9911796707
TMI Blog2019 (12) TMI 1232X X X X Extracts X X X X X X X X Extracts X X X X ..... filed its return of income on 26.07.2007 declaring total income of Rs. 345,45,121,702. In the said return of income, assessee had claimed Short term Capital loss at Rs. 12,49,42,867. In the course of assessment proceedings, while examining the aforesaid claim of loss by the assessee, the Assessing Officer found that the assessee had issued GDRs against underlying shares of Bajaj Hindustan Limited to non residents on 27.01.2006. The holders of said GDRs wanted to redeem them against underlying shares and, ultimately, GDRs were cancelled on 11.04.2006 and underlying shares were released which were sold in Bombay Stock Exchange (BSE) on 11.04.2006. Since, the date of release of shares as on 11.04.2006 was a public holiday and the Indian share markets were closed, the assessee took cost of acquisition of shares of Bajaj Hindustan Limited at Rs. 523.95 being the opening price of shares as on the next working day i.e. 12.04.2006. After considering the claim of the assessee vis-a-vis the facts on record, the Assessing Officer, though, agreed with the assessee that the applicable day for considering the cost of acquisition of shares is 12.04.2006, since, the stock markets were closed on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, there is no mandate in the GDR Scheme for adopting the weighted average price as the cost of acquisition. He submitted, the weighted average cannot be the price of shares as it is based on a mere mathematical calculation. He submitted, the observations of revenue authorities that the assessee has chosen the price of shares which suits best to it is incorrect as the assessee has not taken the highest price of the share during the day. He submitted, the opening price of the shares taken by the assessee is in close proximity with the closing price on the day of mandate. Thus, there cannot be any fault with the computation of short term capital loss by the assessee. Drawing our attention to certain provisions of the Income tax Act and Rules as well as the Wealth-tax Act and Rules, the learned senior counsel submitted, wherever Legislature wanted to the valuation of shares on weighted average basis they specifically provided for it in the relevant statutory provisions. In this context, he drew our attention to section 56, Section 115WC, Section 14A, Section 36(1)(viia), section 48(1)(a), section 55(2)(ac) of the Act and the corresponding Rules. The learned Senior Counsel submitted, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 as the cost of acquisition/FMV. Both, the Assessing Officer as well as learned Commissioner (Appeals) have agreed with the assessee in so far as the applicable day for considering the cost of acquisition and redemption of GDRs against underlying shares to be 12.04.2006. The dispute is only with regard to the price of shares taken by the assessee towards cost of acquisition/FMV. According to the Revenue authorities, since, the price of shares of Bajaj Hindustan Ltd fluctuated during 12.04.2006, the assessee should not have considered the opening price of shares but should have taken the weighted average price computed at Rs. 504.10. As noted by us earlier, paragraph 7(3) of GDR Scheme provides for considering the price of share as prevailing in the stock exchange on the date of advice as the cost of acquisition. Therefore, the provision specifically refers to a particular price and not the weighted average price as adopted by the revenue authorities. In our view, learned senior counsel was right in submitting that in absence of any specific mandate either in the statute or in the Scheme for adoption of weighted average price towards cost of acquisition/FMV, it cannot be adopted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed. 7. In ground nos. 2 and 3 the assessee has challenged the decision of the departmental authorities in setting off Long term capital loss against Long term capital gain. 8. Briefly, the facts are, during the year under consideration the assessee had long term capital gain of Rs. 519,21,44,332 on which it has paid Securities Transaction Tax (STT) hence, claimed as exempt u/s. 10(38) of the Act. In the course of assessment proceedings, the Assessing Officer noticed that the assessee had claimed carry forward of long term capital loss from sale of shares, though STT paid, at Rs. 31,00,52,918. However, the assessee has not set off long term capital loss against long term capital gain. Therefore, he called upon the assessee to explain why such long term capital loss should not be set off against long term capital gain and carry forward of loss to such extent should not be disallowed. In response, it was submitted by the assessee that as per section 10(38) of the Act, only income arising from long term capital gain on sale of shares 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 57 of 2016. Thus, he submitted, long term capital loss claimed by the assessee has to be carried forward in its entirety. 11. The learned Departmental Representative strongly relied upon the observations of learned Commissioner (Appeals) and Assessing Officer. 12. We have considered rival submissions and perused the material on record. We have also carefully applied our mind to the decisions relied upon. The issue arising for consideration is, 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) of the Act. It is the case of the Revenue that the expression "income" as used in section 10(38) of the Act also includes loss. However, on a reading of section 10(38) of the Act, it becomes clear that the exemption in respect of income derived from sale of shares is 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es; lastly, section 70 & 71 elaborates the mechanism for set off of capital gain. Nowhere, any exception has been made/ carved out with regard to Long term capital gain arising on sale of equity 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from a certain source under the scheme of the Act, the profit and loss resulting from such a source will not enter into the computation at all. But there are other 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .10 excludes in express terms only "any income derived from a business of 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. Fu ..... 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)." 13. Following the aforesaid decision of the M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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