2018 (8) TMI 2173 - HC - Income Tax

Sale of equity shares: long-term capital gains taxed at 10% u/s112(1), with s.48 transfer expenses allowed

The dominant issue was whether long-term capital gains from sale of equity shares by the applicant were taxable at 10% (plus applicable surcharge and ... Tax payable by the applicant/respondent on long term capital gains on the sale of equity shares - whether would be 10% plus surcharge and cess in terms of the proviso to Section 112(1) and that furthermore the applicant would be eligible to claim deduction for expenses incurred in connection with transfer of shares under proviso to Section 48 - Interface between Section 48 and Section 112(1) HELD THAT:- Assessee/applicant’s claims were examined by the AAR which relied upon the judgment of this Court in CAIRN UK HOLDINGS LIMITED [2013 (10) TMI 430 - DELHI HIGH COURT] Similar issue had arisen in Mitsubhishi Motors Corporation’ [2016 (11) TMI 1735 - DELHI HIGH COURT] as notices that the assessee’s claim was examined by the ITAT which based its decision entirely on the judgement in Kairn UK Holdings Ltd. (supra). This Court examined the interface between Section 48 and Section 112(1) of the Act and concluded the case in favour of the assessee that, like in the case of Kairn UK Holdings Ltd. that despite deriving foreign exchange benefits, the main benefit under Section 112(1) of the Act could not be denied. Since there is a previous ruling by this Court which we have disinclined to disagree with the impugned order, no question of law arises. The appeal is therefore dismissed. The writ petition challenged an Authority for Advance Ruling decision holding that long-term capital gains on sale of equity shares were taxable at '10% plus surcharge and cess in terms of the proviso to Section 112(1)' of the Income Tax Act, and that the applicant could claim 'deduction for expenses incurred in connection with transfer of shares under proviso to Section 48'; the Revenue did not contest the deduction aspect. The AAR relied on binding precedent applying the 'interface between Section 48 and Section 112(1)' as settled in *Kairn UK Holdings Ltd.* A similar controversy had been addressed where the Revenue argued that the concessional rate under the proviso to Section 112(1) applies 'if and only if the assessee does not secure any advantage on account of foreign exchange fluctuations under first proviso to Section 48,' and that foreign exchange benefit bars Section 112(1) relief. The Court reaffirmed that, 'despite deriving foreign exchange benefits, the main benefit under Section 112(1) of the Act could not be denied,' and concluded: 'no question of law arises. The appeal is therefore dismissed.' Following this authority, 'no different view can be taken,' and the writ petition was dismissed.