TMI Blog2016 (10) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... arrants is nothing but STCL. Hence, this loss should be allowed in favour of assessee. Therefore, we find no reason to interfere into the order of Ld. CIT(A). Adjustment of STCL based on STT paid transactions with Short Term Capital Gain (STCG for short) where Securities Transaction Tax (STT for short) was not paid - whether the transactions on which the provision of Sec. 111A of the Act is attracted is to be treated separately from other transactions of capital gains where no STT has been paid? - Held that:- We find that assessee in the instant case has incurred loss from STCL on the sale-purchase of share on which STT was paid but AO observed that there is a special rate of tax u/s 111A of the Act for charging tax in case of sale-purchase of share on which STT has been paid. Therefore, such loss was disallowed by AO to adjust the income under the same head i.e., capital gains against the income of share sales & purchase on which no STT was paid. From a plain reading of said Section 70(2) we find that said Act does not make any distinction between the income under the head “capital gain” on which STT was paid or STT was not paid. We further find that loss under the same head th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artmental Representative appeared on behalf of Revenue 3. First common issue raised by Revenue in Ground No. 1 and 2 is that Ld. CIT(A) erred in deleting the addition made by Assessing Officer for ₹55,00,010/- on account of capital loss. 3.1 The facts as have been brought on record are that assessee is a Limited Company and for the year under consideration has filed its return of income on 24.09.2009 declaring total income of ₹38,15,680/-. Thereafter case was selected for scrutiny and subsequently notice u/s. 143(2) of the Act was issued to initiate the proceedings under section 143(3) of the Act. The assessee acquired 1,29,412 optional convertible share warrants on dated 03.09.2007 from M/s West Coast Paper Mills Ltd. (WCPM for short). The face value of the said share warrant was at ₹425.00 per share warrant. The assessee was to pay 10% of the face value of the total consideration i.e., ₹55.00 lakh (10% of 129412 x 425.00) at the time of application for the purchase of said warrants. Accordingly, assessee has made the payment to the WCPM for ₹ 55.10 lakh as application money for the purchase of share warrant convertible into equity share at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property continues to be owned by some person or persons after the transaction of relinquishment CIT v (HUF) [1974] 95 ITR 656 (Bom). A relinquishment takes place when the owner withdraws himself from the property and abandon his rights thereto. It presumes that the property continues to exist after the relinquishment CIT v. Rasiklal Maenklal (HUF) [1980] 177 ITR 198 (SC) On the other hand, extinguishment refers not to extinguishment of asset itself but to extinguishment of holder s right to the assets CIT v. East India Charitable Trust [1994] 206 ITR 152/73 Taxman 380(Cal). Redemption of preference shares by a company; squarely comes within the phrase sale, exchange, or relinquishment of the asset and, consequently, it is treated as transfer Anarkali Sarabhai v. CIT [1977] 90 Taxman 509 (SC). However, if there is a reduction of share capital by a company by paying a part of capital to its shareholders, it would result in extinguishment of proportionate right in shares held by shareholders and chargeable to capital gains tax in the hands of shareholders as held in Kartikeya Vs. Saarabhai v. CIT [1997] 94 Taxman; 164 (SC), CIT v. G.Narasimhan [1999] 102 Taxman 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of assessee, which are reproduced below:- 1) Dynamic Foundation (P) Ltd. vs. CIT (2015) 57 taxmann.com 139 (Cal) 2) DCIT vs. BPL Sanyo Finance Ltd. (2009) 312 ITR 63 (Kar) 3) CIT vs. Chand Ratan Bagri (2010) 329 ITR 356 From the above judgments, we find that there was a binding contract between assessee and WCPM with the option to the assessee to acquire the equity share. The assessee, in the instant case, has paid only 10% of the total consideration and the balance was to be paid by assessee within the specified time. However, the market value of the share of WCPM came down drastically and assessee decided not to make further payment for the purchase of share warrant. As a result of non-payment of balance amount for the purchase of share warrant, the company forfeited the amount. In the instant case, share warrant is a capital asset within the meaning of Sec. 2(14) of the Act. At this juncture, we find to reflect the provision of Sec. 2(14) of the Act as under:- 2. In this Act, unless the context otherwise requires,- (14) [capital asset means- (a) property of any kind held by an assessee, whether or not connected with his business or profession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation made for any assessment year under sections 48 to 55 in respect of any 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. Section 111A: where the total income of an assessee includes any income chargeable under the head Capital gains , arising from the transfer of a short-term capital asset, being an equity share in a company or a unit of an equity oriented fund and- (a) the transaction of sale of such equity share or unit is entered into on or after the date of 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; the tax payable by the assessee on the total income shall be the aggregate of- (i) The amount of income-tax calculated on such short-term capital gains at the rate of fifteen per cent; and (ii) The amount of income-tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income. Hence, the interpretation of Sec. 111A of the Act adopted by AO to deny inter head set off was misplaced and untenable. 9. We have heard the rival contentions of both the parties and perused the materials available on record. From the foregoing discussion, we find that assessee in the instant case has incurred loss from STCL on the sale-purchase of share on which STT was paid but AO observed that there is a special rate of tax u/s 111A of the Act for charging tax in case of sale-purchase of share on which STT has been paid. Therefore, such loss was disallowed by AO to adjust the income under the same head i.e., capital gains against the income of share sales purchase on which no STT was paid. However, Ld. CIT(A) deleted the addition made by AO. Now the question before us arise so as to whether the transactions on which the provision of Sec. 111A of the Act is attracted is to be treated separately from other transactions of capital gains where no STT has been paid. In this connection, the perusal of Sec. 70(2) of the Act, which is reproduced below:- [ Set off of loss from one source against income from another source under the same head of income. 70. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant are claimed for other business activities and not for the earning of dividend income. From the working as given by the Assessing Officer himself would show that the appellant had not incurred any expenditure on interest or other expenses relating to the investment for earning the dividend income during the year. The appellant has shown to have incurred demat expenses of ₹ 18,208/-, portfolio management expenses of ₹ 2,22,680/- and STT ₹ 34,762/- aggregating to ₹ 2,75,650/-, which are directly relatable to the share transactions, and which have been added back by the appellant itself in the computation of total income. However, since the appellant company itself has made disallowance under sec. 14A of the Act, it cannot put forward the claim that the Assessing Officer was unjustified in resorting provisions of Rule 8(2)(iii). It is not open to Assessing Officer to make disallowance under section 14A according to his own discretion or on ad hoc basis and he is statutorily required to compute disallowance in manner provided by sub-section (2) and (3) of section 14A CIT v. Citicorp Finance (India) Ltd [2007] 12 SOT 248 (Mu.). however, there is m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed u/s 14A in terms of Rule 8D and arrived at the said figure after multiplying it with result of average value of investments and over average value of assets derived by him-CIT(Appeals) observed that that amount of investment attributable to dividend constituted less than 1% of total scheduled funds-CIT(A) accepted basis of calculation applied by AO and directed a disallowance of .05% of amount determined to be average investment-Tribunal restored AO s determination holding it to be a true calculation in terms of Rule 8D-Held, AO, instead of adopting average value of investment of income which was not part of total income i.e. value of tax exempt investment, chose to factor in total investment itself-Even though CIT(Appeals) noticed exact value of investment which yielded taxable income, he did not correct error but chose to apply his own equity-Given the record, that had to be done so to substitute figure of ₹ 38,61,09,287/- with the figure of ₹ 3,53,26,800/- and thereafter arrive at exact disallowance of .05%-Thus, findings of ITAT and the lower authorities were set aside-Matter remitted to work out tax effect to AO. The AO, instead of adopting the average value of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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