TaxTMI 
TaxTMI 
2014 (1) TMI 31
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....ional Investors) Regulations, 1995. It returned its income for the year at a Short Term Capital Gain (STCG) of Rs.6,77,58,785/- and Long Term Capital Gain (LTCG) at Rs.82,60,519/-. In the course of assessment proceedings, it was observed by the Assessing Officer (A.O.) that the STCG was on Security Transaction Tax (STT) paid transactions, and on which tax at a concessional rate of 10% (u/s.115AD r.w.s. 111A) had been paid. The corresponding LTCG, i.e., STT paid and, thus, tax exempt u/s. 10(38), and claimed so, was at Rs.16,60,41,174/-. The non STT paid LTCG, and which was thus liable to tax @ 10%, was at Rs.1,95,61,230/-. The assessee had, however, claimed set off of Rs.1,06,48,694/- there-against, being loss on the STT paid LTCG. In his view, the same could not be inasmuch as the said loss, which is only negative income, is also tax exempt u/s.10(38) and, thus, had to be ignored, implying that the tax exempt income u/s.10(38), claimed at Rs.1856.02 lacs, would stand reduced to that extent (Rs. 106.49 lacs). The assessment was made denying the said set off/adjustment. The assessee did not prefer any appeal. 2.2 In the penalty proceedings, initiated simultaneous with the conclus....
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....s option choose the course which is more beneficial to it. In fact, the Board has also vide its Circular No. 26 (LXXVI-3) [F. No. 4(53)-IT/54] dated 07.07.1955 recognized the assessee's right in choosing the method for setting off which is more beneficial to the assessee; c) the exemption u/s. section 10(38) relates to a class of transactions, and not the source or the head of income itself. A distinction is to be made with reference to the source which does not enter the computation of income at all, and a source, income from which is excluded in the computation of income. Reliance in this context is placed on the decision in the case of Royal Calcutta Turf Club vs. CIT [1983] 144 ITR 709 (Cal); and d) in any case, any ambiguity in law is to be interpreted in favour of the subject (refer: CIT vs. Naga Hills Tea Co. Ltd. [1973] 89 ITR 236 (SC)). 3.1 We have given our careful consideration to the matter. We find the assessee's case is wholly unmaintainable in view of the law as explained by the hon'ble apex court over a series of decisions, viz. CIT vs. Gold Coin Health Food (P.) Ltd. [2008] 304 ITR 308 (SC); CIT vs. J. H. Gotla [1985] 156 ITR 323 (SC); and CIT vs. Harprasa....
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....r purposes wherein the apex court, adverting to the decision in the case of Harprasad & Co. (P.) Ltd. (supra), clarifies that income by definition also includes losses: (pgs. 312, 313) '7. In Reliance Jute & Industries Ltd. v. CIT [1979] 120 ITR 921 it was observed by this Court that the law to be applied in Income-tax assessments is the law in force in the assessment year unless otherwise provided expressly or by necessary implication. Before proceeding further, it will be necessary to focus on the definition of the expression 'income' in the statute. Section 2(24) defines 'income' which is an inclusive definition, and includes losses i.e., negative profit. The position has been elaborately dealt with by this Court in CIT v. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118. This Court held with reference to the charging provisions of the statute that the expression 'income' should be understood to include losses. The expression 'profits and gains' refers to positive income whereas losses represent negative profit or in other words minus income. This aspect does not appear to have been noticed by the Bench in Virtual Soft Systems Ltd.'s case (supra). Reference to the order by this Co....
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....so called legal claim. Rather, as afore-noted, the apex court has clarified that the assessee is not obliged to disclose loss from a source of income in its return where the income from that source is tax exempt, nor the ITO under an obligation to compute or assess the same. The fallacy, to our mind, lies in reading the word 'income' occurring in s. 10(38) to mean only positive income, and for which there is no warrant in law or in any provision of the Act. That would be reading the said provision de hors the scheme of the Act as well as the law as explained and settled by the apex court. Sec. 2(24), which defines the term 'income' under the Act inclusively, per sub clause (vi) defines income to include capital gains chargeable u/s. 45 of the Act. Inasmuch as therefore 'capital gains' is not chargeable u/s. 45, the same stand excluded at the very threshold, i.e., is not income by definition. 3.2 Coming to the facts of the case proper, we begin by reproducing s. 10(38) of the Act, which reads as under: 'CHAPTER III INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME Incomes not included in total income. 10. In computing the total income of a previous year of any person, an....
