TMI Blog2019 (9) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... ed securities - HELD THAT:- As decided in case of Raptakos Brett Co. Ltd 2015 (6) TMI 529 - ITAT MUMBAI assessee had incurred loss on sale of shares after paying STT these shares were held on investment a/c for period more than 12 months. The assessee claimed that the loss incurred was to be assessed under the head capital gains and its set off was permissible against capital gain earned on transfer of other capital assets. The AO however disallowed the assessee s claim for assessment of long term capital loss on the ground that income earned in similar transactions was not chargeable to tax in view of exemption granted by S. 10(38) of the I.T. Act. In the AO s opinion Sec. 10(38) was applicable equally to all transactions of sale of investment shares involving STT payment irrespective whether the resultant effect was profit/income or loss. On further appeal this Tribunal relying on the judgment of the Hon ble Calcutta High Court (supra) held that same considerations did not apply to the income exempt u/s 10 and the loss incurred in similar transactions. The ITAT therefore held that assessee was entitled to get its loss assessed was also entitled to get such loss set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to withhold tax u/s 194C on the expenditure of ₹ 23,70,600/- which it had failed to do so. The AO accordingly disallowed the entire expenditure of ₹ 23,70,600/- u/s 40(a)(ia) of the Act. On appeal, the CIT(A), after examining the details of expenses paid to M/s Royal Calcutta Turf Club, noted that expenditure to the tune of ₹ 19,21,824/- were not in the nature of works and therefore the provisions of Section 194C was held to be not applicable to such payments. The Ld. CIT(A) accordingly deleted disallowance to the extent of ₹ 19,21,824/- and confirmed the balance addition of ₹ 4,48,776/-. Aggrieved the appellant is now in appeal before us. 4. We have heard rival submissions and gone through the order of the lower authorities. We find that the primary argument of the Ld AR is that the payee i.e. M/s Royal Calcutta Turf Club has duly included the subject mentioned receipts in their return of income and had paid taxes thereon which may be verified by the AO. The Ld DR also fairly agreed for the same. In view of the amendment to second proviso to section 40(a)(ia) read with section 201(1) of the Act, if the payees have included the subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm capital gain and thereby denying the carry forward of long term capital loss since long term capital gain was exempt u/s 10(38) of the Act. According to Ld. AR what is contemplated in section 10(38) is exemption of positive income and losses will not come within the purview of the said section. Inviting our attention to the provisions of Section 70 71 wherein the Legislature has laid down the manner in which the Long term capital loss is to be set-off and carried forward to subsequent years, the Ld. AR submitted that the Legislature has not put any embargo to exclude Long term capital loss from sale of shares to be set off against Long term capital gain arising on account of sale of other capital asset. The Ld. AR submitted that it is not a case where the source of income itself is exempt from tax and therefore any gain/loss derived in any manner there from is to be ignored for tax purposes. He submitted that capital asset is defined in Section 2(14) which inter alia includes shares securities. The levy of income-tax on capital gain arising upon transfer of a capital asset has been provided in Section 45 and mode of computation has been elaborated in section 48. Certain exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of STT should also remain outside the ambit of charging provisions of the Act. It is true that the judicial authorities including the Hon ble Supreme Court in the case of CIT Vs J.H. Gotla (156 ITR 323) held that the expression income shall include loss because the loss is nothing but negative income. It is cardinal principle of interpretation of statutes that the observations and findings of the Court must be understood in the context of the facts involved in the case decided by the Court. It is not proper to divorce the observation of the Court from the facts involved in the case. It is well laid down that the text of the statute must be understood in the context in which it is used and therefore any particular observation of the Court in the judgment cannot be considered or applied in its isolation or divorced from the context in which it was rendered. In the case of CIT Vs J.H. Gotla (supra), the issue before the Apex Court was assessee s claim in the context of aggregation of income. Section 64 of the Act requires clubbing of income of the minor children or of the spouse and accordingly in the given circumstances the tax is required to be paid on aggregate income after cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine now as to whether the source of long term capital gain i.e. long term capital asset being equity shares is completely outside the charging provisions or not. On reference to Section 2(14) of the Act which defines the term capital asset , it is noted that there is no specific exception carved on in respect of equity shares or securities like in the case of agricultural land or personal effect. Further Section 45 which lays down the charge of tax on gain arising on transfer of capital asset covers the long term capital gain derived on sale of equity shares whether or not they are listed on stock exchange and whether or not they are transferred on payment of STT. The manner and mode of computation of long term capital gain on sale of shares is uniformly laid down in Section 48 of the Act. In case the resultant figure is a long term capital loss, the manner for claiming its set off / carry forward has been set out in Section 74 of the Act. Therefore, on conjoint reading of all the applicable Sections, we find that nowhere any exception has been made with regard to long-term capital gain/loss arising on sale of equity shares and it is liable to income-tax like any other item o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been amended to do away with the restrictions on the carry forward of business losses and unabsorbed depreciation. 20.3 The amendments have been brought into effect retrospectively from 1-4-2001 and have been made applicable to business losses or unabsorbed depreciation arising in the assessment year 2001-02 and subsequent years. 