Short Term Loss and Income Tax : Supreme Court Answers the Doubt

Short Term Loss and Income Tax : Supreme Court Answers the Doubt

It has been held in Navin Jindal v. ACIT [2010] GCtR 6267 (SC) in context of Income-tax Act, 1961, that tor determining whether the gains/loss of renunciation of right to subscribe is a short-term or long-term gains/loss, the crucial date is the date on which such right to subscribe for additional shares/debentures comes into existence and the date of renunciation [transfer] of such right.

 

Section 48 of Income-tax Act, 1961 deals with mode of computation of income chargeable under the head “Capital gains”. Under that section, such income is required to be computed by deducting from the full value of the consideration received as a result of the transfer of the capital asset, the expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset. Under Section 48(1)(b) of the Act, it is further stipulated that where the capital gain arises from the transfer of a long-term capital asset, then, in addition to the expenditure incurred in connection with the transfer and the cost of acquisition of the asset, a further deduction, as specified in Section 48(2) of the Act, which is similar to standard deduction, becomes necessary.

After explaining facts, it was held that the loss suffered by the assessee amounting to Rs.2,43,750/- was a short-term loss. Therefore the computation of income under the head “Capital gains”, as projected in the chart submitted by the assessee and as computed by the assessee is correct. In other words, the computation of income under the head “Capital gains” submitted by the assessee is correct and the computation of income made by the Department is erroneous.