Judgment BHARUCHA ( 1 ) THE assessee made long-term capital gains during the accounting year relevant to the Assessment Year 1970-71. He had brought for Ward a long term capital loss from previous assessment years to be set off there against. The assesses claimed a deduction under Section 80-T of the Income-tax Act, 1961 (hereinafter referred to as the said Act ). For the purposes of determining the amount on which such deduction was available to the assesses, the Income-tax Officer took into account the figure arrived at after setting off the capital loss of previous assessment years against the capital gains for the Assessment Year 1970-71. He rejected the contention of the assesses that for the purposes of the deduction under Section 80-T that figure of capital gains should be taken as it stood before set off of the capital loss of previous assessment years. The Appellate Assistant Commissioner allowed the assessees appeal. The Revenue preferred an appeal to the Income-tax Appellate Tribunal against the order of the Appellate Assistant Commissioner. The Tribunal allowed the appeal. ( 2 ) ARISING out of the judgment and order of Tribunal, the following question was referred to the High Court of Kerala: "whether Section 80t relief is to be given only for the amount of capital gains after the capital loss is set off?" THE High Court answered the question in the affirmative, that is to say, in favour of the Revenue and against the assesses. (The judgment of the High Court is reported in 129 ITR 156 : (1979 Tax LR 852) (Kerala) ). This appeal is preferred by the assessee by special leave. ( 3 ) ON behalf of the assessee it was submitted that the High Court had erred in holding that the words "such income" in Section 80-T referred to the amount which was arrived at after set off of the capital loss brought forward from earlier years. The submission was that the words "such income" referred only to the capital gains received in the relevant accounting year. It was submitted also that the placement of Section 80-T in the said Act was not to be emphasised and that the capital loss carried forward was required to be set off only after the chargeable capital gains had been assessed as reduced by the deduction provided by Section 80t. It was submitted also that the placement of Section 80-T in the said Act was not to be emphasised and that the capital loss carried forward was required to be set off only after the chargeable capital gains had been assessed as reduced by the deduction provided by Section 80t. ( 4 ) LEARNED counsel for the Revenue submitted that the view that had been taken by the Kerala High Court in the judgment under appeal was correct and that it had also been taken by the Gujarat High Court in C. I. T. , Gujarat v. Gautam Sarabhai, (1981) 129 ITR 133: (1982 Tax LR 613); by the Madras High Court in C. I. T. v. M. Seshasayee, (1981) 129 ITR 166; by the Bombay High Court in C. I. T. v. Vimla P. Kapadia, 181 ITR 394: (1990 Tax LR 1124) (to which judgment one. of us, Bharucha, J. , was a party); and by the Calcutta High Court in Gouri Prasad Goenka V. C. I. T. , (1991) 190 ITR 81 . He also pointed out that this Court had in a recent judgment, in C. I. T. v. V. Venkatachalam, (1993) 201 ITR 737: (1994 AIR SCW 612) (to which one of us, B. P. Jeevan Reddy, J. , was a party) held that the words "such income" in the main limb of Section 80-T meant and referred to the capital gains and not the total income of the assessee. ( 5 ) IN the case of Gautam Sarabhai (1982 Tax LR 613) (ibid), the Gujarat High Court said : "thus, before S. 80t contingency can arise, it must be shown that in a given assessment year, the gross total income of the assessee includes income chargeable under the head "capital gains". But if because of supervening event of operation of S. 74 of the Act, the carried forward capital losses from earlier years completely drown and wipe off the capital gains for the given year, as assessable under S. 45 read with S. 48, then, no income from that head would be left for being added as a head of income for computing the gross total income out of which special deductions could be effected under Chap. VI-A for arriving at the net total income exigible to tax. VI-A for arriving at the net total income exigible to tax. It is only in cases where the capital gains of a given assessment year are either not fully set off against carried forward capital loss of a previous year as per S. 74 or when such losses are not there at all, that the question of applicability of S. 80t would arise, as in such cases, net income chargeable under the head "capital gains would squarely form part of the computation of gross total income of the assessee for that year and it is at this stage that special deductions as provided by S. 80t have to be effected. It is further pertinent to note that S. 80t provides that "where the gross total income of an assessee not being a company includes any income chargeable under the head capital gains relating to capital assets other than short-term capital assets (such income being hereinafter referred to as long-term capital gains), there shall be allowed, in computing the total income of the assessee, a deduction from such income of an amount equal to. . . "these words clearly show that the deduction which is to be effected is from the gross total income of the assessee and that too only when such gross total income is found to have as its component income chargeable to tax "capital gains". But if the component of such capital gains does not form part of the gross total income of the assessee in a given year because of the supervening operation of S. 74, the stage for effecting deduction under S. 80t from such gross total income is not reached at all. " ( 6 ) IN the case of Vimla P. Kapadia (1990 Tax LR 