5. From the above it is evident that irrespective of their continued placement in Chapter III, sections 10A and 10B as substituted by Finance Act, 2000 provide for deduction of the profits and gains derived from the export of articles or things or computer software for a period of 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such article or thing or computer software. The deduction is to be allowed from the total income of the assessee. The term 'total income' has been defined in section 2 (45) of the IT Act and it means the total amount of income referred to in section 5, computed in the manner laid down in the Incometax Act. 5.1 All income for the purposes of computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and/or carried forward in terms of Section 72 of the Act. We therefore find that in analogous situation arising under Section 10A which is also part of Chapter III, the Board has accepted the legal proposition that even though the income is exempt but the loss arising from the same source is liable to be assessed and granted set off as per law. In view of the foregoing we find merit in the Ld. AR s contention that the exemption u/s 10(38) has been carved out in respect of a specific instance and that too where there is a positive income and upon fulfillment of conditions set out therein. We therefore find force in Ld. AR s submissions that merely because the capital gain arising on sale of long term listed shares upon payment of STT was exempt, for such reason alone the loss incurred on long term listed shares upon payment of STT will also be outside the charging provisions of the Act. 11. In this regard we find the Ld. AR s reliance on the judgment of the jurisdictional Calcutta High Court in the case of Royal Calcutta Turf Club Vs CIT (supra) to be relevant. In the decided case the assessee had incurred loss in its broodmares account and in pig a/c which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used the relevant findings given in the impugned orders. The main issue before us is, whether Long term capital loss on sale of equity shares can be set off against Long term capital gain arising on sale of land or not, as the income from Long term capital gain on sale of such shares are exempt u/s. 10(38). The nature of income here in this case is from sale of Long term capital asset, which are equity shares in a company and unit of an equity oriented fund which is chargeable to STT. First of all, Long term capital gain has been defined under section 2(39A), as capital gains arising from transfer of a Long term capital asset. Section 2(14) defines Capital asset and various exceptions and exclusions have been provided which are not treated as capital asset. Section 45 is the charging section for any profits or gain arising from a transfer of a capital asset in the previous year i.e. taxability of capital gains. Section 47 enlists various exceptions and transactions which are not treated as transfer for the purpose of capital gain u/s. 45. The mode of computation to arrive at capital gain or loss has been enumerated from sections 48 to 55. Further sub-section (3) of section 70 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions are not fulfilled then exemption is not given. Thus, the income contemplated in section 10(38) is only a part of the source of capital gain on shares and only a limited portion of source is treated as exempt and not the entire capital gain (on sale of shares). If an equity share is sold within the period of twelve months then it is chargeable to tax and only if it falls within the definition of Long term capital asset and, further fulfils the conditions mentioned in sub-section (38) of section 10 then only such portion of income is treated as exempt. There are further instances like debt oriented securities and equity shares where STT is not paid, then gain or profit from such shares are taxable. Section 10 provides that certain income are not to be included while computing the total income of the assessee and in such a case the profit or loss resulting from such a source of income do not enter into computation at all. However, a distinction has been drawn where the entire source of income is exempt or only a part of source is exempt. Here it needs to be seen whether section 10(38) is source of income which does not enter into computation at all or is a part of the source, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputing that business income, the loss from one particular source, that is, broodmares account and the pig account, had been excluded contrary to the submission of the assessee. The assessee wanted these losses to be set off. The Revenue contends that as the sources of the income are not to be included in view of the provisions of Clause (27) of s. 10 of the 1961 Act, the loss suffered from this source could also not merit the exclusion. Under the I.T. Act, there are certain incomes which do not enter into the computation of the total income at all. In this connection we have to bear in mind the scheme of the charging section which provides that the incomes shall be charged and s. 4 of the Act provides that the Central Act enacts that the incomes shall be charged for any assessment year and in accordance with and subject to the provisions of the 1961 Act in respect of the total income of the previous year or years or whatever the case may be. The scheme of total income has been explained by s. 5 of the Act which provides that subject to the provisions of the Act, the total income of the previous year of a person who is a resident includes all income from whatever source it is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Hon'ble Supreme Court observed that From the charging provisions of the Act, it is discernible that the words ' income ' or ' profits and gains' should be understood as including losses also, so that, in one sense 'profits and gains' represent ' plus income ' whereas losses represent 'minus income'. In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Although Section 6 classifies income under six heads, the main charging provision is Section 3 which levies income-tax, as only one tax, on the 'total income ' of the assessee as defined in Section 2(15). An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the ' total amount of income, profits and gains referred to in Section 4(1)'. Secondly, it must be 'computed in the manner laid down in the Act'. If either of these conditions fails, the income will not be a part of the total income that can be brought to charge. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Coming to the decision of the ITAT Mumbai Bench in the case of Schrader Duncan Ltd. (supra), the issue involved there was, whether the loss on transfer of capital asset being units US 64 Scheme of Unit Trust of India can be allowed and entitled to carry forward the same for set off of in subsequent assessment years, when the income arising from such transfer of unit is exempt u/s. 10(33). The Tribunal held that the source both capital gain and capital loss on sale of units of US64 is itself excluded and not only the income arising out of capital gain. The Hon'ble Tribunal have noted the history of US64 Scheme and the purpose for which such scheme was launched. In this context of transfer of US64 scheme the Tribunal held that the provisions were not meant to enable the assessee to claim loss by indexation for set off against other capital gain chargeable to tax. This decision is slightly distinguishable and secondly, we have already discussed the issue at length and have held that the ratio of Hon'ble Calcutta High Court is applicable in the present case. Lastly, coming to the decision of Hon'ble Gujarat High Court in the case of Kishorebhai Bhikhabhai Virani ..... X X X X Extracts X X X X X X X X Extracts X X X X
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