TMI Blog2023 (3) TMI 1043X X X X Extracts X X X X X X X X Extracts X X X X ..... ea of the assessee that the AO erred in declines the claim of the assessee with respect to cost of acquisition in respect of these debentures.Accordingly, the ground Nos. 1 2 raised by the Revenue are dismissed. Set-off of short-term capital loss carried out against income/gain - We find that assessee in the instant case has duly complied with the provisions of Section 70(2) of the Act in as much as the computation of short term capital gain is similar and only the rate of tax is different. Infact the provisions of Section 70(2) of the Act uses the expression similar computation . This goes directly in favour of the assessee. Hence, the decision of the special Bench of this Tribunal reported MONTGOMERY EMERGING MARKETS FUND. [ 2006 (3) TMI 202 - ITAT BOMBAY-H] is squarely applicable to the case. Though this Special Bench judgment referred to supra has been rendered in the context of pre-Securities Transaction Tax (STT) era, still the analogy drawn thereon would be applicable to the facts of the instant case. In fact post STT regime, we find that this Tribunal in the case of ADIT(International Taxation)-4(1) vs. Legg Mason Asia (Ex Japan) Analyst Fund [ 2013 (11) TMI 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utional Investor (FII) for carrying out investment activity in Indian capital markets. The return of income for the A.Y.2016-17 was filed by the assessee on 26/09/2016 declaring total income of Rs.36,66,26,730/-. During the year under consideration, the assessee disclosed its income as short term capital gains and income from other sources in the computation of income. The ld. AO observed that the assessee had submitted the copy of computation of total income with relevant annexures, NSDL transaction statement, bank statement and custodian statement for securities transacted during the year, among others. The income disclosed by the assessee in the sum of Rs.36,66,26,731 represent interest income from companies u/s.194LD of the Act chargeable to tax @5%. We find that assessee was holding investment in shares in NTPC Ltd for which it was entitled for dividend. In lieu of dividend, debentures were issued by NTPC Ltd to the assessee. Hence, the dividend receivable from NTPC Ltd by the assessee was converted into investment in debentures by the assessee. These debentures held by the assessee were sold during the year under consideration. The assessee took the dividend receivable from N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) Capital Gains -Rs. 41,19,375.84 3.2. The assessee pleaded that where the dividend amount is not deducted as cost of acquisition, the same will lead to taxation of the same income i.e. dividend twice that is to say , once as dividend and again as capital gains. 3.3. We find that the same issue was subject matter of adjudication by this Tribunal in the case of J.P. Morgan Funds vs. DCIT for A.Y.2015-16 which is reported in 196 ITD 114 dated 24/06/2022, the operative portion of the said judgment is reproduced below:- 8. Quite clearly, an amount of Rs. 13,85,580/- was indeed received on behalf of the assessee and this amount has been reinvested in the debentures. The debentures were not 'bonus' debentures and the nomenclature given by the Assessing Officer is thus incorrect. The taxes were duly paid on the deemed dividend in question, and it did constitute income of the assessee, even though received by a merchant banker on behalf of the assessee. The scheme under which the amount is received by the merchant banker, on behalf of the shareholders-including the assessee, and reinvested on behalf of these share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forward to subsequent A.Y.s. 4.2. However, the ld. AO rejected the said manner of set-off of short-term capital loss adopted by the assessee in the assessment order passed under section 143(3) read with section 144C(3) of the Act and brought to tax short-term capital gains of Rs. 73,36,251/- at the rate of 30%. 4.3. Aggrieved by the said order, the assessee had preferred an appeal before the ld. CIT(A). 4.4. The ld. CIT(A), for the year under consideration, relying on his predecessor's findings in the assessee's own case for the A.Y. 2015-16 and on the decision of Special Bench of Jurisdictional Mumbai Tribunal in the case of Montgomery Emerging Markets Fund [(2006) 100 ITD 217] accepted the manner of set-off of short-term capital loss adopted by the assessee and accordingly passed an order in favour of the assessee for the A.Y. 2016-17. 4.4. Aggrieved by the said order of Ld. CIT(A), the Revenue had preferred an appeal before the Tribunal. 4.5. The ld. DR before us vehemently argued that Section 70(2) of the Act uses the word computation . The tax computation is also part of it and it does not talk only about the computation of income. Per contra, the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of Seth Shivprasad (supra) has held that a source of income may be described as the spring or fount from which a clearly definite channel of income flows. It is that which by nature and incidents constitute a distinct and separate origin of income capable of consideration as such in isolation from other source of income and which by the manner of dealing adopted by the assessee can be treated so. As per the above judgment, any definite channel through which income flows is to be treated as a source of income. That is why in fact section 70 recognises that there can be a number of sources of income under a particular head of income. The Madhya Pradesh High Court in the case of Lady Kanchanbai‟s (supra) had an occasion to consider source of income for the purpose of section 2(11) of the Income-tax Act, 1922. The court held therein that each branch of a business could be a separate source and, therefore, assessee could have separate previous years for its different offices. Even in a single business, the court has visualized the scope of different sources of income, and obviously all such business income fall under the same head of income. The above decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties (P.) Ltd.‟s case (supra), we find that every spring of income is a different source of income for an assessee and for that matter, the transfer of one property may be one source of income different from the transfer of another property which would be again another source of income. 44. Therefore, it is very apparent that source of income does not mean head of income. The Assessing Officer has proceeded on a hypothesis as if the source of income is the head of income itself. This is not a proper construction of law provided in section 70. Short term capital gains/loss as well as long term capital gains/loss both are computed under the head capital gains for the aggregation of income culminating into total income which is taxable under the Income-tax Act. What is taxed by the Income-tax Act is not different sources of income independently, but income from different sources clubbed under respective heads and finally aggregated into the total income. The classification of income under different heads for computing the total income does not interfere with the independent character of different sources of income available to an assessee. Both, short term capital gains/l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of restriction on set off of loss arising from one source against income arising from any other source. Therefore, the contention of the assessee that irrespective of the identity of the source of income, it is possible for the assessee to set off the loss of a particular source against income from another source, both falling under the same head of income is tenable in law. Accordingly, the computation made by the assessee by setting off the long term capital loss against short term capital gains and in that way saving the differential tax benefit available to long term capital gains is supported by law. 46. This position is highlighted by the CBDT Circular No. 8 of 2002 dated 28-7-2002 issued as explanatory notes on provisions relating to direct taxes brought in by the Finance Act, 2002. At paragraph 40.1 of the circular, modifications relating to set off of long term capital loss brought in by the Finance Act, 2002 with effect from assessment year 2003-04 has been discussed. The circular has stated that the existing provision contained in section 70 of the Income-tax Act provides that where the net result for any assessment year in respect of any source falling under any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for that matter any other) categories of income, or even with reference to the tax rate that the different types of transactions, as where undertaken on or before a particular date (30/9/2004) vis-a-vis that after the said date, as far as its assessability, and consequently aggregation under Chapter VI, there-under is concerned. Sub-section (1) of sec. 70, referred to by the Revenue in its ground of appeal, refers to a source of income (under a head), and is in any case not applicable to income assessable as 'capital gains'. Reference thereto is therefore be to no moment; rather, would if at all signify that income on transfer of STCAs is regarded as one category or source of income u/s. 70(2). As explained by the tribunal in the case of First State Investments (Hong Kong) Ltd. (supra), the computation of income is a process anterior to the application of the tax rate, so that the differential in the tax rates is rendered as of no relevance. We, accordingly, find no infirmity in clarifying that the option to set off the loss arising under the same class of income, i.e., on STCA, notwithstanding the words 'similar computation' in section 70(2), would lie with t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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