Indexation benefit under section 48 cannot be denied for foreign company shares in long-term capital gains computation

The ITAT Mumbai held that indexation benefit under section 48 cannot be denied for shares of foreign companies when computing long-term capital gains. The tribunal noted that the second proviso to section 48 does not distinguish between assets held in India versus foreign countries. The assessing officer was found unjustified in denying indexation benefit for foreign company shares. The CIT(A)'s order granting indexation benefit was affirmed, and the Revenue's appeal was dismissed.

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Issues:
Whether the assessee is entitled to deduct indexed cost of shares of a foreign company while computing long term capital gain.

Analysis:
The judgment pertains to an appeal filed by the Revenue challenging the order of the Ld. CIT(A) regarding the deduction of indexed cost of shares of a foreign company for computing long term capital gain. The assessee, engaged in the business of fragrance compounds, sold shares of a foreign subsidiary under a buy-back scheme resulting in a long term capital loss. The AO denied the benefit of cost inflation index for foreign assets, reducing the capital loss. The Ld. CIT(A) allowed the indexation benefit, leading to the Revenue's appeal.

The Tribunal analyzed the provisions of section 48 of the Income Tax Act, emphasizing the second proviso allowing the benefit of cost inflation index without distinguishing between assets held in India or abroad. The Tribunal held that since the Act imposes tax on the assessee, its provisions should be strictly applied without room for equity considerations. Referring to the Principles of interpretation, the Tribunal emphasized that clarity in the section negates the need for internal or external aids for interpretation.

The Revenue relied on a previous decision to argue against granting indexation benefit for foreign assets. However, the Tribunal noted discrepancies in the facts of the cited case, highlighting the ambiguity regarding the currency used for the investments. Consequently, the Tribunal rejected the Revenue's reliance on the prior decision due to lack of factual parity.

Ultimately, the Tribunal affirmed the Ld. CIT(A)'s decision, ruling in favor of the assessee and dismissing the Revenue's appeal. The Tribunal held that the assessee cannot be denied the benefit of cost inflation index for foreign assets, as the second proviso to section 48 does not differentiate between assets held in India and abroad.

In conclusion, the Tribunal upheld the order allowing the indexation benefit for the assessee's sale of shares of a foreign company, emphasizing the clear provisions of the Income Tax Act and rejecting the Revenue's arguments against granting the benefit.

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