposed the submissions of the learned counsel for the assessee and the hearing was concluded.
6. Thereafter, during the course of dictation of the order, one of us (JM) came across order dt. 10th September, 1997, in ITA No.9110/Bom/1990 in which a different view appear to have been taken. It was, therefore, thought proper to seek clarification from the parties and rehear the matter. Accordingly, the appeal was fixed for further hearing on 12th October, 1998.
7. On the date of hearing, copy of the order dt. 10th September, 1997, was brought to the notice of the parties. Their attention was also drawn to the decision of the Hon'ble Kerala High Court in the case of CIT vs. V. V. George (1997) 227 ITR 893 (Ker). The learned representatives of the parties wanted to go through the above decision and sought time to go through the above judgments. Accordingly, the appeal was taken up on 13th October, 1998. On that date, the learned counsel for the assessee fairly conceded that the Hon'ble Kerala High Court had decided the issue against the assessee and in favour of the Revenue. Their Lordships have held that while computing the capital gain in a case where provisions of ss. 53 and 54 are applicable, the gain is to be computed by applying first, provisions of ss. 53 and 54 and thereafter deduction is to be allowed under s. 48(2) of the Act. No other decision of any other High Court is available on the point at issue. The order of the AO is quite in line with the above view.
8. On careful consideration of the rival submissions, we are of the view that there is no option but to follow the decision of the Hon'ble Kerala High Court, cited supra. In the first place, that is the only decision of a High Court which has been cited before us. Having regard to the fact that income-tax is applicable in the whole of India, the decision of any Court even when it is not of a jurisdictional High Court, has to be followed with respect. After considering the statutory provision independently, we hold that no other view is possible. We record our reasonings in brief in following paragraphs for reaching the above conclusion.
9. The capital gain is to be computed as per the provisions of ss. 45 to 54 of the IT Act. Sub-s. (1) of s. 45 provides as under : "45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections (54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H) be chargeable to income-tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place." Sec. 48 provides for computation of capital gains. During the relevant period, it was as under : "48. Mode of computation and deductions. - (1) The income chargeable under the head 'Capital gains' shall be computed - (a) by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer, (ii) the cost of acquisition of the asset and the cost of any improvement hereto : (b) where the capital gain arises from the transfer of a long-term capital asset (hereafter in this section referred to, respectively, as long-term capital gain and long-term capital asset) by making the further deductions specified in sub-s. (2).
(2) The deductions referred to in cl. (b) of sub-s. (1) are the following, namely : (a) where the amount of long-term capital gain arrived at after making the deductions under cl. (a) of sub-s. (1) does not exceed fifteen thousand rupees, the whole of such amount; (b) in any other case, fifteen thousand rupees as increased by a sum equal to, - (i) in respect of long-term capital gain so arrived at relating to capital assets, being buildings or lands or any rights in buildings or lands or gold, bullion or jewellery, - (A) in the case of a company, ten per cent of the amount of such gain in excess of fifteen thousand rupees; (B) in the case of any other assessee, fifty per cent of the amount of such gain in excess of fifteen thousand rupees; (ia) in respect of long-term capital gain so arrived at relating to equity shares of venture capital undertakings, - (A) in the case of a company, other than venture capital company, thirty per cent of the amount of such gain in excess of fifteen thousand rupees; (B) in the case of venture capital company, sixty per cent of the amount of such gain in excess of fifteen thousand rupees; (C) in any other case, sixty per cent of the amount of such gain in excess of fifteen thousand rupees; (ii) in respect of long-term capital gain so arrived at relating to capital asset other than capital assets referred to in sub-cls. (i) and (ia), - (A) in the case of a company, thirty per cent of the amount of such gain in excess of fifteen thousand rupees; (B) in any other case, sixty per cent of the amount of such gain in excess of fifteen thousand rupees." "53. Exemption of capital gains from a residential house. - Notwithstanding anything contained in s. 45 where in the case of an assessee being an individual or an HUF, the capital gain arises from the transfer of long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head 'Income from house property', the capital gain arising from such transfer shall be dealt with in accordance with the following provisions of this section, that is to say, - (a) in a case where the full value of the consideration received or accruing as a result of the transfer of such capital asset does not exceed two hundred thousand rupees, the whole of the capital gain shall not be charged under s. 45.
