TMI Blog2011 (11) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... rsion, meaning thereby, the year of assessability of income to tax is postponed to date on which actual sale of this stock-in-trade takes place. As far as the benefit of Section 10(38) is concerned, the assessee shall not be eligible for this benefit at the first stage of chargeability of capital gains because the deemed sale is the point of conversion into stock-in-trade which had not suffered STT. Further, with regards to the second part of the transaction, the assessee is not eligible for benefit under Section 10(38) because the second part of the transaction is purely a business transaction and provisions of Section 10(38) are applicable only in terms of long term capital assets - Decided against the assessee. Applicability of provisions of section 112 - Held that:- Department is justified in computing the income tax on such long term capital gain at the rate of 20% in terms of Section 112(1)(c) which are the provisions of the Act applicable to the case of the assessee, the assessee being a non-resident. - Decided against the assessee. - IT Appeal Nos. 80 and 150 (delhi) of 2011 - - - Dated:- 8-11-2011 - G.E. VEERABHADRAPPA, A.D. JAIN, JJ. ORDER G.E. Veerabhadrappa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort his stand. The assessee was unsuccessful before the learned CIT(A). 6. The grounds taken by the assessee before us are as under:- "1. That the authorities below had erred on facts and under the law in denying benefit u/s 10(38) of I.T. Act though STT had admittedly been paid on the transaction of sale of shares. The appellant is entitled to benefit u/s 10(38) of the I.T. Act. 2. That the authorities below were not at all justified in denying claim of the appellant for reduction in the short term capital gain on the basis of revised computation of income filed by the appellant before the AO in the course of assessment proceedings even though on the basis of same computation, income had been increased under the other heads of income. Such an action on the part of the AO and confirmed by the ld. CIT(A) is wholly unjust and uncalled for. 3. That authorities below had erred on facts and under the law in taxing the long term capital gain @ 20%. According to the appellant, the same was taxable @ 10% only. Various observations made by the authorities below with regard to the above issue in their respective orders are either incorrect or are untenable. 4. That the levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of these provisions, then one which is in favour of the assessee must be adopted as held by the Hon'ble Supreme Court in the case of Union of India v. Onkar S. Kanwar - 258 ITR 761 and also the decision in the case of CIT v. Poddar Cement Pvt. Ltd. and Ors. - 226 ITR 625. The learned counsel for the assessee argued that without prejudice to this main contention, the authorities below had erred on facts and law in taxing the long term capital gains at the rate of 20%. According to the assessee, it is only taxable at the rate of 10%. In terms of Section 112(1)(c) read with the proviso of the Act, the long term capital gain in the case of Non-Resident Indian is taxable at 10% only. 9. The learned DR, on the other hand, pointed out that but for the purpose of provisions of section 45(2), the assessee would have been liable to capital gains the moment there was a conversion of such shares into stock in trade, on the date of conversion itself without any necessity of any actual sale. However, as sale has not taken place and assessee has not received money in real sense, the provisions of Section 45(2) come to her aid to mitigate the tax payment liability. According to the learned DR, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No.2) Act, 2004 comes into force; and (b) such transaction is chargeable to securities transaction tax under that Chapter : [Provided that the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB.] Explanation. - For the purposes of this clause, "equity oriented fund" means a fund - (i) where the investible funds are invested by way of equity shares in domestic companies to the extent of more than [sixty-five] per cent of the total proceeds of such fund; and (ii) which has been set up under a scheme of a Mutual Fund specified under clause (23D) : Provided that the percentage of equity shareholding of the fund shall be computed with reference to the annual average of the monthly averages of the opening and closing figures;]." 11. These provisions apply only to transfer of long term capital assets in the form of equity shares of a company or units specified therein. The Circular No.5/2005 dated 15.7.2005 issued by the Board has explained the provisions of exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Act, unless the context otherwise requires,- (47) [transfer, in relation to a capital asset, includes,- (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment;]." 14. The aforesaid provision makes it very clear that in relation to a capital asset, there is a transfer in case where the capital asset is converted into stock-in-trade of a business carried on by him. On conversion on 1.4.2005, therefore, there was a valid transfer under the Act. Now, the provisions of Section 45(1) 45(2) read as under:- "45. [(1)] Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections [***] [54, 54B, [***] [[54D, [54E, [54EA, 54EB,] 54F [54G and 54H]]]]], be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place. [(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of conversion of capital asset into stock-in-trade as also the liability towards the capital gains tax on sale of shares held as capital asset which has suffered STT. Nowhere on the date of actual sale, the assessee was holding the impugned securities as a part of capital asset. They have already become the stock-in-trade of the business. So, we do not agree with the assessee as regards the total exemption from capital gains tax in respect of the capital assets which were converted into stock-in-trade as on 1st April, 2005 merely because on the date of sale such stock-in-trade the assessee was required to pay STT on them. We agree with the departmental stand in respect of this issue as we do not find any merit in such contentions of the assessee. 17. Having held the main issue against the assessee, the alternative claim of the assessee is now examined. The provisions of Section 112(1)(c) read as under:- "112. (1) Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head "Capital gains", the tax payable by the assessee on the total income shall be the aggregate of, - [(c) in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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