TMI Blog2009 (7) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... or (FII). For assessment year 1998-99, it filed its return of income on 18-11-1998 declaring total income of Rs. 10,97,634 which comprised of dividend income and capital loss amounting to Rs. 10,97,48,794. The Assessing Officer passed an assessment order under section 143(3) of the Act dated 19-12-2000 assessing the total income at Rs. 11,96,890 and allowing carry forward of capital loss of Rs. 10,97,48,794. In the assessment order, the Assessing Officer included compensation of Rs. 99,260 received on non -pari passu shares as dividend income. The concept of compensation on non -pari passu shares is as under : "For instance, there is a company X Ltd. whose financial year is from April 1 to March 31. X Ltd. comes out with a rights/bonus issue in September for which the date of allotment is October 1. The company declares a dividend of Rs. 3 per share for the said year. However, since, the rights/bonus shares were allotted on October 1, these shares will be entitled to proportionate dividend only. Thus, such shares will receive dividend on a pro rata basis, i.e., Rs. 1.50 per share only. In view of the same, such shares are treated as non -pari passu shares (NPP shares) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, is in favour of the case of the assessee. The compensation received by the assessee on non- pari passu shares (new shares) received from the brokers and such receipts are capital in nature and, therefore, are to be reduced from the cost of such new shares purchased by the assessee. In this view of the matter, the issue is decided in favour of the assessee and the grounds of the appeal Nos. 6 and 7 are allowed." 6. Above decision had been followed by the Tribunal in assessee s own case for assessment year 2001-02 in ITA No. 8825/Mum./04. In view of the above, we hold that the compensation on non- pari passu shares amounting to Rs. 99,260 is a capital receipt not chargeable to tax and will only go to reduce the cost of acquisition of the shares. In view of the above decision, ground No. 1.2 does not require any consideration. 7. Ground No. 2 raised by the assessee reads as follows : "The learned CIT(A) has erred in law and on facts in rejecting your appellants contention of grating the benefit of indexation on the transactions resulting in long-term capital gain/loss under the provisions of section 48 of the Act." 8. We have already seen that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of Hon ble Bombay High Court in the case of J.C. Thakkar v. CIT [1955] 27 ITR 658 . 10. Learned Departmental Representative submitted that provisions of section 115AD are applicable to FII and is a code by itself in respect of taxing capital gain on transfer of securities in the case of FIIs. According to him, these special provisions will override general provisions as contained in section 48 of the Act. It was also submitted that the assessee did not make a claim before the Assessing Officer on this issue and should not be permitted to raise the issue before the Tribunal. In this regard, reliance was placed by him on the decision of Hon ble Supreme Court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 . 11. We have considered the rival submissions. Section 45(1) provides for a charge on profits and gains arising from transfer of a capital asset. Section 48 provides for a mode of computation of capital gain and it provided as follows : "Section 48(1) : The income chargeable under the head Capital gain shall be computed : ( a )by deducting from the full value of the consideration received or accruing as a result of the transfer of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctively been substituted." The second proviso was inserted to offset the effect of inflation. A fair method of allowing such relief taking several factors was to link all factors to the period of holding. For this purpose, the cost of acquisition of and the cost of improvement to the asset are to be inflated to arrive at the indexed cost of acquisition and indexed cost of improvement and then deduct these amounts from the sale consideration to arrive at the long-term capital gains. "Indexed cost of acquisition" means an amount which hears to the cost of acquisition the same proportion as cost inflation index for the year in which the asset is transferred bears to the cost inflation index for the first year in which the asset was held by the assessee or for the year beginning on 1-4-1981 whichever is later. Similarly, indexed cost of any improvement means an amount which hears to the cost on improvement the same proportion as cost inflation index for the year in which the asset is transferred bears to the cost inflation index for the year in which the improvement to the asset took place. Cost inflation index for any year means such index as the Central Government may having rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the normal rate of 20 per cent only to the three categories of resident assessee specified in clauses ( a ), ( b ) and ( d ). Clear words would have been deployed in the proviso if one particular category, i.e., non-residents are to be excluded. It is difficult to hold that such a result was intended to be achieved by means of the phraseology - before giving effect to the second proviso to section 48 . Nor can it be said that the said phraseology by necessary implication excludes clause ( c ) category of assessee who are, of course, entitled to another benefit conferred by the first proviso to section 48. In plain and pre-emptory words, the proviso limits the rate of tax on the gains from the transfer of listed securities to 10 per cent but, with an important rider that the quantum of capital gains should be arrived at without taking into account the formula laid down in the second proviso to section 48 based on the indexed cost of acquisition. In other words, while computing the capital gains on the listed securities held for more than 12 months, do not give effect to the calculation spelt out in the second proviso to section 48 wherever it is applicable, or to put it in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital gains referred to in clause ( b ); if any, included in the total income, at the rate of ten per cent; and ( iv )the amount of income-tax with which the Foreign Institutional Investor would have been chargeable had its total income been reduced by the amount of income referred to in clause ( a ) and clause ( b ). (2) Where the gross total income of the Foreign Institutional Investor : ( a )consists only of income in respect of securities referred to in clause ( a ) of sub-section (1), non-deduction shall be allowed to it under sections 28 to 44C or clause ( i ) or clause ( iii ) of section 57 or under Chapter VI-A; ( b )includes any income referred to in clause ( a ) or clause ( b ) of sub-section (1), the gross total income shall be reduced by the amount of such income and the deduction under Chapter VI-A shall be allowed as if the gross total income as so reduced, were the gross total income of the Foreign Institutional Investor. (3) Nothing contained in the first and second proviso to section 48 shall apply for the computation of capital gains arising out of the transfer of securities referred to in clause (b) of sub-section (1). Explanation. For the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 115AD which in effect applies section 48 with the modification of excluding the first and second provisos thereof. Absence of a provision in section 48, in regard to computation of capital gain under section 115AD, would not make any difference as section 115AD is a self-contained code. The AAR held that it was true that the first and second provisos of section 48 are applicable to residents as well as non-residents and that FIIs are also non-residents. But there can be no gainsaying of the fact that all non-residents are not FIIs and that they form a different category and are given a special treatment by enacting section 115AD, which provides for a special method of computation and special rate of tax. There can be no doubt that the legislative intent in inserting section 115AD in Chapter XII, is an important guiding factor in interpreting the said provision. Section 115AD which is meant for FIIs is a beneficial provision. Merely because in an assessment year after insertion of provisions of section 115AD, an assessee suffers capital losses and in view of non-application of indexation provision under section 115AD(3), it cannot boost up the loss; it will be pointless t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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