1124) (ibid),the Bombay High Court said (Para 3): "in the very nature of the scheme of the Income-tax Act, deductions under the provisions of Chapter VI-A which includes Section 80t are to be made in computing the assessees total income. The deductions are to be allowed from the gross total income and can, in no case, exceed the gross total income. The deductions are to be allowed from the gross total income and can, in no case, exceed the gross total income. Gross total income, for the purpose of allowing deductions under Chapter VI-A, has been defined in S. 80b (5) to mean the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A and under Section 280-O. Thus, the first stage for determining the total income is to determine the gross total income, i. e. , after taking into account the effect of all provisions including Section 74 of the Act except deductions under Chapter VI-A and Section 280-O. " ( 7 ) IN the case of Gouri Prasad Goenka (1991 (190) ITR 8 1) (ibid), the Calcutta High Court said: "computation of income under the Income-tax Act will have to be done, in the instant case, under the head "capital gains" and all the deductions and allowances will have to be allowed. All adjustments of losses will have to be made in accordance with the provisions of the Income -tax Act for the purpose of arriving at the gross total income as defined in Section 80-B. It is only that part of the income which has been included in the gross total income which will be the basis for computation of the relief claimed by the assessee under Section 80t. " ( 8 ) BY reason of Section 14 of the said Act all income for the purposes of charge of income-tax and computation of total income is classified under the heads of income therein mentioned. Capital gains is one such head of income. Section 45 deals with capital gains and says that any profits or gains arising from the transfer of a capital asset effective in the previous year shall, except as provided in the provisions therein mentioned, be chargeable to income-tax under the head capital gains and shall be deemed to be income of the previous year in which the transfer took place. Section 48 sets out the mode of computation of income chargeable under the head of capital gains. It refers to long-term capital gains as being capital gains arising from the transfer of long-term capital assets, and it makes provision for certain deductions there from. Section 74 provides for losses under the head "capital gains". Section 48 sets out the mode of computation of income chargeable under the head of capital gains. It refers to long-term capital gains as being capital gains arising from the transfer of long-term capital assets, and it makes provision for certain deductions there from. Section 74 provides for losses under the head "capital gains". It says that where in respect of any assessment year, the net result of the computation under the head "capital gains" is a loss to the assessee and such loss cannot be or is not wholly set off against income under any other head of income, so much of the loss as has not been so set off or, where the assessee has no income under any other head, the whole loss shall be carried forward to the following assessment year and shall be set off against income, if any, under the head "capital gains" assessable for that assessment year and if the loss cannot be wholly set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on for a maximum of eight assessment years immediately succeeding the Assessment year for which the loss was first computed. Chapter VI-A is entitled "deductions to be made in computing total income". Sub-section (1) of Section 80a therein states that in computing the total income of an assessee, there shall be allowed from his gross total income in accordance with and subject to the provisions of Chapter VI-A, the deductions specified in Sections 80c to 80u. Sub-section (2) of Section 80a makes it clear that the aggregate amount of the deductions under Chapter VI-A shall not exceed the gross total income of the assessee. Sub-section (5) of Section 80b defines "gross total income for the purposes of Chapter VI-A to mean the total income computed in accordance with the provisions of the said Act before making any deduction under Chapter VI-A. Section 80t falls under Part C of Chapter VI-A, which deals with deductions in respect of certain incomes. Sub-section (5) of Section 80b defines "gross total income for the purposes of Chapter VI-A to mean the total income computed in accordance with the provisions of the said Act before making any deduction under Chapter VI-A. Section 80t falls under Part C of Chapter VI-A, which deals with deductions in respect of certain incomes. Section 80t, so far as it is relevant, reads thus: "section 80-T. Where the gross total income of an assessee not being a company includes any income chargeable under the head "capital gains" relating to capital assets other than short-term capital assets such income being, hereinafter, referred to as long-term capital gains), there shall be allowed, in computing the total income of the assessee, a deduction from such income of an amount equal to, - ( 9 ) SECTION 80t opens with the words "where the gross total income of an assessee. . . . . includes any income chargeable under the head "capital gains. . . . . ". This clearly indicates that the gross total income of an assessee has to be determined before the provisions of Section 80t can be applied. This is clear also from the provisions of Section 80a which says that in computing the total income of an assessee there shall be allowed from his gross total income the deduction specified in, inter alia, Section 80t. Where the gross total income of an assessee, determined in accordance with the provisions of the said Act, includes any income