The officer says my long-term capital loss on listed shares cannot even be determined, because gains on those shares would have been exempt under s.10(38). Is there authority the other way?
Yes. The Kolkata Tribunal held that the judicial concept that 'income' includes 'loss' applies only where the entire source of income falls outside the charging provisions; where the source — capital gains — remains chargeable and s.10(38) exempts only one specie of income arising from it, the concept does not apply. It directed the Assessing Officer to assess the long-term capital loss on the sale of listed shares and to allow its carry forward.
Decided by the ITAT (A. T. Varkey, Judicial Member and M. Balaganesh, Accountant Member) on 2019-07-01, reported as ITA No. 511/Kol/2017 (ITAT Kolkata 'C' Bench), assessment year 2013-14. It bears on section 74, section 70, section 10(38), section 40(a)(ia), section 194C of the Income Tax Act 1961, in Capital Gains and Capital Gains Exemptions matters.
This is the taxpayer's side of a genuine divide, and it is more usable than the older Raptakos Brett order because it confronts the contrary High Court decision instead of ignoring it. The Bench's route matters: it rests on the Calcutta High Court in Royal Calcutta Turf Club, treats the Gujarat High Court's Kishorebhai Bhikhabhai Virani as slightly distinguishable and, more pointedly, as not having considered the Calcutta decision at all. That is the argument to run — not that income excludes loss, which is the argument Gujarat rejected, but that Chapter III exempts a stream, not the source. The limits are plain: this is a Tribunal decision, it does not bind, and outside Calcutta the assessee has to reckon with the Gujarat judgment and with whatever Bombay has by now done with the question it admitted in Vibhadeep Investments. Note also the second, unrelated point in the same order: expenditure on horse racing paid to a turf club, disallowed under s.40(a)(ia) for want of deduction at source under s.194C, was restored for fresh consideration of whether the payee had returned the receipts and paid tax on them.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For assessment year 2013-14 the assessee, a firm, had two matters in dispute. On the first, it had incurred horse racing expenses of Rs 23,70,600 paid to the Royal Calcutta Turf Club, the whole of which the Assessing Officer disallowed under s.40(a)(ia) for failure to deduct tax at source under s.194C; the Commissioner (Appeals) deleted Rs 19,21,824 and confirmed Rs 4,48,776. On the second, the assessee had incurred a long-term capital loss of Rs 6,05,425 on the sale of listed shares and claimed to have it determined and carried forward. That claim was rejected below on the ground that the corresponding gain, had there been one, would have been exempt under s.10(38), so that no loss could be recognised at all.
The appeal was allowed for statistical purposes. On the capital loss the Assessing Officer was directed to assess the long-term capital loss incurred by the assessee on the sale of listed shares and to allow its carry forward in accordance with law: the concept that 'income' includes 'loss' applies only where the entire source of income falls within, or outside, the charging provisions, and not where the source remains chargeable and only a particular specie of income arising from it is exempted, which is the position under s.10(38) (paragraphs 8 and 13). On the s.40(a)(ia) ground the matter was restored to the Assessing Officer for fresh adjudication, including whether the payee had included the receipts in its return and paid tax on them.
The Bench framed the question as one about the reach of the judicial concept that the term 'income' includes 'loss'. It held that the concept can be applied only where the entire source of such income falls within the charging provisions of the Act, so that where the source of income is otherwise chargeable to tax but only a specific specie of income derived from that source is granted exemption, the proposition does not apply. Section 10(38), it reasoned, excludes in express terms only the income arising from the transfer of a long-term capital asset being an equity share or an equity oriented fund, and not the entire source of income from capital gains; exemption provisions in Chapter III operate on positive income. It followed the Calcutta High Court in Royal Calcutta Turf Club v. CIT [1983] 144 ITR 709, which it regarded as having examined the question in detail on a series of Supreme Court decisions, and it adopted the reasoning of the co-ordinate Bench in Raptakos Brett & Co. Ltd., where the same distinction had been drawn on long-term capital loss arising on the sale of securities transaction tax paid shares. Confronted with the Gujarat High Court's contrary decision in Kishorebhai Bhikhabhai Virani, the Bench declined to follow it, its stated reason being that it was respectfully following the Calcutta High Court's ratio and that the Calcutta decision had not been referred to or distinguished by the Gujarat High Court (paragraphs 8, 12 and 13).
In our considered opinion the judicial concept that the term 'income' includes loss can be applied only when the entire source of such income falls within the charging provisions of the Act. Accordingly in a case where the source of income is otherwise chargeable to tax but only a specific specie of income derived from such source is granted exemption, then in such case the proposition that the term 'income' includes loss will not be applicable.
