TMI Blog2008 (12) TMI 749X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., to M/s. Utkal Investment Ltd. for a total consideration of ₹ 22,46,40,000/- on 17.08.2002. The assessee had computed the capital gain at ₹ 19,80,55,515/- and had paid tax at the rate of 10.5% as per the proviso to Section 112 of the Act. The total shares sold by the assessee comprised of 2,40,000 ordinary shares and 7,20,000 bonus shares. The assessee had filed the Return of Income on 05.12.2002. The intimation u/s. 143 (1) of the Act was issued on 11.02.2003 on the total income disclosed in the Return of Income at ₹ 19,80,55,520/-. The Assessing Officer noted that the assessee had acquired the shares on 16.08.1978, which at the then prevailing exchange rate was equivalent to ₹ 24.00 Lakhs. However, the assessee in accordance with the 1st proviso to Section 48 of the Act applied the exchange rate of ₹ 48.10 i.e., rate on the date of sale of shares. On conversion the cost of acquisition of shares in Indian Rupees was ₹ 1,47,99,985/-. The cost of bonus shares were adopted at NIL. The assessee had also deducted expenditure incurred in relation to transfer being merchant banker fee equivalent to ₹ 11,78,451/-. The total cost of acquisiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te arising in the present appeal is about the rate of tax. The learned AR further submitted that the rate of tax at 10% (without surcharge) was before the Assessing Officer in original Return of Income on various pages and no new material came before the Assessing Officer in order to justify the reopening of the assessment. The learned AR further submitted that the time limit for completing the assessment u/s. 143 (3) of the Act was to expire on 31.03.2005 and the notice u/s. 148 has been issued on 26.07.2004 in order to gain time. Reliance was placed on various legal propositions by the Learned AR for the assessee. The learned DR for the Revenue submitted that the notice u/s. 148 has been issued within four years on account of the fact that there is escapement of income. The learned DR further submitted that the intimation issued u/s. 143 (1) of the I.T. Act is not an assessment and there is no bar for reassessment proceedings in such cases. Reliance was placed on CIT vs. ABAD Fisheries (258 ITR 64) (Ker.). The learned DR stressed that this is the case of first assessment in view of the fact that the Return was only processed u/s. 143 (1) of the Act and as no assessment was origin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. ITO [ 1991] 191 ITR 662, for initiation of action under Section 147 (a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that state, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is 'reason to believe', but not the established fact of escapement of income. At the state of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO vs. Selected Dalurband Coal Co P. Ltd. [1996] 217 ITR 597 (SC) ; Raymond woolen Mills Ltd. vs. ITO [1999] 236 ITR 34 (SC). The scope and effect of Section 147 as substitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Apex Court in ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra), we uphold the reassessment proceedings initiated in the case. The learned AR had contended that the time limit for completing the assessment under Section 143(3) of the Act had not expired, before the notice under Section 148 was issued. The said argument has no merit as the time limit for initiating assessment proceedings by way of issue of notice under Section 143(2) of the Act had expired, which in-turn is to be issued within one year from the end of the month in which the Return of Income is filed. We dismiss the ground No. 1 raised by the assessee. 9. The ground No. 2 raised by the assessee is as under: 2. The learned CIT (A) erred in law and on facts in upholding the action of the Assessing Officer denying the benefit of provisions of the proviso to Section 112 of the Act. 10. During the year under consideration, the assessee had shown Long Term Capital Gain on sale of shares. The computation of the Long Term Capital Gain on sale of shares was made by adopting the cost of acquisition in line with first proviso to Section 48 of the I.T.Act. However, no benefit of indexation of cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided in second proviso to Section 48 of the Act and also the benefit of lower rate of tax at 10%. The learned AR further submitted that there is no merit in the contention of the CIT (A) that the benefit of proviso to Section 112 is only limited to the cases which do not avail of the benefit of Second proviso to Section 48 of the Act. The said provisions i.e., proviso to Section 112 had been extended to zero coupon bonds by way of amendment by the Finance Act, 2005. For the computation of capital gains under Section 48 of the Act in respect of the zero coupon bonds, the benefit of indexation under second proviso to Section 48 is specifically excluded by the third proviso to Section 48. In case, the interpretation of revenue authorities is accepted that the eligibility of benefit of indexation under second proviso to Section 48 is consonance by fulfilling the intent of lower tax rate of 10% under proviso to Section 112 of the Act then the zero coupon bonds go outside the purview of proviso to Section 112 (1) of the Act, whereas the same have been specifically included by way of amendment in the proviso to Section 112 of the Act. Reliance