Right to set-off loss is a “vested right” which is available despite amendment in year of set-off

In AY 2002- 03, the assessee suffered a long-term capital loss. U/s 74(1) as it then stood, such loss could be carried forward and set off against all capital gains including short-term capital gains. S. 74 was amended in AY 2003- 04 to provide that long-term capital loss could only be set-off against long-term capital gains and not against short-term-capital gain.

When the assessee claimed a set-off in AY 2004- 05 the question arose whether the amended law should apply or the un-amended law. HELD deciding in favour of the assessee:

(i) In Govinddas 103 ITR 123 (SC) it was held that unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matter of procedure. If the enactment is ambiguous in language, which is fairly capable of either interpretation, it ought to be considered as prospective only.

(ii) Applying this principle, the amended s. 74 is applicable to computation of loss under the head “Capital Gains” for AY 2003- 04 and on wards. As regards loss of earlier years, the law as it then stood gave a vested right of set off the loss against all capital gains. There is nothing in the amendment which withdraws the said vested right. Consequently, the loss can be set off against short-term capital gains despite the amendment.

Note: In Reliance Jute and Industries 120 ITR 921 (SC) it was held that though the 1922 Act provided for an indefinite period of carry forward of business loss, the limitation of 8 years imposed by the 1961 Act would apply and the assessee could not claim a ‘vested right’. Per contra, in Shah Sadiq 166 ITR 102 (SC) it was held that the right given by the 1922 Act to carry forward the losses of speculation business was an “accrued and vested right” which had to be granted even after the repeal of the Act.

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