⚖️ ITAT Confirms Capital Loss Set-Off Against Gain, Irrespective of Differing Tax Rates

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Delhi ITAT Upholds Set-Off under Section 70, Citing No Loss to Revenue.

In a significant ruling, the Delhi Income Tax Appellate Tribunal (ITAT) has provided clarity on the inter-source set-off of capital losses. The Tribunal confirmed that capital losses (both Short Term and Long Term) can be set off against capital gains, even if the tax rates applicable to the loss sources differ from the tax rate on the capital gain. 

The Dispute Over Differing Tax Rates

The case pertained to Assessment Year (AY) 2023-24, where the assessee claimed the set-off of two types of capital losses against current year's Long Term Capital Gains (LTCG):

  • Brought-forward Long-Term Capital Loss (LTCG loss).
  • Current-year Short-Term Capital Losses (STCG loss) from sale of shares and redemption of mutual funds.

The Revenue denied this set-off, arguing that the tax rates applicable to the losses differed from the tax rate applicable to the gains against which they were sought to be adjusted.

ITAT’s Rationale and Interpretation of Section 70

The Tribunal analyzed the provisions of Section 70 of the Income-tax Act, 1961, which deals with the set-off of loss from one source against income from another source under the same head of income.

Key Findings:

  • Section 70(2) Permission: The section permits the set-off of short-term capital loss against income under the same head, including both Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG).
  • Interpretation of 'Similar Computation': The Tribunal clarified that the expression 'similar computation' refers to the computation carried out under the head 'Capital Gains' and does not require parity of tax rates.
  • No Loss to Revenue: The ITAT specifically noted that since the losses being claimed were typically taxable at a higher rate than the gains (e.g., STCG at 15% vs. certain LTCG at 10%), adjusting them against the lower-taxed income caused no prejudice or loss to the Revenue.

The Tribunal therefore directed the Assessing Officer to allow the set-off of both the brought-forward LTCG loss and the current year's STCG losses against the current year's LTCG, confirming the assessee's claim was in accordance with Section 70.

Key Takeaway 💡

This judgment provides certainty that the mechanism for set-off of losses under the 'Capital Gains' head is governed by the principles of Section 70, and not by the subsequent special tax rates applied to different capital gains segments. Taxpayers should continue to claim valid capital losses against capital gains within the same head, treating the differing tax rates as a matter of computation, not a bar to set-off.

Case Citation: Ira Sharma vs. Deputy Commissioner of Income-tax, CPC [2025] 180 taxmann.com 881 (Delhi - Trib.).

Statutory Reference: Section 70 of the Income-tax Act, 1961.

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