2006 (9) TMI 131 - HC - Income Tax

High Court directs Tribunal to re-examine liability independently, setting aside previous order

The High Court directed the Tribunal to re-examine the appellant's liability independently of section 48 of the Income-tax Act and to provide a detailed ... Capital loss and penal interest - Appellant, a non-resident held some 40,50,000 shares of an Indian company – it transferred this entire lot of shares and claimed the capital loss - This claim of the appellant has been disallowed - according to the Revenue the appellant was not entitled to indexation under section 48 of the Income-tax Act, 1961 ('the said Act' for short) and, therefore, was not eligible to rely on section 55(2)(b)(i) to adopt the fair market value of shares - For not paying the advance tax in time as claimed by the Department, penal interest u/s 234B has been levied – held that Tribunal is expected to decide the liability of the appellant independent of section 48 – further, Tribunal is expected to discuss as to how there was delay in not paying the advance tax in time and if so, whether penal interest could be charged on to the appellant - Inasmuch as there is no appropriate discussion on both these aspects, we revive the appeal to the file of the Tribunal for determination on both these aspects. Issues: Disallowance of capital loss claim, disallowance of indexation under section 48 of the Income-tax Act, penal interest levy under section 234B of the Act.Analysis:The appellant, a company registered in Switzerland, held shares of an Indian company and claimed a capital loss during the assessment year 1998-99. The claim was disallowed by the Income-tax Appellate Tribunal on the grounds that the appellant was not entitled to indexation under section 48 of the Income-tax Act, 1961. The Revenue contended that the appellant could not rely on section 55(2)(b)(i) of the Act. Additionally, penal interest was levied for not paying advance tax in time, based on judgments of the apex court. The appellant challenged these decisions, arguing that indexation was not applicable to non-resident companies and that the justification for penal interest was not adequately discussed by the Tribunal.The appellant raised three substantial questions of law in the appeal. Firstly, whether the Tribunal erred in denying the appellant the option under section 55(2)(b)(i) to adopt the fair market value of shares as the cost of acquisition. Secondly, whether the Tribunal incorrectly treated the first proviso to section 48 as a charging section, thereby deeming section 55(2)(b)(i) unavailable to non-residents. Thirdly, whether the Tribunal wrongly levied interest under section 234B of the Act without considering that in cases where tax is deductible at source, there is no obligation to pay advance tax, and thus no liability for interest under section 234B.The High Court directed the Tribunal to re-examine the appellant's liability independently of section 48 of the Income-tax Act and to provide a detailed discussion on the delay in paying advance tax and the justification for penal interest. The appeal was allowed, setting aside the Tribunal's order and remanding the matter for further determination. The High Court clarified that it did not express any opinion on the merits of the controversy, leaving the parties' submissions available for consideration by the Tribunal during the redetermination process.