by way of long-term capital gains a deduction is permissible there from under the provisions of Section 80t in computing his total income. The deduction is from "such income". As aforementioned, "such income" has been held by this Court to be the assessees long-term capital gains and there can be no doubt, having regard to the context, of the correctness of this interpretation. ( 10 ) THE view that commended itself to the Gujarat, Madras, Bombay and Calcutta High Courts and to the Kerala High Court in the judgment under appeal is, therefore, correct. ( 11 ) REFERENCE may be made with advantage to this Courts judgment in Distributors (Baroda) P. Ltd. v. Union of India, 155 ITR 120 : ( AIR 1985 SC 1585 ). ( 11 ) REFERENCE may be made with advantage to this Courts judgment in Distributors (Baroda) P. Ltd. v. Union of India, 155 ITR 120 : ( AIR 1985 SC 1585 ). A Constitution Bench of this Court was concerned there with interpreting the provisions of Section 80m of the said Act, the main limb of which read thus (Para 11 of AIR): "80m. Deduction in respect of certain intercorporate dividends (1) Where the gross total income of an assessee being a company includes any income by way of dividends received by it from a domestic t company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends of an amount equal to (IT will be seen that the phraseology of Section 80m is similar to that of Section 80t ). The Constitution Bench held (Para 15 of AIR): "the opening words describe the condition which must be fulfilled in order to attract the applicability of the provision contained in sub-sec. (1) of S. 80m. The condition is that the gross total income of the assessee must include income by way of dividends from a domestic company. "gross total income" is defined in S. 80b, clause (5), to mean the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A or under S. 280-O". Income by way of dividends from a domestic company included in the gross total income would, therefore, obviously be income computed in accordance with the provisions of the Act, that is, after deducting interest on monies borrowed for earning such income. If income by way of dividends from a domestic company computed in accordance with the provisions of the Act is included in the gross total income, or, in other words, forms part of the gross total income, the. condition specified in the opening part of subsec. (1) of S. 80m would be fulfilled and the provision enacted in that sub-section would be attracted. " ( 12 ) THE judgment in the case of Distributors (Baroda) P. Ltd. ( AIR 1985 SC 1585 ), therefore, supports the view we take. ( 13 ) SECTION 80m had previously been interpreted differently by this Court in the judgment in Cloth Traders P. Ltd. v. Addl. " ( 12 ) THE judgment in the case of Distributors (Baroda) P. Ltd. ( AIR 1985 SC 1585 ), therefore, supports the view we take. ( 13 ) SECTION 80m had previously been interpreted differently by this Court in the judgment in Cloth Traders P. Ltd. v. Addl. C. I. T. , 118 ITR 243: ( AIR 1979 SC 1691 ). By reason of the interpretation placed upon Section 80m in the Cloth Traders case, the legislature had, by Finance (No. 2) Act, 1980, introduced Sections 80aa and 80ab into the said Act. Section 80aa was introduced with retrospective effect from 1/04/1968 and S. 80ab with effect from 1st April, 198 1. Sections 80aa and 80ab read thus: "80aa. Computation of deduction under Section 80m - Where any deduction is required to be allowed under Section 80m in respect of any income by way of dividends from a domestic company which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, the deduction under that section shall be computed with reference to the income by way of such dividends as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) and not with reference to the gross amount of such dividends. 80ab. Deductions to be made with reference to the income included in the gross total income - Where any deduction is required to be made or allowed under any section (except S. 80m) included in this Chapter under the heading "c.- Deductions in respect of certain incomes" in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. " ( 14 ) IN the case of Distributors (Baroda) P. Ltd. ( AIR 1985 SC 1585 ), it was the retrospective effect of S. 80aa which was under challenge. " ( 14 ) IN the case of Distributors (Baroda) P. Ltd. ( AIR 1985 SC 1585 ), it was the retrospective effect of S. 80aa which was under challenge. The Court, as aforementioned, interpreted S. 80m in a manner different from that placed upon it in the Cloth Traders case ( AIR 1979 SC 1691 ). It held that the decision in the Cloth Traders case was erroneous and had to be overturned. It was, therefore, unnecessary to consider the question of the constitutional validity of the retrospective operation of S. 80aa. Section 80aa, it was held, was, in its retrospective operation, merely declaratory of the law as it always had been since 1/04/1968, when the provisions of Chapter VI-A were introduced. ( 15 ) ON a parity of reasoning it must be held that S. 80ab was enacted to declare the law as it always stood in relation to the deductions to be made in respect of the incomes specified under Head c of Chapter VI-A. The manner of deduction specified under S. 80ab accords with the interpretation that we have placed upon S. 80t, read independently. ( 16 ) SECTION 80t has been deleted from the said Act with effect from 1/04/1981 and its provisions substantially incorporated in Section 48. We have not been called upon to consider the provisions of Section 48 as amended and express no opinion on the position obtaining subsequent to 1/04/1981. ( 17 ) IN the result, we uphold the impugned judgment and order and dismiss the appeal. ( 18 ) THERE shall be no order as to costs. Appeal dismissed.