TaxTMI 
TaxTMI 
2016 (4) TMI 386
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....reinafter referred to as CIT(A)] erred in upholding the action of the Deputy Director of Income-tax (International Taxation)-1(2), Mumbai (hereinafter referred to as the AO) of determining the long-term capital loss at Rs. 8,16,94,799 as against Rs. 10,05,07,535 claimed in the Return of income (ROI). 2. The CIT(A) erred in upholding the AO's stand that the second proviso to section 48 is not applicable to your appellants being non-residents and thereby not adopting indexed cost of acquisition in computing the capital gain/loss even though the first proviso to section 48 of the Act is not applicable to your appellant. The CIT(A) ought to have held that the second proviso to section 48 of the Act is applicable as the shares are either a....
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....both provisos together, if the computation of capital gains is not made as per the first proviso, then the benefit of second proviso would be available to a non-resident for indexation. However the AO was of the view that language of the section 48 and the proviso thereto leaves no doubt that the second proviso to that section is not available to non-resident assessee's. This is so because; the effect of exchange fluctuation has already been taken care of by the first proviso. 3. By the impugned order, CIT(A) confirmed the action of the AO for declining the benefit of second proviso to Sec. 48. 4. It was contended by the ld. AR that the issue under consideration is squarely covered by the order of the Hon'ble Delhi High Court in the c....
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....sessees covered by the first proviso and those covered by the second proviso to section 48. [Para 26] Similar contention was raised on behalf of the revenue in the case of Timken France SAS (supra) but was rejected observing that the circular of the Central Board of Direct Taxes or explanatory memoranda were not equivocal and clear enough to throw light on the rationale of extending or not extending the benefit of reduced rate of tax in terms of the proviso to section 112(1). The expression 'level playing field' was flexible and capable of being understood in more than one way. The argument of double benefit was not a taboo under law and protection against exchange rate fluctuation under the first proviso to section 48 does not go ....
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....he sale. From the said assessee's view point and objective, he is most concerned with exchange rate fluctuation and his true and actual gain should take into account the exchange rate fluctuation. The second proviso is applicable to all others including non-residents, who are not covered by the first proviso and they are entitled to benefit of cost of indexation which neutralize inflation. It is a misnomer and wrong to state that inflation alone contributes and is the determinative factor in exchange rate fluctuation. No doubt, a country with persistent low inflation can expect rising currency value as purchasing power increases in relation to other currencies with high inflation rate, but it is equally true that countries with typicall....
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....s of deflation in India in last two decades and it would be incorrect to hold that the Legislature while enacting the second proviso had in mind or assumed that there would be deflation. The two provisos cannot be equated as granting same relief or benefit. They operate independently and have different purpose and objective. [Para 31] In view of the above, it is difficult to state that benefits under the first proviso and second proviso to section 48 are identical or serve the same purpose. [Para 32] The said proviso to section 112(1) is applicable to listed securities or units or zero coupon bonds. Long-term capital gain is not payable on listed securities sold through stock exchanges as STT is payable. First proviso to section 48 is app....
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....en France SA (supra) was pronounced on 1-10-2007, which has been followed by AAR in several cases over the last 3-4 years. The Authority should follow their earlier view, unless there are strong grounds and reasons to take a contrary view, but in the present case there is no compelling justification and reason to override and disturb earlier view. [Para 35] Thus, the petitioner will be entitled to benefit of proviso to Section 112(1) on sale of equity shares in question. [Para 36]" 5. We heard the rival contentions and carefully gone through the orders of the authorities below and found from the record that the assessee company being a non-resident is not covered by the first proviso to Sec. 48, however, it is entitled for benefit of inde....