TMI Blog2010 (2) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... s not arise for consideration. Therefore, the right of carry forward u/s 74(1) in respect of the long-term capital loss suffered by the assessee is not hit by the provisions of s. 70(3). On acceptance of Revenue's view on the issue, there is absurd outcome of interpretation if the facts are reversed, then, long-term capital loss from taxable assets will have to be adjusted against the long-term capital gains exempt u/s 10(38). Suppose in the case on hand, if there is taxable long-term capital gain before 1st Oct., 2004 of Rs. 33,01,57,200 and long-term capital loss of Rs. 9,23,55,945, which may be exempt u/s 10(38) after 1st Oct., 2004, then the loss from exempt source would be set off against taxable gain; such set off is contrary to law. We are not in agreement with the view of the Revenue that long-term capital loss is to be set off against exempt income (long-term capital gains) after 1st Oct., 2004. We, therefore, set aside the orders of the Revenue authorities and allow the claim of the assessee. - Member(s) : N. V. VASUDEVAN., A. L. GEHLOT. ORDER-A.L. GEHLOT, A.M.: This appeal filed by the assessee is directed against the order of CIT(A)-XXI, Mumb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----------- 9,15,22,738 (iv) Loss on sale of Pune bungalow on 29-11-2004 14,02,753 ----------- 9,29,25,491 (v) Deduct: profit on sale of plot 5,69,546 ----------- Total 9,23,55,945 ----------- 2.2 The assessee had also sold shares of some of the companies after 1st Oct., 2004 and made long-term capital gain of Rs. 33,01.57,200 as under: (i) Profit on sale of shares of Ranbaxy 33,10,40,994 Laboratories Ltd. (ii) Deduct: Loss on sale of shares of Britania Industries Ltd. and Synergy Login 13-1-2005 8,83,794 ------------ Total 33,01,57,200 ------------ 2.3 As the above long-term capital gain had arisen after 1st Oct., 2004 and as securities tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the liability to pay tax depends on computation in accordance with the provisions of the Act. The CIT(A) further held as under: "Considering these facts, the AO's action in the setting off of the long-term capital gain against the long-term capital loss for the entire year is justified. Loss incurred on sale of Pune bungalow on 29th Nov., 2004 and the profit obtained on sale of plot also stands at par with other long-term capital gain, since the provisions as it stood as on 1st April, 2004 did not differentiate between long-term capital gain transaction on which STT was not paid. The AO's case gets further strengthened by the fact that the law as it exists on 1st April of a year is applied to the assessment for the assessment year starting on that date. If any amendment is effective after this date, it cannot have the effect of dilution of the provision from the 1st of April itself. In the case of appellant, all the long-term capital gains had to be clubbed for working out the capital gains in terms of the provisions as it existed for the asst. yr. 2005-06. Introduction of s. 10(38) will allow benefit in terms of taxability of total income from that date but cannot dilute the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides that income specified thereon shall not be included while computing total income, therefore, income exempt from taxation under s. 10 shall have to be excluded before computing the total income. The learned Authorised Representative relied upon judgments in the cases of Smt. Rekha Bharat Chheda vs. Asstt. CIT (2007) 110 TTJ (Mumbai) 933 : (2009) 311 ITR 187 (Mumbai)(AT) at 192 and CIT vs. Trustees of Miss Gargiben Ors. (1980) 18 CTR (Bom) 352 : (1981) 130 ITR 479 (Bom). 3.2 The learned Authorised Representative submitted that if the income from a particular source is altogether exempt from tax, loss from that source cannot be set off against income from a different source of income under a different head. The learned Authorised Representative in support of his contention relied upon the following decisions: (1) CIT vs. S.S. Thiagarajan (1981) 129 ITR 115 (Mad)(120 and 121); (2) Indore Malwa United Mills Ltd. vs. CIT (1962) 45 ITR 210 (SC); (3) Ramjilal Rais vs. CIT (1965) 58 ITR 181 (All); (4) ITO vs. Trilok Tirath Vidyavati Chuttani Charitable Trust (2004) 91 TTJ (Chd) 1044 : (2004) 90 ITD 569 (Chd); (5) Asstt. CIT vs. Yokogawa India Ltd. (2007) 111 TTJ (Bang) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere under the same head though same was exempt under s. 10(38) of the Act. 5.1 We shall now examine the scheme of the Act, to find out if income which does not form part of the total income under Chapter III of the Act, enters the computation of total income. Sec. 4 of the Act creates charge of income-tax and it provides that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of this Act in respect of the total income of the previous year of every person. The charge of tax is thus on total income. Sec. 2(45) defines total income to mean total amount of income referred to in s. 5, computed in the manner laid down in this Act. Chapter II of the Act, from ss. 4 to 9 deals with