TMI Blog2019 (11) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 - - - Dated:- 11-9-2019 - Shri M. Balaganesh, AM And Shri Ram Lal Negi, JM For the Assessee : Shri S.C. Tiwari Ms. Rutuja N Pawar For the Revenue : Shri D.G. Pansari ORDER PER M. BALAGANESH (A.M): This appeal in ITA No.3409/Mum/2018 for A.Y.2013-14 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-28, Mumbai in appeal No.CIT(A)-28/IT-175/ITO-17(3)(1)/2016-17 dated 22/03/2018 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 22/03/2016 by the ld. Income Tax Officer- 17(3)(1), Mumbai (hereinafter referred to as ld. AO). 2. The only effective issue to be decided in this appeal of the assessee is as to whether the ld. CIT(A) was justified in upholding the action of the ld. AO by not allowing the set off of long term capital loss on sale of shares with long term capital gain of the assessee in the facts and circumstances of the case. 3. The brief facts of this issue are that the assessee is a partnership firm engaged in the business of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted hereinabove remain undisputed and hence, the same are not reiterated for the sake of brevity. We find that the ld. AR had argued that long term capital loss on which STT is paid is not a source of income. According to the ld. AR, it is only a segment of the main source of income which is income arising from transfer of shares. The bifurcation of short term and long term capital gains based on the period of their holding are only classifications of source of income i.e. income from transfer of shares. They at any stretch of imagination cannot be construed as a separate source of income. The ld. AR vehemently argued that payment of STT on a long term capital gain or long term capital loss does not make it a separate source of income. He vehemently tried to drive home the point that in the instant case, the source of income is not exempt u/s.10(38) of the Act, only a particular segment of such source is exempt u/s.10(38) i.e. long term capital gains on which STT is paid. Accordingly, he pleaded that set off of STT paid long term capital loss is indeed permissible with non-STT paid long term capital gain. He also argued that the decision of Hon ble Madras High Court relied upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt losses cannot be deducted from taxable income and, therefore, the Assessing Officer has rightly disallowed the claim of losses from shares to be set off against the Long term capital gain from sale of land. 5. Before us the learned senior counsel, Shri Soli Dastur, submitted that what is contemplated in section 10(38) is exemption of positive income and losses will not come within the purview of the said section. The set off of Long term capital loss has been clearly provided in sections 70 and 71. The Legislation 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. Even in the definition of capital asset u/s. 2(14), no exception or exclusion has been provided to equity shares the profit/gain of which are treated as exempt u/s. 10(38). Capital gain is chargeable on transfer of a capital asset u/s. 45 and mode of computation has been elaborated in section 48. Certain exceptions have been provided in section 47 to those transactions which are not regarded as transfer. Nothing has been mentioned in sections 45 to 48 that capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, which is based on Supreme Court decision on this point. He also pointed out that ITAT Mumbai Bench also in the case of Schrader Duncan Ltd. Vs. Addl. CIT (2012) 50 SOT 68 has decided somewhat similar issue against the assessee. However, he distinguished the said decision and highlighted the points as to why said decision cannot be followed. 6. On the other hand, the learned DR strongly relied upon the order of the AO and CIT(A) and submitted that, firstly, if the income from the Long term capital gain on sale of shares is exempt, then the loss from such sale of shares will also not form part of the total income and therefore, there is no question of set off against other income or Long term capital gain on different capital asset. Secondly, the decisions of Hon'ble Gujarat High Court and ITAT Mumbai Tribunal should be followed. He further submitted that it is quite a settled law that income includes loss also and, therefore, if the income from sale of shares does not form part of the total income, then the losses from such shares also will not form part of the total income. Thus, the order of the CIT(A) should be confirmed. 7. