Judgment 1. On an application under Section 25 6(1) of the IT Act, the Tribunal has referred the following questions for the opinion of this Court: “(1) Whether, on the facts and in the circumstances of the case and on a correct interpretation of Section 70(2)(i), the Tribunal erred in law in holding that short-term capital loss in respect of one asset could be set off against short- term capital gain in respect of another asset in the same assessment year? (2) Whether, on the facts and in the circumstances of the case and on a correct interpretation of Section 7 1(2), the Tribunal erred in law in holding that short-term capital loss can be sought to be set off against income assessable under any head of income other than capital gains (i.e. against income from other sources also) even if there is income from capital gains?” 2. The assessee, M/s Mahindra Co. Ltd., Khetan Bhawan, M.I. Road, Jaipur, is a limited company which derives income from interest on securities, house property and business. The relevant assessment year is 1985-86. In this year, the assessee suffered short-term capital loss amounting to Rs. 29,700. It also had long-term capital gain amounting to Rs. 17,178. The assessee’s income from “other sources” was Rs. 1,77,6 1 The question before the ITO was as to how the short-term capital loss was to be set off The assessee wanted it to be set off against “income from other sources” as required under Section 71(3) of the IT Act, 1961 (hereinafter referred to as ‘the Act, 1961’). The AO first set off the short-term capital loss against the long-term capital gain of Rs. 17,178 and, thereafter, he has set off the balance against the “income from other sources”. In appeal before the CIT(A), the CIT(A) has confirmed the view taken by the ITO. In appeal before the Tribunal, the Tribunal has allowed the claim of the assessee holding that since the short-term capital loss was not capable of being set off against long-term capital gains under Section 70(2)(i), Section 7 1(3) would get attracted and it would enable the assessee to be entitled to have loss set off against “income from other sources”. The Tribunal was of the view that two separate rights had been conferred on the assessee under Section 70(2)(i) and Section 71(3) of the Act. The Tribunal was of the view that two separate rights had been conferred on the assessee under Section 70(2)(i) and Section 71(3) of the Act. The construction beneficial to the assessee should be adopted. 3. Heard learned counsel for the parties. 4. Mr. Anuroop Singhi, learned counsel for the Department, submits under Section 71(2)(i) where the result of the computation made for any assessment year under Sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income from any other capital asset in that year. Mr. Anuroop Singhi, learned counsel for the Department, further submits that under Section 7 1(3), where the result of the computation under Sections 48 to in respect of capital gains relating to short-term capital assets is a loss and the assessee has income assessable under any head of income other than “capital gain”, the short-term capital loss should be first set off against the short-term capital gain or long-term capital gain, then the balance loss be set off against the “income from other sources”. 5. On the other hand, Mr. Kasliwal, learned counsel for the assessee, submits that in face of two independent provisions for set off of short-term capital loss, the choice is with the assessee under Sub-section (3) of Section 71 of the Act, 1961. He also supported the decision of the Tribunal. He relied on the cases of CIT vs. B.K. Birla (1988) 174 ITR 361 (Cal), CIT vs. Mahendra Kanaiyalal (HUF) (1993) 202 ITR 701 (Guj) and Punjab Produce & Trading Co. Ltd. vs. CIT (1986) 159 ITR 376 (Cal).” 6. Sub-section (2)(i) of Section 70 of the IT Act reads as under: “(2)(i) Where the result of the computation made for any assessment year under Sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset.” It is made clear that if the assessee has suffered loss on account of short-term capital asset, he can set off that loss against the income under the same head. Clause (i) of Sub-section (2) further provides that loss on account of short-term capital asset can be set off against the income from any other capital asset. 7. Sub-section (3) of Section 71 provides that where in respect of any assessment year the net result of the computation under Sections 48 to ss in respect of capital is a loss and the assessee has income assessable under any ‘head’ of income other than “capital gains”, the assessee shall, subject to the provisions of this Chapter, be entitled to have such loss set off against the income under any other head. It further provides that if assessee has suffered any loss in computing income under Sections 48 to 55 and if the total loss on account of that computation is not possible to set off against capital gains or income from capital asset that balance short-term capital loss can be set off against income under any head other than ‘capital gains’. 8. Section 14 of the Act provides different heads of income, under which different income can be taxed, which reads as under: “A--Salaries. B--Income from house property. C--Profits and gains of business or profession. D--Capital gains. E--Income from other sources.” When, under the scheme of the Act, there are different heads of taxing the income, such as salaries, interest income from house property, profits and gains of business or profession, ‘capital gains’ and income from other sources, this provision cannot be ignored. 9. Section 70 provides that, if assessee suffered any short-term capital loss, that loss could be set off against income from the same head, i.e., ‘capital gains’ head. If the loss is much more than the ‘capital gains’ in the year under that head, then that short-term capital loss should be set off under Sub-section (3) of Section 71 of the Act. If the loss is much more than the ‘capital gains’ in the year under that head, then that short-term capital loss should be set off under Sub-section (3) of Section 71 of the Act. It clearly provides that in computation of the income under Sections 48 to 55, if the net result is loss and that loss could not be set off under the income in the same head, the balance can be set off from the head of income other than ‘capital gains’ as the income from capital gains has already been set off and even then, the entire loss cannot be set off , then the balance of short-term capital loss or long-term capital loss can be set off against the head of the income other than the ‘capital gains’ 10. If we read Sections 70 and 71 with Section 14 of the Act, then there is no ambiguity in the provisions of Act for set off of loss. If there is short-term capital loss or long- term capital loss, that can be set off against the short-term capital gains or long-term capital gains. The balance of short-term capital loss or long-term capital loss can be set off against the head of income other than capital gains. No distinction has been made on short-term capital loss or long-term capital loss under the ‘heads’ given in Section 14 of the Act, 1961. 11. The Tribunal has committed mistake in holding that there is a choice of the assessee, if he wants the short-term capital loss to set off against the income assessable under any head of income when income from long-term capital gain or income from capital (sic) is available. If the assessee has suffered short-term capital loss, that should be first set off against the short-term capital gain or long-term capital gain and if the entire loss could not be set off against the income under the head ‘capital gains’, then the balance loss should be set off against the income under any other head as given in Section 7 1(3) of the Act. 12. In the result, we answer both the questions in negative, i.e., in favour of the Department and against the assessee. The reference application stands disposed of