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....is, the moment there is a transfer of an asset specified in section 10(38), any income or loss arising there-from is irrelevant for the purpose of computation of total income, where the transaction attracts STT, being a precondition for the application of the said provision. The assessee's case, therefore, only needs to be stated to be rejected. 3.3 Coming to the decision in the case of Royal Calcutta Turf Club (supra), the assessee's reliance on the same is wholly misplaced. The said decision is premised on the argument that a source of income is different from the income there-from. What would, therefore, be required to be seen is whether the income from a certain source that is exempt, so that it would enter the computation of the taxable income, or it is the source of income itself that stands excluded. Reproducing the observations by the apex court in the case of Harprasad & Co. (P.) Ltd. (supra) as extracted hereinabove (at para 3.1 of this order), the hon'ble court distinguished the said decision by the apex court by observing that in that case the capital gains were neither intrinsically nor congenitally of income character (para 14 of the decision). Section 2(24) ....
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.... afore-noted, it stands abundantly clarified by the apex court time and again that both the positive and negative incomes have the same character. Both must, therefore, either enter the computation (of income) or not. It cannot but be otherwise, unless of course specifically provided otherwise. The same also accords with the common notion of the term as well as equity. In the instant case, while the positive income from specified assets is admittedly exempt u/s.10(38), the negative income there- from is taken to form part of the total income under Chapter IV(E), i.e., chargeable under the head 'capital gains'. What could be a more patent and blatant misreading or, rather, misapplication of the law, which stands explained by the apex court over a series of decisions, so as to be considered as a part of the settled law in the matter, in view whereof, the said argument is consider false and, in any case, fails. 3.5 We may next proceed to discuss the other aspects of the assessee's case, i.e., qua true and full disclosure of all facts material to the computation of the income, so that no penalty u/s.271(1)(c) could be levied. It shall be necessary to consider this aspect as, as afor....
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.... relevant capital assets, the hon'ble court held that all misconceptions shall vanish and all the provisions will fall into place, if the fundamental, through unwritten, axiom that no Legislature could have at all intended a double deduction in regard to the same business outgoing, is borne in mind and, further, that if so intended it will be clearly expressed (pg.57 E & F). With regard to the merits of the claim made, in its words: (page 60-B) 'The mere fact that a baseless claim was raised by some over-enthusiastic assessees who sought a double allowance or that such claim may perhaps have been accepted by some authorities is not sufficient to attribute any ambiguity or doubt as to the true scope of the provisions as they stood earlier.' Accordingly, in our clear view, Explanation 1(A) and, in any case, Explanation 1(B) of the section is, thus, clearly attracted in the instant case. Reference in this regard is made to the recent decision by the hon'ble Supreme Court in the case of MAK Data (P.) Ltd. v. CIT dated 30/10/2013 (in Civil Appeal No. 9772 of 2013/copy on record). Though, therefore, nothing turns on the disclosure of all material facts, i.e., per the computation of....
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....9.09.2008. This was admittedly not done. So much so, even the computation of the total income was not filed. The assessee, therefore, in our clear view cannot say that it had availed of the first opportunity to make full disclosure in terms of the Board Circular and, thus, the same must be deemed to be per its return of income for the year. Further on, the assessee was furnished a detailed requisition vide Annexure to notice dated 24.07.2009; points 7 & 8 whereof, even as pointed out by the ld. DR during hearing, being in relation to the computation of capital gains (PB pg.34). The reply thereto (dated 13.08.2009) makes no mention of the impugned loss; the fact that it is STT paid, as well as of the basis and/or the reason for its claim against taxable (non-exempt) capital gains. The first instance on which proper disclosure, spelling out the fact details, was made only vide the assessee's letter dated 28.08.2009 (PB pgs.40-51), which is admittedly in response to the requisition dated 13.08.2009, and upon hearing on 17.08.2009 (PB pg. 40). The factual details of the impugned claim, thus, only emerge during and in the course of the assessment proceedings and, further, in verifica....
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.... hypothesis, with we rather finding reference to section 70 of the Act as unwarranted and irrelevant inasmuch as there is no occasion to compute income as the capital gains under reference is not chargeable u/s.45 and, thus, is by definition not income and, in any case of the matter, being exempt in Chapter III of the Act, does not form part of the total income, so as to require its computation under Chapter IV-E or any other head of income for that matter. In fact, the assessee also had income from the said assets for the current year, and which stood claimed tax-exempt u/s.10(38), i.e., without adjusting the impugned loss arising likewise. Furnishing an explanation for its claim (per the return of income) and, further, which may be regarded as reasonable or plausible, substantiating the relevant facts on which it (explanation) is based, is vital and integral to the assessee's case in penalty proceedings. This may be regarded as fundamental inasmuch as the law, per Explanation 1(A) and 1(B) to section 271(1)(c), places the onus to furnish an explanation only on the assessee, so that in its absence, or its substantiation, as the case may be, the assessee is deemed to have concealed....