Set-off of b/f long term capital loss and business loss against short-term capital gain computed under section 50 : Mumbai ITAT

ITO v. Smart Sensors & Transducers Ltd.

Decision:    In assessee’s favour.

Set-off of b/f long term capital loss and business loss against short-term capital gain computed under section 50

Facts:

Assessee-company in revised return of income, showed short-term capital gain arising on account of sale of factory building under section 50. It claimed set-off of brought forward business loss and brought forward long-term capital loss against the short-term capital gains. AO did not accept the said claim of assessee on the ground that in view of provisions of section 74, only long-term capital loss can be set off against long-term capital gains. He also noted that as per provisions of section 72, business loss could be set off against business income and not against short-term capital gains computed by assessee in terms of section 50.

Held:

Assessee’s claim was allowed on the ground that brought forward business loss and brought forward long-term capital loss can be set off against short-term capital gains computed under section 50 on basis of judicial precedent stating that short-term capital gain computed under section 50 on long-term capital gain asset can be set off against long-term capital loss under section 74 and that deeming fiction of section 50 is restricted only to the mode of computation of capital gains and does not change the character of the capital gain from that of being long-term capital gain.

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