R.K. Manisana, J.— At the instance of the Commissioner of Income-tax, the following question of the law has been referred to this Court under section 256 (1) of the income-tax Act (Act for short). "Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that for computation of Income under the head Capital gains deduction under section SOT of the Income-tax Act 1961 is to be given before giving deduction under section 54B of the Act?" 2. The assessee is a registered firm. The assessment year involved was for 1979-80. During the previous year the assessee sold a flat at Bombay. The Assessing Authority (ITO), after deducting the written down value and sale expenses from the net consideration, decided under section 54E of the Act as to what extent capital gain on transfer of capital assets shall mot be chargeable to income-tax in respect of the sum of Rs 75,000/- which formed part of sale proceeds and deposited with the United Commercial Bank at Dibrugarh in fixed deposit. Thereafter, the Assessing Authority made a deduction allowable under section SOT of the Act from the income chargeable in computing total income of the assessee under the head 'Capital gains'. On appeal by the assessee the Appellate Assistant Commissioner set aside the manner of calculation made by the Assessing Authority by 'holding that "section SOT deduction would be allowed on the capital gams before the exemption under section 54E is allowed". The Appellate Tribunal confirmed the findings of the Appellate Assistant Commissioner. 3. Section 45 of the Act, as it stood in the relevant year, provides that, save as otherwise provided in sections 43, 54, 54B, 54D and 54E, any profits or gains arising from the transfer of a capital asset effected in the previous year shaft be deemed to be the income of the previous year in which the transfer took place, and shall be chargeable to income-tax under the bead Capital gains'. 4. Under section 54E, where the capital gain arises from the transfer of a long-term capital asset and the assessee has, within a period of six months after the date of such transfer, invested or deposited the whole or part of the net consideration in any specified asset, the whole of such capital gain, or a part of it, shall not be charged under section 45 of the Act. Therefore, if section 54E is applied, the whole or any part of the capital gain would not be chargeable to income-tax. 5. Under section 80T, where the gross total income of an assessee not being a company includes any income chargeable aider the head 'Capital gains' relating to long term capital asset, there shall be aftowed, In computing total Income of the assessee a deduction from such income as is provided thereunder. This being the position, for the application of section SOT, there must be an income chageable under the head 'Capital gains' relating to long term capital asset. If there is no such an income, section SOT is not attracted. 6. What emerges from a reading of sections 45, 54E and SOT of the Act is thus. Any profits or gains on transfer of a long term capital asset in the previous year shall be deemed to be income of the previous year, and shall be chargeable to income-tax under head 'Capital gains.' But the whole or and part of the 'Capital gain' to which the provisions of section 54E apply would not be chargeable to income-tax. In other words, if section 54E is. attracted such income shall be 'Tax-exempt income'. Therefore, the Assessing Authority is to decide under section 54B as to whether the whole or any part of the capital gain on transfer of along term capital asset shall be exempted from taxation. If whole of such income is not exempted, the Assessing Authority shall determine the income chargeable under head 'Capital gains' and, thereafter, there shall be deduction as provided under faction 80T, that is to say, -if there is no such income chargeable to tax after exemption under section 54 E, the application of section SOT does not arise. 7. , For the reasons stated above, section 54 E shall be applied first and thereafter section 80 T may or may not be applicable depending the quantum of exemption under section 54 B. Under these circumstances, the question, is answered in negative, ie, in favour of the Revenue and against the assessee. 8. A copy of this order under the signature of the Registrar and the teal of the High Court will be transmitted to the Appellate Tribunal. Reference is disposed of accordingly. No costs.