was placed on the decision of Mumbai Bench o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount which is not chargeable to income-tax and the tax on the balance of such long-term capital gains shall be computed at the rate of twenty per cent; (b) in the case of a [domestic] company,- (i) the amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been its total income ; and (ii) the amount of income-tax calculated on such long-term capital gains at the rate of [twenty] per cent: [(c) in the case of a non-resident (not being a company) or a foreign company,- (i) the amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been its total income ; and (ii) the amount of income-tax calculated on such long-term capital gains at the rate of twenty per cent;] [(d) in any other case [of a resident],- (i) the amount of income-tax payable on the total income as reduced by the amount of long-term capital gains, had the total income as so reduced been its total income ; and (ii) the amount of income-tax calculated on such long-term capital gains at the rate of [twenty] p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of shares in, or debentures of, an Indian company: Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words cost of acquisition and cost of any improvement , the words indexed cost of acquisition and indexed cost of any improvement had respectively been substituted: [Provided also that nothing contained in the second proviso shall apply to the long-term capital gain arising from the transfer of a long-term capital asset being bond or debenture other than capital indexed bonds issued by the Government:] [Provided also that wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 48 of the Act. Now, turning to proviso to Section 112, it is clearly borne out that where the tax payable in respect of transfer of a Long Term Capital asset being listed securities or units exceeds 10% of the amounts of capital gain then such excess shall be ignored. The significance of the words 'before giving effect to the second proviso to Section 48' is manifested by the fact that the rate is to be determined by computing capital gain by adopting the cost of acquisition and cost of improvement or the indexed cost of acquisition and the cost of improvement as a case may be. Since, in the case of non-resident on transferring shares of an Indian company the second proviso to Section 48 is not applicable in as much as the benefit of indexation cannot be granted, the mandate of the proviso to Section 112 will simply be to the effect that the tax payable has to be computed and such tax in excess of 10% is to be ignored. The authority for advance ruling in Mc Lcod Russel Kolkata Ltd. (supra) have held that the benefit of proviso to Section 112 (1) of the Act could not be denied to non-resident/foreign companies even if they are entitled to another relief in terms of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal in Alcan Inc. vs. (IT) (supra). The learned DR placing reliance on the order of CIT (A) stated that the shares were acquired before 01.04.1981 and as the benefit of first proviso to Section available to the assessee, the fair market value could not be adopted as on 01.04.1981. Reliance was placed on Escorts Farms (Ramgarh) Ltd. vs. CIT (1996) 222 ITR 509 (SC). 18. We find that the issue of exercising the option under Section 55(2)(b)(i) of the Act by a non-resident assessee i.e., by adopting the fair market value of assets acquired prior to 1st April, 1981 has been elaborately dealt with by the Mumbai Bench of Tribunal in Alcan Inc. vs. DDIT(IT) (supra), wherein it has been field as under: Section 55(2) deals with the cost of acquisition for the purpose of Section 48 and 49. Clause (b) and sub-cl. (i) thereof deals with the capital asset which became the property of the assessee before 1st April, 1981. In such cases, the law provides that the cost of acquisition of the asset can be taken as the fair market value of the asset as on 1st April, 1981 or at the actual cost incurred by the assessee, at the option of the assessee...............................This option ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the file of Assessing Officer for the limited purpose of recalculating the amount of capital gains in accordance with our directions herein above. The ground No. 3 raised by the assessee is thus allowed for statistical purpose. 20. The ground No. 4 raised by the assessee is as under: 4.The learned CIT (A) erred in law and on facts in upholding the action of the Assessing Officer that the bonus shares issued on the basis of shares being foreign exchange assets are also foreign exchange asset and thereby denying the benefit of provisions of the proviso to Section 112 of the Act. 21. In line with our directions in ground No. 2, the gain arising on sale of bonus shares is to be taxed at the concessional rate of 10% as per the provisions of proviso to Section 112 of the Act. 22. The ground No. 5 raised by the assessee is as under: 5. The learned CIT (A) erred in law and on facts in upholding the action of the Assessing Officer of levying interest under Section 234B of the Act. 23. The plea of the Learned AR for the assessee was that the assessee being non-resident and all the payments made to it were subject to TDS under Section 195 of the Act, no interest u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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