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Handle my notice → Ask a CA on WhatsAppYes. The Kolkata Tribunal held that the judicial concept that 'income' includes 'loss' applies only where the entire source of income falls outside the charging provisions; where the source — capital gains — remains chargeable and s.10(38) exempts only one specie of income arising from it, the concept does not apply. It directed the Assessing Officer to assess the long-term capital loss on the sale of listed shares and to allow its carry forward. This was decided by the ITAT (A. T. Varkey, Judicial Member and M. Balaganesh, Accountant Member) and bears on section 74, section 70, section 10(38), section 40(a)(ia), section 194C of the Income Tax Act 1961. It is reported as ITA No. 511/Kol/2017 (ITAT Kolkata 'C' Bench), assessment year 2013-14. This is the taxpayer's side of a genuine divide, and it is more usable than the older Raptakos Brett order because it confronts the contrary High Court decision instead of ignoring it. The Bench's route matters: it rests on the Calcutta High Court in Royal Calcutta Turf Club, treats the Gujarat High Court's Kishorebhai Bhikhabhai Virani as slightly distinguishable and, more pointedly, as not having considered the Calcutta decision at all. That is the argument to run — not that income excludes loss, which is the argument Gujarat rejected, but that Chapter III exempts a stream, not the source. The limits are plain: this is a Tribunal decision, it does not bind, and outside Calcutta the assessee has to reckon with the Gujarat judgment and with whatever Bombay has by now done with the question it admitted in Vibhadeep Investments. Note also the second, unrelated point in the same order: expenditure on horse racing paid to a turf club, disallowed under s.40(a)(ia) for want of deduction at source under s.194C, was restored for fresh consideration of whether the payee had returned the receipts and paid tax on them. If it applies to you, the first step is this: Frame the claim as an entire source versus one stream point. Show that capital gains as a source remains chargeable under s.45 and that s.10(38) exempts only income arising from the transfer of a particular class of long-term capital asset.
For assessment year 2013-14 the assessee, a firm, had two matters in dispute. On the first, it had incurred horse racing expenses of Rs 23,70,600 paid to the Royal Calcutta Turf Club, the whole of which the Assessing Officer disallowed under s.40(a)(ia) for failure to deduct tax at source under s.194C; the Commissioner (Appeals) deleted Rs 19,21,824 and confirmed Rs 4,48,776. On the second, the assessee had incurred a long-term capital loss of Rs 6,05,425 on the sale of listed shares and claimed to have it determined and carried forward. That claim was rejected below on the ground that the corresponding gain, had there been one, would have been exempt under s.10(38), so that no loss could be recognised at all. The matter was decided on 2019-07-01 by the ITAT (A. T. Varkey, Judicial Member and M. Balaganesh, Accountant Member). On those facts the ITAT held as follows. The appeal was allowed for statistical purposes. On the capital loss the Assessing Officer was directed to assess the long-term capital loss incurred by the assessee on the sale of listed shares and to allow its carry forward in accordance with law: the concept that 'income' includes 'loss' applies only where the entire source of income falls within, or outside, the charging provisions, and not where the source remains chargeable and only a particular specie of income arising from it is exempted, which is the position under s.10(38) (paragraphs 8 and 13). On the s.40(a)(ia) ground the matter was restored to the Assessing Officer for fresh adjudication, including whether the payee had included the receipts in its return and paid tax on them.
The Bench framed the question as one about the reach of the judicial concept that the term 'income' includes 'loss'. It held that the concept can be applied only where the entire source of such income falls within the charging provisions of the Act, so that where the source of income is otherwise chargeable to tax but only a specific specie of income derived from that source is granted exemption, the proposition does not apply. Section 10(38), it reasoned, excludes in express terms only the income arising from the transfer of a long-term capital asset being an equity share or an equity oriented fund, and not the entire source of income from capital gains; exemption provisions in Chapter III operate on positive income. It followed the Calcutta High Court in Royal Calcutta Turf Club v. CIT [1983] 144 ITR 709, which it regarded as having examined the question in detail on a series of Supreme Court decisions, and it adopted the reasoning of the co-ordinate Bench in Raptakos Brett & Co. Ltd., where the same distinction had been drawn on long-term capital loss arising on the sale of securities transaction tax paid shares. Confronted with the Gujarat High Court's contrary decision in Kishorebhai Bhikhabhai Virani, the Bench declined to follow it, its stated reason being that it was respectfully following the Calcutta High Court's ratio and that the Calcutta decision had not been referred to or distinguished by the Gujarat High Court (paragraphs 8, 12 and 13). In the words reproduced by the source cited on this page: "In our considered opinion the judicial concept that the term 'income' includes loss can be applied only when the entire source of such income falls within the charging provisions of the Act. Accordingly in a case where the source of income is otherwise chargeable to tax but only a specific specie of income derived from such source is granted exemption, then in such case the proposition that the term 'income' includes loss will not be applicable." The decision followed or applied Royal Calcutta Turf Club v. CIT [1983] 144 ITR 709 / 12 Taxman 133 (Cal.) — followed; Raptakos Brett & Co. Ltd. v. DCIT (ITAT Mumbai, ITA Nos. 3317/Mum/2009 and 1692/Mum/2010) — followed; Kishorebhai Bhikhabhai Virani v. ACIT (Gujarat High Court, 13 January 2014) — considered and not followed.
