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2015 (6) TMI 528 - ITAT MUMBAI

2015 (6) TMI 528 - ITAT MUMBAI - TMI - Profit on sale of equity shares - MAT calculation - whether the proviso to section 10(38) is a charging section and consequently the long term capital gain on sale of equity shares is chargeable as book profit under section 115JB and not the profit on sale of equity shares as held by the learned CIT(A) - Held that:- The book profits as contemplated in section 115JB means the net profit, which has been shown/credited in the profit & loss account as prepared .....

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amount which is credited to the Profit & loss account then only such amount credited in the Profit & loss account shall alone be taken into consideration for computing the book profit. The concept of indexation while computing the Long term capital gain cannot be imported to the computation of book profit u/s. 115JB as per the expressed provisions of the said section itself which is a complete code in itself. Thus the net amount on account of sale of shares will alone be taken into account in co .....

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ook profit and only the net gain of ₹ 1,90,39,06,630/- shall alone be taken into account. - Decided in favour of assessee. - ITA No.1284/Mum/2013 - Dated:- 10-6-2015 - Shri B R Baskaran and Shri Amit Shukla, JJ. For The Appellant : Shri A R S Venkatraman For The Respondent : Shri Santosh Kumar ORDER Per Amit Shukla, Judicial Member The aforesaid appeal has been filed by the assessee against order dated 09.11.2011 passed by the CIT(A) - 1, Mumbai, for the quantum of the assessment passed u/ .....

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e Act. 2. The assessee submits that the proviso to section 10(38) of the Act is a charging section and consequently the long term capital gain on sale of equity shares of ₹ 1,72,55,70,760/- is chargeable as book profit under section 115JB of the Act and not the profit on sale of equity shares of ₹ 1,90,39,06,630 as held by the learned CIT(A) 3. The Learned CIT(A) erred in not allowing the securities transaction tax of ₹ 25,65,015/- as a deduction in computing the book profit un .....

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at ₹ 21,63,16,156/-. While computing the tax liability u/s. 115JB, the assessee had shown capital gains on sale of shares of HDFC Bank in the month of March 2009, which was claimed as exempt from tax u/s. 10(38) under the normal provisions of the Act. In the computation of income and notes forming part of computation of income, the assessee had shown Long term capital gain claimed as exempt u/s. 10(38) at ₹ 1,72,55,70,760/- which was computed in the following manner: Statement of com .....

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on: It is our submission that the book profit u/s. 115JB of the Act is to be computed by reducing the surplus on sale of investments of ₹ 1,90,78,63,394/- and adding the long term capital gain of ₹ 172,55,80,760/- on sale of investments as computed in terms of section 45 to section 55 of the Act. This is line with the Proviso to section 10(38) of the Act which requires that Income by way of Long Term Capital Gain shall be taken into account in computing the book profit and the income .....

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O should have considered capital gain of ₹ 1,72,81,35,774/- for computing the book profit u/s. 115JB instead of ₹ 1,90,39,06,630/-. It was submitted that as per the proviso to section 10(38), the income by way of Long term capital gain should be taken into account in computing the book profit and income tax payable u/s. 115JB and said Long term capital gain is admittedly at ₹ 1,72,55,70,760/-. However, the learned CIT(A) did not accept the assessee s contention that the amount .....

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fit. In support of his contention, he relied upon the ratio laid down by Hon ble Apex Court in the case of Apollo Tyres Ltd. [255 ITR 273]. 4. Before us, the learned counsel, Shri A R S Venkatraman, submitted that the company had sold shares of HDFC Bank Ltd. and had thereby earned surplus of ₹ 1,90,78,63,394/-, which was credited to the Profit & loss account. Since it was a Long term capital gain asset therefore, in view of the provisions of sections 45 to 55, the said Long term capit .....

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f acquisition. He further drew our attention to the legislative history of section 10(38) and corresponding amendment in section115JB. He submitted that proviso to section 10(38) makes it abundantly clear that the income by way of Long term capital gain is to be taken into account while computing the book profit and income tax payable u/s. 115JB. This proviso was inserted by the Finance Act 2006 w.e.f. 01.04.2007. Simultaneously, amendment was brought in section 115JB also in clause (ii) to Expl .....

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Court in the case of CIT vs. Indo Mercantile Bank Ltd. [36 ITR 1] and CCT vs. Ramkishan Shrikishan Jhaver & Ors [66 ITR 664]. Thus, he submitted that Long term capital gain, which is to be included in computation of book profit should be after indexation as computed u/s. 48 to 55. 5. As an alternative, he submitted that in ground no.3, the assessee has challenged that STT of ₹ 25,65,015/- should be allowed as deduction while computing book profit u/s. 115JB. The assessee while creditin .....

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hich alone should be taken as income for the purpose of section 115JB. 7. We have heard the rival submissions and have also perused the relevant material placed on record. During the year ending on 31.03.2009, the assessee company had sold shares and thereby earned a surplus of ₹ 1,90,78,63,394/-, which was net of STT paid. This amount was credited to the Profit & loss account which is evident from the Schedule of income as given at page 2 of the paper-book and credited to the balance .....

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ction and a complete code by itself, which provides that in case of a company, the income tax payable on the total income is computed under the Income tax Act in respect of any previous year is less than 7.5% (which percentage has been increased from time to time) of its book profit, then such book profit shall be deemed to be the total income of the assessee and tax payable for the relevant previous year shall be such percentage of book profit. It further lays down that every assessee for the p .....

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s account provides that in case of sale of investments, net gain/loss should be disclosed. The net gain/loss means sale minus purchase and other cost. The Companies Act does not speak about Long term/ Short term capital gain. In accordance with the requirements of the Companies Act, the assessee has credited the net profit on sale of investment i.e. net gain on shares of HDFC Bank at ₹ 1,90,78,63,394/-,. Accordingly, this amount has been credited in the Profit & loss account. Explanati .....

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elatable to any income referred to in section 10. However, specific exclusion to the income referred to in sub section (38) of section 10 has been provided. Similar amendment has been brought in clause (ii) of the said Explanation to provide that book profits shall be reduced by the amount of income referred to in section 10. Here also specific exclusion to the income referred to in clause (38) has been made. A simultaneous amendment has also been brought in section 10(38) by the insertion of th .....

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not be included in the total income. The proviso provides an exception to the said section, which envisages that for the purpose of computing the book profit the income by way of Long term capital gain shall be taken into account on which tax is payable u/s. 115JB. This is in consonance with the amendment brought in section 115JB. From the harmonious reading of the relevant provision as discussed above, it is evident that firstly, the book profit shall be reduced by the amount of income to whic .....

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