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity shares. The whole genre of income under the head capital gain on transfer of shares is a source, which is taxable under the Act. If the entire source is exempt or is considered as not to be included while computing the total income then in such a case, the profit or loss resulting from such a source do not enter into the computation at all. However, if a part of the source is exempt by virtue of particular provision of the Act for providing benefit to the assessee, then in our considered view it cannot be held that the entire source will not enter into computation of total income. In our view, the concept of income including loss will apply only when the entire source is exempt and not in the cases where only one particular stream of income falling within a source is falling within exempt provisions. Section 10(38) provides exemption of income only from transfer of Long term equity shares and equity oriented fund and not only that, there are certain conditions stipulated for exempting such income i.e. payment of security transaction tax and whether the transaction on sale of such equity share or unit is entered into on or after the date on which chapter VII of Finance (No.2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er sources which, for certain economic reasons, are not included or excluded by the will of the Legislature. In such a case, one must look to the specific exclusion that has been made. The Hon'ble High Court was besieged with the following question Whether under s.10(27) read with s.70 of the I.T.Act, 1961, was the assessee entitled to set off the loss on the two heads, namely, Broodmares Account and the Pig Account, against its income of other sources under the head Business Their Lordships after analysing the provisions of section 70 and section 10(27) observed in the following manner: In this case it is important to bear in mind that set-off is being claimed under Section 70 of the 1961 Act which permits set off of any income falling under any head of income other than the capital gain which is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. We have noticed that in the instant case the exclusion has been conceded in computing the business income or the source of income from the head of business and in computing that busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... live-stock breeding or poultry or dairy farming. It does not exclude the business of livestock breeding or poultry or dairy farming from the operation of the Act. Therefore, the losses suffered by the assessee in the broodmares account and in the pig account were admissible deductions in computing its total income Thus, the ratio laid down by the Hon'ble Calcutta High Court is clearly applicable and accordingly we follow the same in the present case. 9. Now coming to the argument of the learned DR and learned CIT(A) that income includes loss and if income is exempt then loss will also not be taken into computation of the income, and such an argument is with reference to the decision of Hon'ble Supreme Court in the case of CIT vs. Hariprasad Company Pvt. Ltd. (1975) 99 ITR 118 . The Hon'ble Supreme Court, opined that, if loss was from the source or head of income not liable to tax or congenitally exempt from income tax, neither the assessee was required to show the same in the return nor was the Assessing Officer under any obligation to compute or assess it much less for the purpose of carry forward. Further, the Hon'ble Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case where only one of the income falling within such source is treated as exempt. The Hon'ble Apex Court on the other hand, itself has stated that if loss from the source or head of income is not liable for tax or congenitally exempt from income tax, then it need not be computed or shown in the return and Assessing Officer also need not assess it. This distinction has to be kept in mind. Hon'ble Calcutta High Court in Royal Turf Club have discussed the aforesaid decision of the Hon'ble Supreme Court and held that the same will not apply in such cases. Thus, in our conclusion, we hold that section 10(38) excludes in expressed terms only the income arising from transfer of Long term capital asset being equity share or equity fund which is chargeable to STT and not entire source of income from capital gains arising from transfer of shares. It does not lead to exclusion of computation of capital gain of Long term capital asset or Short term capital asset being shares. Accordingly, Long term capital loss on sale of shares would be allowed to be set off against Long term capital gain on sale of land in accordance with section 70(3) 10. Coming to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. Hence, we find that the decision of this Tribunal in Raptakos Brett Co. Ltd., which in turn had placed reliance on the decision of Hon ble Calcutta High Court had become final. We are inclined to accept the aforesaid arguments of the ld. AR. We also find that the Co-ordinate Bench of Kolkata Tribunal in the case of United Investments vs. ACIT in ITA No. 511/KOL/2017 dated 01/07/2019 had also endorsed the same view. We find that the provisions of Section 70-80 of the Act does not speak about payment of STT at all. There is no mention of STT even in Section 74 of the Act which talks about set off of carry forward of losses under the head capital gains . Respectfully following the aforesaid decision, we are inclined to accept the argument of the ld. AR that the source of income remains income derived from transfer of shares and that STT paid long term capital loss and non-STT paid long term capital gains are only segments of such source and cannot be construed as a separate source altogether. 5.3. The ld. DR vehemently relied upon the orders of the lower authorities. 5.4. In view of the aforesaid observations ..... X X X X Extracts X X X X X X X X Extracts X X X X
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