It was decided by the ITAT on 2019-07-01 and is reported as ITA No. 511/Kol/2017 (ITAT Kolkata 'C' Bench), assessment year 2013-14. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 74, section 70, section 10(38), section 40(a)(ia), section 194C, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed for statistical purposes. On the capital loss the Assessing Officer was directed to assess the long-term capital loss incurred by the assessee on the sale of listed shares and to allow its carry forward in accordance with law: the concept that 'income' includes 'loss' applies only where the entire source of income falls within, or outside, the charging provisions, and not where the source remains chargeable and only a particular specie of income arising from it is exempted, which is the position under s.10(38) (paragraphs 8 and 13). On the s.40(a)(ia) ground the matter was restored to the Assessing Officer for fresh adjudication, including whether the payee had included the receipts in its return and paid tax on them. It arises in Capital Gains and Capital Gains Exemptions matters, on section 74, section 70, section 10(38), section 40(a)(ia), section 194C of the Income Tax Act 1961, and was decided by A. T. Varkey, Judicial Member and M. Balaganesh, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Cite Royal Calcutta Turf Club v CIT [1983] 144 ITR 709 (Cal) as the primary authority, with this order and Raptakos Brett as the Tribunal application of it, and be ready to meet Harprasad, on which the Gujarat High Court relied. If your assessee is within the Calcutta High Court's jurisdiction, note that this order and Rita Gupta v DCIT (Kolkata, 6 June 2024) follow the same reasoning; if within Gujarat, expect the contrary decision to bind the Tribunal. Claim the loss in the return and press for it to be determined even where there is no gain to absorb it in the year — the relief here was a direction to assess the loss and allow its carry forward, which requires the loss to appear in the loss year assessment. File the return within the s.139(1) time. Carry forward of a capital loss depends on s.74(1), which is one of the sub-sections s.80 names, so a belated return defeats the claim whichever view of s.10(38) prevails.
Still good law. A Tribunal Bench declining to follow a High Court decision from another State, and its reasoning has since been carried forward. In Rita Gupta v. DCIT, Central Circle-2(2), Kolkata (Tribunal, Kolkata 'A' Bench, 6 June 2024) the Bench followed this order as a coordinate bench decision on the identical issue at paragraph 7.2, relied on Raptakos Brett to the same effect, and at paragraph 8 distinguished the Gujarat High Court decision in Kishorebhai Bhikhabhai Virani because it had not considered the Calcutta High Court's Royal Calcutta Turf Club. No decision overruling or doubting this order was found, and no High Court decision approving or disapproving it was located. On the Bombay proceedings recorded earlier, there is now this much more. The Bombay High Court admitted the underlying question as a substantial question of law in PCIT v. Vibhadeep Investments and Trading Ltd (Income Tax Appeal No. 1176 of 2017, 27 January 2020), recording that the Gujarat High Court in Kishorebhai Bhikhabhai Virani had taken the diametrically opposite view to the Tribunal in Raptakos Brett. In the same group, the Revenue's special leave petition against the Bombay High Court's decision in Income Tax Appeal No. 843 of 2017, dated 11 September 2019, was dismissed by the Supreme Court on 8 February 2021 on the ground of delay - SLP (Civil) Diary No. 14939 of 2020, Bhushan and Subhash Reddy JJ. A dismissal on delay decides nothing on the merits and leaves the question open, so what Bombay finally holds in the admitted appeal remains the thing to establish. The conflict a practitioner will meet is therefore: the Gujarat High Court against the assessee, the Kolkata Benches consistently for the assessee, and Bombay not yet decided. Whether the Revenue appealed this order was not established, and a Tribunal order binds nobody beyond the parties. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Read through indiankanoon's print view. The Tribunal's statement of the source versus stream distinction and paragraph 13 were obtained as verbatim transcriptions, and both were confirmed by exact-phrase retrieval on indiankanoon: 'only a specific specie of income derived from such source is granted exemption' and 'to assess the long term capital loss incurred by the appellant on sale of listed shares' each returned this order and Rita Gupta v. DCIT (Kolkata, 6 June 2024) and nothing else. The passage in which the Bench deals with the Gujarat High Court decision was read partly in abridged form; the words quoted from it in the reasoning below were transcribed, but the surrounding sentences were not, so the description of the Bench treating that decision as 'slightly distinguishable' rests on the abridged rendering rather than on transcribed text. The amount of the long-term capital loss (Rs 6,05,425) and the s.40(a)(ia) figures were also read in abridged form. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed for statistical purposes. On the capital loss the Assessing Officer was directed to assess the long-term capital loss incurred by the assessee on the sale of listed shares and to allow its carry forward in accordance with law: the concept that 'income' includes 'loss' applies only where the entire source of income falls within, or outside, the charging provisions, and not where the source remains chargeable and only a particular specie of income arising from it is exempted, which is the position under s.10(38) (paragraphs 8 and 13). On the s.40(a)(ia) ground the matter was restored to the Assessing Officer for fresh adjudication, including whether the payee had included the receipts in its return and paid tax on them.
TaxSphere, “M/s United Investments v ACIT”, https://taxnotice.vittsphere.com/caselaw/case/united-investments-kolkata-10-38-exempt-stream-not-exempt-source/ (validity last checked 2026-09-16)
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