Tribunal allows carry forward of Long Term Capital Loss on NOCIL shares for set off

The Tribunal allowed the assessee's appeal for A.Y. 2005-06, directing the Assessing Officer to permit the carry forward of the Long Term Capital Loss (LTCL) on the sale of NOCIL shares for set off in subsequent years, based on the precedent set in Raptakos Brett & Co. Ltd. The appeal was allowed, with the Tribunal emphasizing that LTCL from the transfer of equity shares is not entirely exempt from tax, and can be set off against other taxable capital gains.

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Issues Involved:
1. Allowability of Long Term Capital Loss (LTCL) to be carried forward for future set off.

Detailed Analysis:

1. Allowability of LTCL to be carried forward:

The primary issue in this appeal is whether the LTCL sustained by the assessee on the sale of equity shares of NOCIL Ltd. can be carried forward for future set off. The assessee, a company engaged in investment activities, filed its return for A.Y. 2005-06 declaring a loss of Rs. 23,28,41,984/- due to the sale of 19,98,241 shares of NOCIL, which were pledged with Bajaj Auto Ltd. against non-convertible preference shares issued by Sushmita Holdings Ltd. The assessment was completed under section 143(3) of the Income Tax Act, 1961, disallowing the carry forward of this LTCL.

Upon appeal, the CIT(A) partially allowed the appeal but dismissed the grounds related to the carry forward of the LTCL. The assessee then appealed to the ITAT, arguing that the LTCL should be allowed to be carried forward for future set off, citing a precedent from the case of Raptakos Brett & Co. Ltd.

Tribunal’s Findings:
The Tribunal noted that the shares of NOCIL were pledged and subsequently sold by Bajaj Auto Ltd. to realize dues. This sale resulted in a LTCL of Rs. 23,28,41,984/-, which the assessee sought to carry forward. The authorities below had disallowed this claim, asserting that LTCL from the transfer of equity shares is exempt from tax from A.Y. 2005-06 onwards.

The Tribunal referred to a similar case adjudicated by a Coordinate Bench in Raptakos Brett & Co. Ltd., where it was held that LTCL on the sale of shares should be allowed to be carried forward and set off against future gains. The Tribunal analyzed the provisions of sections 10(38), 70, and 71 of the Income Tax Act, emphasizing that section 10(38) exempts only the income from the transfer of long-term equity shares, not the entire source of capital gains from shares. Therefore, the loss from such a source can still be set off against other taxable capital gains.

The Tribunal also distinguished this case from other precedents cited by the Revenue, particularly the Gujarat High Court decision in Kishorebhai Bhikhabhai Virani and the ITAT Mumbai decision in Schrader Duncan Ltd., noting that these cases did not consider the specific arguments and legal interpretations relevant to the current case.

Conclusion:
Following the decision in Raptakos Brett & Co. Ltd., the Tribunal directed the Assessing Officer to allow the assessee’s claim for carry forward of the LTCL on the sale of NOCIL shares for set off in subsequent years, in accordance with the law. Consequently, the assessee’s appeal was allowed.

General Grounds:
Ground No. 2 being general in nature, did not require adjudication.

Final Order:
The assessee's appeal for A.Y. 2005-06 was allowed, and the order was pronounced in the open court on 28th October 2016.

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