TMI Blog2019 (12) TMI 1232X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has not taken the highest price of the share quoted during the date at ₹ 525. After considering pros and cons of the issue, we hold that adoption of share opening price of ₹ 523.95 as cost of acquisition is the most appropriate and rational in the given facts and circumstances of the case. Accordingly, we direct the Assessing Officer to accept the short term capital loss computed by the assessee. Consequently, the addition made in this regard is deleted. Setting off Long term capital loss against Long term capital gain - whether long term capital loss arising on sale of shares can be set off against long term capital gain arising on sale of shares claimed to be exempt u/s. 10(38) ? - HELD THAT:- Following the consistent view expressed by different Benches of the Tribunal on identical issue, we hold that long term capital loss arising out of sale of shares cannot be set off against long term capital gain from shares subjected to STT and claimed exempt u/s. 10(38) of the Act. Accordingly, we direct the Assessing Officer to allow carry forward of long term capital loss as claimed by the assessee. - ITA 8140/Mum/2010 - - - Dated:- 24-12-2019 - S/Shri Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in so far as the cost of acquisition taken by the assessee at ₹ 523.94. On the basis of information from the BSE, the Assessing Officer found that on 12.04.2006, though, the opening price of shares of Bajaj Hindustan Limited was quoted at ₹ 523.95, however, it went up to a highest price of ₹ 525 and lowest price of ₹ 490- during the day and ultimately closed on closing price of ₹ 494.20-. Considering the above, the Assessing Officer concluded that in view of varying price of shares of Bajaj Hindustan Limited during the applicable day, the opening price of shares towards cost of acquisition, as considered by the assessee, is incorrect. According to him, in view of fluctuating price of shares during the day, the weighted average price of shares computed at ₹ 504.10 should be considered as cost of acquisition. Accordingly, applying the cost of acquisition of shares at ₹ 504.10, he computed the Short term capital loss, which resulted in a difference of ₹ 1,19,10,000 between the Short term capital loss computed by the assessee and as determined by the Assessing Officer. Thus, this differential amount was considered for addition to the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, since in respect of redemption of GDRs and release of underlying shares, the Legislature did not provide for adoption of weighted average as the cost of acquisition or the fair market value (FMV), such weighted average price cannot be adopted as the cost of acquisition/FMV of shares. The learned Senior Counsel submitted, the opening price of shares on 12.04.2006 as adopted by the assessee being closest to the FMV, should be adopted as cost of acquisition. 5. The learned Departmental Representative Shri Ajay Kumar, strongly relying on the observations of the Revenue authorities submitted, the opening price of shares may not be the same to the closing price of shares on the previous day. That being the case, the weighted average price is one of the best options available for determining the cost of acquisition/FMV of the shares. 6. We have considered the rival submissions and perused the material on record. The Government of India notified the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depositary Receipt Mechanism) Scheme, 1993 under which Indian Companies engaged in specified activities are permitted to issue fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice towards cost of acquisition/FMV, it cannot be adopted as cost of acquisition/FMV. Though, there is no specific provision in the Act providing for determination of cost of acquisition of underlying shares on redemption of GDRs, however, section 55(2)(ac) provides some insight on the matter. The aforesaid provision provides that where the capital assets are listed in any recognised stock exchange as on the 31.01.2018, the highest price of the share quoted on the said date should be considered as fair market value. It further provides, where there is no trading of capital asset on the said date, the highest price of such asset on said exchange on a date immediately preceding the date shall be considered as the fair market value. It is noticed from the order of learned Commissioner (Appeals), on the date immediately preceding the date of advice i.e. 10.04.2006, the closing price of shares of Bajaj Hindustan Ltd. on the Bombay Stock Exchange was quoted at ₹ 518.80. Therefore, in our considered opinion, what ideally should have been taken as the cost of acquisition/FMV of shares of Bajaj Hindustan Ltd., for computing the Short term capital gain/loss is the aforesaid price. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s subjected to STT is exempt u/s. 10(38) of the Act. Thus, it does not include loss arising out of sale of shares. The Assessing Officer however, did not find merit in the submissions of the assessee. He observed, the term income as used in section 10(38) refers to the entire receipts arising from transfer of long term capital asset and also includes loss. Accordingly, he set off the long term capital loss against the exempt long term capital gain, which resulted in part disallowance of carry forward of long term capital loss. The aforesaid decision of the Assessing Officer was also upheld by learned Commissioner (Appeals). 9. The learned senior counsel drawing our attention to section 10(38) of the Act submitted, the provision specifically refers to the income and does not include loss. Therefore, long term capital loss arising on sale of shares cannot be set off against long term capital gain subjected to STT. The learned senior counsel submitted, as per section 10(38) of the Act exemption in respect of long term capital gain arising from sale of shares is conditional and subject to payment of STT. Therefore, such income is not exempt at the sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s exempt in a case where STT has been paid. Therefore, it cannot be said that capital gain on sale of shares is generally exempt. Only on fulfillment of certain conditions, gain derived from sale of shares is exempt u/s. 10(38) of the Act. Thus, the income derived from sale of shares is not exempt at the source itself. The aforesaid view has been expressed by ITAT, Mumbai Bench in the case of Raptakos Brett Co. Ltd. vs. DCIT (supra). The observations of the Bench in this regard is reproduced hereunder for ease of reference: 7. We have heard rival submissions and perused 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) Act 2004 comes into force. If such conditions 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 subsection (38) of section 10 then only such portion of income is treated as exempt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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). 13. Following the aforesaid decision of the Mumbai Bench, the Kolkata Bench in the case of United Investments vs. ACIT (supra), and Pune Bench in the case of ACIT vs. Shri Somnath Vaijanath Sakre (supra) have expressed identical views. It is relevant to observe, the decision of the Mumbai Bench of the Tribunal in case of Raptakos Brett Co. Ltd. vs. DCIT (supra) has attained finality as the appeal preferred by the department against the said decision has been dismissed by the Hon ble Jurisdictional High Court, though, due to non-prosecution. Therefore, following the consistent view expressed by different Benches of the Tribunal on identical iss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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