basis of charge. Chapter III of the Act deals with incomes which do not form part of total income and are contained in ss. 10 to 13B of the Act. Chapter IV deals with the computation of total income. Firstly income is categorized under various heads of income. This is laid dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of income, profits and gains computed in the manner laid down in this Act. Therefore, it would be erroneous to suggest that total income is to be determined only in the light of s. 4, sub-s. (3) of the Act. How total income is to be computed and determined depends upon the various provisions contained in the Act as a whole. Then we might look at various sections which provide for exemptions from the payment of tax. There is s. 7 which contains various provisos which cover sums not liable to tax. Similar is s. 8. Sec. 14 also contains exemptions with regard to certain sums on which no tax is payable, and s. 15 contains exemptions in cases of life insurance. It will be noticed that the language used in all these sections, to which I have referred is similar, if not identical, with the language used in s. 25(4). viz., that the tax is not payable on these different sums. Now, if Mr. Joshi's contention was sound, then with regard to these various exemptions which I have enumerated, although tax is not payable, they should all be included in the total income for the purpose of determining the rate payable in respect of income-tax. Now, the short and conclusive answer to that conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head 'Capital gains' is a loss to the assessee, the whole loss shall, subject to the other provisions of this chapter, be carried forward to the following assessment year..............." The section says 'subject to other provisions of this chapter i.e., Chapter VI containing ss. 66 to 80'. The other provisions which will be relevant in this regard are s. 70(3). "Sec. 70: Set off of loss from one source against income from another source under the same head of income. ........(3) Where the result of the computation made for any assessment year under ss. 48 to 55 in respect of any capital asset (other than a 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 not being a short-term capital asset." 5.5 The case of the Revenue is that the long-term capital gain which was exempt under s. 10(38) of the Act, is income arrived at under similar computation made as the long-term capital loss was arrived at and therefore the long-term capital loss has to be set off against long-term capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the 'the tax shall not be payable' in respect of such sums, the actual language employed is immaterial. What is to be ascertained is whether the language clearly intends an exemption from the operation of the Act. Now, the several sums covered by these provisions would lie outside the scope of the Act altogether, were it not that certain provisions of the Act expressly include them within its scope for a certain purpose. One such provision is s. 16(1)(a) which declares that in computing the total income of an assessee any sums exempted under some of the provisions mentioned above shall be included. These sums are included in the total income for the purpose of determining the true rate applicable to the rate applicable to the taxable income of the assessee. The sum exempted under s. 25(4) is not referred to in s. 16(1) and is not liable to be included in the total income of the assessee. It is exempt altogether from the operation of the Act. The Bombay High Court took this view in CIT vs. N.M. Raiji (1949) 17 ITR 180 (Bom), and we are in respectful agreement with that decision. 4, The assessee points out that before its amendment by the IT (Amendment) Act, 1939, the definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taxpayer has an option to pay tax on long-term capital gains at 10 per cent but without indexation. For foreign institutional investors (FIIs), the long-term capital gains and short-term capital gains are taxed @ 10 per cent (without indexation) and 30 per cent respectively. In case of a trader in securities, however, the gains are taxed as any other normal business income. With a view to simplify the tax regime on securities transactions, it was proposed to levy a tax @ 0.15 per cent on the value of all the transactions of purchase of securities that take place in a recognized stock exchange in India. This tax was to be collected by the stock exchange from the purchaser of such securities and paid to the exchequer. The above provisions relating to the proposed tax were contained in Chapter VII of the Finance (No. 2) Bill, 2004, and took effect from 1st Oct., 2004. Further, it was proposed to insert cl. (38) in s. 10 of the IT Act, so as to provide exemption from long-term capital gains arising out of securities sold on the stock exchange. Thus, s. 10(38) has been inserted with a particular object to grant exemption to such income as tax has already been levied on some different ..... X X X X Extracts X X X X X X X X Extracts X X X X
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