(b) in a case where the full value of such consideration exceeds two hundred thousand rupees, so much of the capital gain as bears to the whole of the capital gain the same proportion as the amount of two hundred thousand rupees bears to such consideration shall not be charged under s. 45 : Provided that nothing contained in this section shall apply to a case where the assessee owns on the date of such transfer any other residential house.
Explanation. - In this section and in ss. 54, 54B, 54D, 54E, 54F and 54G, reference to capital gain shall be construed as references to the amount of capital gain as computed under cl. (a) of sub-s. (1) s. 48." Likewise, deduction is provided under s. 54 for investment either in purchase or in construction of house within a specified period as under :- (i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under s. 45 as the income of the previous year, and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil, or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under s. 45, and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain." 10. It is, thus, clear that sub-s. (1) of s. 45, which is the charging section, saves whatever is provided under s. 54 and other sections mentioned in the sub-section. Therefore, charging section shall come into operation only subject to saving of other provisions. One would have to consider those provisions first and apply the charging section if any capital gain is left to be charged. If it is found that provisions of s. 45 are not applicable and nothing is to be charged to capital gains, the question of its computation as per s. 48 would not arise. Moreover, in s. 53 and in some other sections referred to in sub-s. (1) of s. 45 "full value of consideration received" or "net consideration" are used and these expressions are to be understood in the proper context before applying provision of s. 48. For example, in a case where s. 53 is applied and full value of consideration received or accruing is less than two hundred thousand rupees, the whole of capital gain shall not be charged under s. 45 and there would be no need to go to that section. The question of computation of capital gain in terms of s. 48 would not at all arise. Likewise, if the amount of capital gain is equal or less than the cost of new asset as stated in s. 54, the capital gain shall not be charged to tax under s. 45. Here again, there would be no scope to compute the capital gain. It is, therefore, clear that in several cases covered by ss. 53, 54, etc., there would be no occasion to go to s. 45/48 of the IT Act. We must also take into account the distinction between capital gain and long-term capital gain. The provision of sub-s. (1) of s. 48 is applicable for computation of capital gain, both long-term and short-term whereas deduction under sub-s. (2) of the said s. 48 is permissible only in the case of long-term capital gain. In other words, sub-s. (2) of s. 48 is not to be applied in computing short-term capital gains. It is applicable only when long-term capital gain accrues or arises. This scheme of the Act is, therefore, clear and provision of s. 48(2) is not automatically applicable in all cases where capital gain accrues or arises. Its application is depended upon several other provisions which are to be conjunctively considered.
11. The above conclusion is also supported when Expln. to s. 53 brought on statute book through Finance Act, 1987, w.e.f. 1st April, 1987, is considered. The said Explanation is as under : "In this section and in ss. 54, 54B, 54D, 54E, 54F and 54G references to capital gain shall be construed as references to the amount of capital gain as computed under cl. (a) of sub-s. (1) of s.
12. The Explanation thus specifically refers to the amount computed under cl. (a) of sub-s. (1) of s. 48. The deduction permissible under sub-s. (2) of s. 48 is not mentioned and, therefore, specifically excluded. In the light of this Explanation, it is difficult to accept that provision of s. 48(2) should be applied first and then only other provisions like that of s. 54, etc. should be applied. This would be acting contrary to the Explanation which is clearly applicable in the assessment year under consideration.
13. We are, therefore, of the view that the AO and the CIT(A) were right in holding that the deduction under s. 48(2) is to be allowed only from long-term capital gains after allowing deduction permissible under ss. 53 and 54 of the IT Act. For all the above reasons, we confirm the action of the CIT(A).