2023 (3) TMI 1043 - AT - Income Tax

Tribunal affirms CIT(A) on debenture cost & capital gains set-off. Revenue's appeal dismissed.

The Tribunal upheld the CIT(A)'s decisions on the determination of the cost of acquisition for debentures issued by NTPC and the set-off of short-term ... Computing capital gains on sale of debentures.- assessee took the dividend receivable from NTPC originally which was converted into debentures as cost of acquisition of debentures while computing capital gains on sale of debentures - amount of dividend which was subjected to Dividend Distribution Tax (DDT) was re-invested towards cost of debentures and hence, the same represent the cost of acquisition of debentures for the assessee - treatment of claiming deduction for cost was denied by the ld. AO on the ground that assessee was issued only bonus debentures by NTPC for which there is no cost attributed and hence in terms of Section 55(2)(aa)(iiia) of the Act, the cost has to be taken as 'Nil' - HELD THAT:- We find that the same issue was subject matter of adjudication by this Tribunal in the case of J.P. Morgan Funds [2022 (7) TMI 1289 - ITAT MUMBAI] as held act of, and bonafides of, the transaction cannot thus be disputed. The amount so reinvested, out of dividend, was the consideration paid for debentures. We uphold the plea of the assessee that the AO erred in declines the claim of the assessee with respect to cost of acquisition in respect of these debentures.Accordingly, the ground Nos. 1 & 2 raised by the Revenue are dismissed. Set-off of short-term capital loss carried out against income/gain - We find that assessee in the instant case has duly complied with the provisions of Section 70(2) of the Act in as much as the computation of short term capital gain is similar and only the rate of tax is different. Infact the provisions of Section 70(2) of the Act uses the expression “similar computation”. This goes directly in favour of the assessee. Hence, the decision of the special Bench of this Tribunal reported MONTGOMERY EMERGING MARKETS FUND. [2006 (3) TMI 202 - ITAT BOMBAY-H] is squarely applicable to the case. Though this Special Bench judgment referred to supra has been rendered in the context of pre-Securities Transaction Tax (STT) era, still the analogy drawn thereon would be applicable to the facts of the instant case. In fact post STT regime, we find that this Tribunal in the case of ADIT(International Taxation)-4(1) vs. Legg Mason Asia (Ex Japan) Analyst Fund [2013 (11) TMI 361 - ITAT MUMBAI] had addressed the very same issue wherein the arguments advanced by the ld. DR before us is also addressed. No infirmity in the order of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, the ground No.3 raised by the Revenue is dismissed. Issues Involved:1. Determination of the cost of acquisition for debentures issued by NTPC in lieu of dividends.2. Set-off of short-term capital losses against gains taxable at different rates.Summary:Issue 1: Determination of Cost of Acquisition for Debentures Issued by NTPCThe Revenue challenged the decision of the CIT(A) regarding the cost of acquisition of debentures issued by NTPC in lieu of dividends. The assessee argued that the dividend receivable, which was subjected to Dividend Distribution Tax (DDT), was reinvested in debentures and should be considered the cost of acquisition. The AO denied this, citing Section 55(2)(aa)(iiia) of the Income Tax Act, which states that the cost should be taken as 'Nil' for financial assets allotted without any payment. The Tribunal referred to a previous decision in the case of J.P. Morgan Funds vs. DCIT, where it was held that the amount reinvested in debentures from dividends should be considered the cost of acquisition. The CIT(A) relied on this decision, and the Tribunal found no infirmity in this approach, dismissing the Revenue's grounds on this issue.Issue 2: Set-off of Short-Term Capital Losses Against Gains Taxable at Different RatesDuring the financial year under consideration, the assessee incurred a net short-term capital loss of Rs. 98,24,23,558/-. The assessee set off this loss first against short-term capital gains taxable at 30% and then against gains taxable at 15%. The AO rejected this method, bringing the gains taxable at 30% to tax. The CIT(A) relied on the Special Bench decision in Montgomery Emerging Markets Fund and accepted the assessee's method. The Tribunal upheld this decision, stating that the computation of short-term capital gains is similar irrespective of the tax rate. The Tribunal referenced the Special Bench judgment and subsequent decisions, which support the view that losses can be set off against gains within the same head of income, regardless of the tax rate. The Tribunal dismissed the Revenue's grounds on this issue as well.Conclusion:The Tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT(A)'s decisions regarding the cost of acquisition for debentures and the set-off of short-term capital losses.Order pronounced on 21/03/2023 by way of proper mentioning in the notice board.