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2016 (10) TMI 427 - ITAT KOLKATA

2016 (10) TMI 427 - ITAT KOLKATA - TM - Addition on account of capital loss - whether the share warrant which is optional convertible into shares are capital asset as per Sec. 2(14) of the Act - Held 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 o .....

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hing but a capital loss and chargeable under the head “capital gain”. In view of the above, the loss acquired from the forfeiture of share warrants 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 t .....

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er 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 then set off from one source to another source is allowed if it is computed under the similar computation made for the relevant year. The word “similar computa .....

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he Appellant : Shri Sallong Yaden, Addl-CIT-DR For The Respondent : Shri P.R.Kothari, FCA ORDER PER Waseem Ahmed, Accountant Member:- This appeal by the Revenue is against the order of Commissioner of Income Tax (Appeals)-XII, Kolkata dated 21.11.2013. Assessment was framed by JCIT(OSD), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 08.12.2011 for assessment year 2009-10. The grounds raised by the Revenue per its appeal are as under:- 1 .....

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was not paid. 4. That is the facts and in law of the case the ld. CIT(A) erred in allowing to adjust STCL where STT was paid with the STCG where STT was not paid in violation of Sec. 111A of the IT Act. 5. That is the facts and in law of the case the ld. CIT(A) erred in deleting the addition made the AO u/s 14A read with rule 8D amounting ₹ 8,31,749/- for earning exempted income. 6. That is the facts and in law of the case the ld. CIT(A) erred in restricting the disallowance u/s. 14A to &# .....

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or 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 wa .....

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he total value of the share within the specified period. However, assessee did not exercise its option for converting the share warrant into equity share of WCPM. Accordingly, assessee did not pay the balance stipulated amount i.e. 90% of value of share warrant. As a result all the rights attached with the share warrant came to an end and the amount of ₹ 55.00 lakh paid earlier against the share warrant was forfeited by WCPM in terms of the issue of said share warrants. In view of the abov .....

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IT(A) whereas assessee submitted that the share warrant is a capital asset as per the Sec. 2(14) of the Act and assessee was having right to convert share warrant into equity share as per the terms of agreement of share warrant. The assessee did not exercise its option to acquire the share of the said company WCPM and accordingly right of the assessee got extinguished. Considering the submission of assessee, Ld. CIT(A) deleted the addition made by AO by observing as under:- … … As .....

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t out of existence. In other words, in a transaction of relinquishment, the interest of a person in a property is either given up, abandoned, or surrendered; but the property in which interest is relinquished continues to exist and the 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 .....

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rkali 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 66 (SC). In the same way, forfeiture of share application money because of fai .....

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ansfer under section 2(47) of the Act. Therefore, the loss arising out of the transfer amounting to ₹ 55,00,010/- was eligible for adjustment against profits. Therefore, the Assessing Officer was not justified in rejecting the claim of the appellant. He is directed to allow the same allow appropriate relief to the appellant while giving effect to this order. This ground of appeal is allowed accordingly. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 5. We have .....

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rant is resulting Short term capital loss. 5.1 We find that assessee was allotted convertible share warrant on 03.09.2007 and assessee did not exercise its option to convert the share warrant into equity share. The assessee surrendered the share warrants within the specified time and as a result right attached to the share warrant of the assessee came to an end which has resulted into STCL which was disallowed by AO on the ground that share warrant is not a property as per the provisions of Sec. .....

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atan 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 .....

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y a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) From a bare reading of Sec. 2(14) of the Act and we find that share warrant is a capital asset. So the loss generated from the forfeiture of share warrant is nothing but a capital loss and chargeable under the head capital gain . In view of the above, the loss acquired from the forfeiture of share warrants is noth .....

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eration has shown STCL on this sale-purchase of securities on which STT was paid of ₹27,19,888/-. The assessee adjusted this loss against STCG which was arising from the sale-purchase of shares on which no STT was paid. The AO, during the course of assessment proceedings objected to allow the set off of current years STCL amounting to ₹27,19,888/- against current year s STCG on which no STT was paid on the ground that Sec.111A of the Act provide for special tax treatment of STCG wher .....

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income under various heads of income. Accordingly, considering the submission, Ld. CIT(A) allowed the set off of STCL on which STT was paid by observing as under:- I have considered the submission. For the correct appreciation of the provisions of law, the relevant sections may be reproduced below: Section 70(2): where the result of the 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 .....

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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 assesse .....

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there has not been loss, which could not be set off. The provisions do not make any distinction between the loss on transfer of a capital asset of equity shares or any other asset. Now, the exceptions in provisions of section 70 are- (i) Loss from speculation business can be set off only against the profits in a speculation business; (ii) Loss from a specified business under sec. 35AD; (iii) Loss from the activity of owning and maintaining race horses; (iv) Long term capital loss can be set off .....

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against any capital gain (whether long term or short term). Therefore, in my view, the Assessing Officer is found not justified in rejecting the claim of the appellant for the set off short term capital loss (STT paid) of ₹ 2719888/- against the a gains under the same head. He is hereby directed to allow such set off instead of allowing the same to be carried forward. This ground of appeal is allowed. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 8. Before us .....

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he 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 again .....

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under the same head of income. 70. (1) …. … (2) Where the result of the 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. From a plain reading of said Section, we find that said Act does not make any distinc .....

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in favour of assessee as under:- a) Capital International Emerging markets Fund vs. DDIT (IT) (2013) 145 ITD 491 (Mum) (2013) 37 taxmann.com 45 (Mum-Trib.) b) ADIT vs. Legg Mason Asia (Ex-Japan) Analyst Fund (2013) 38 taxmann.com 12 (Mumbaii-Trib) c) ADIT vs. Lansforsakringar Asienfond (2013) 37 CCH 0361 (Mumbai - Trib.) Accordingly respectfully following the precedent as above we hold that there is no infirmity in the order of the Ld. CIT. Accordingly, we uphold the same. 10. Last issue raised .....

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um of ₹37,113/- as per Sec. 14A of the Act. Accordingly, AO disallowed a sum of ₹8,31,749/- and added to the total income of assessee. 12. Aggrieved, assessee preferred an appeal before Ld CIT(A) who gave relief partly to assessee by observing as under:- ´I have considered the facts of the case and the submissions put forth on behalf of the appellant. In this case, the expenses incurred by the appellant are claimed for other business activities and not for the earning of divide .....

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een 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 .....

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unting to ₹ 42875720/- in calculating the disallowance under Rule 8(2D)(iii). After excluding the aforesaid investment of ₹ 42875720/-, the result investment capable of earning dividend would come to ₹ 130896788/- and the disallowance under sec. 14A is restricted to half per cent of the same would come to ₹ 6,54,483/- as against ₹ 3,12,763/- (Rs.2,75,650 + ₹ 37113) added by the app. Thus, the addition on account of disallowance under sec. 14A is restricted to .....

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dend income therefore these should be excluded from the total value of investment. The Ld. CIT(A) while applying the provision of Sec. 14A of the Act has accordingly excluded those investments. 14. We have heard the rival contentions and perused the materials available on record. We find that the facts of the case have been duly explained in the aforesaid paragraph, therefore the same is not required to be reiterated. Further, at the outset, we find the investments which are not capable of yield .....

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