TaxTMI 
TaxTMI 
2019 (11) TMI 634
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....ee is a partnership firm engaged in the business of investment of shares, securities and bonds during the year under consideration. The ld. AO on perusal of the profit and loss account, computation of income and the various details furnished by the assessee observed that assessee had claimed set off of the long term capital gain of Rs. 4,62,28,825/- (without indexation) incurred on sale of shares for which no security transaction tax (STT) was paid, with long term capital loss of Rs. 4,71,41,155/- incurred on sale of shares on which it has paid STT and balance loss of Rs. 9,12,330/-. The ld. AO show-caused the assessee that in view of the provisions of Section 10(38) of the Act while the claim of set off of STT paid long term capital loss with non-STT paid long term capital gain be not allowed to be set off in the assessment. The ld. AO after going through the reply filed by the assessee observed that the long term capital gains earned on sale of shares on which STT is paid as exempt u/s.10(38) of the Act and therefore, the loss incurred on sale of shares wherein STT has been paid and had resulted in long term capital loss cannot be allowed to be set off with non-STT paid long term....
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....n by the ld. CIT(A) actually supports the case of the assessee, in support of which he drew our attention to the relevant head notes of the said decision which is as under:- "Section 71. of the Income-tax Act, 1961 - Losses - Set-off from one head against income from another - Assessment years 1963-64 to 1966-67 - Whether if income from a source is altogether exempt from tax, loss from that source cannot be set-off against income from a different source or income under a different head - Held yes" 5.1. The ld. AR further relied on the decision of the Co-ordinate Bench of this Tribunal in the case of Raptakos Brett and Co. Ltd. vs. DCIT in ITA No.3317/Mum/2009 & 1692/Mum/2010 dated 10/06/2015 which in turn placed reliance on the decision of the Hon'ble Calcutta High Court in the case of Royal Calcutta Turf Club vs. CIT reported in 144 ITR 709 (CAL) wherein the facts as well as the decision rendered thereon are reproduced hereunder for the sake of convenience. "3. The brief facts of the case, qua the issue raised in ground no.1 are that the assessee is a pharmaceutical company, engaged in manufacturing and sale of pharmaceuticals, formulations, dietetic specialities and animal h....
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.... transfer of long term capital asset being an equity share or unit. Legislature has given exemption to income arising from transfer of Long term capital asset being an equity share in company or unit of equity oriented fund, which is chargeable to STT. Section 10(38) cannot be read into section 70 or71 or sections 45 to 48. In support of his contention, he strongly relied upon the decision of Hon'ble Calcutta High Court in the case of Royal Calcutta Turf Club v. CIT (1983) 144 ITR 709 (Cal). In this decision he submitted that similar issue with regard to the losses on account of breeding horses and pigs which are exempt u/s. 10(27) whether can be set off against its income of other source under the head "business". The Hon'ble High Court after considering the relevant provisions of section 10(27) and section 70, held that section 10(27) excludes in expressed terms only any income derived from business of livestock breeding, poultry or dairy farming. It does not exclude the business of livestock breeding, poultry or dairy farming from the operation of the Act. The losses suffered by the assessee in respect of livestock, breeding were held to be admissible for deduction and....
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....nst Long term capital gain arising on sale of land or not, as the income from Long term capital gain on sale of such shares are exempt u/s. 10(38). The nature of income here in this case is from sale of Long term capital asset, which are equity shares in a company and unit of an equity oriented fund which is chargeable to STT. First of all, Long term capital gain has been defined under section 2(39A), as capital gains arising from transfer of a Long term capital asset. Section 2(14) defines "Capital asset" and various exceptions and exclusions have been provided which are not treated as capital asset. Section 45 is the charging section for any profits or gain arising from a transfer of a capital asset in the previous year i.e. taxability of capital gains. Section 47 enlists various exceptions and transactions which are not treated as transfer for the purpose of capital gain u/s. 45. The mode of computation to arrive at capital gain or loss has been enumerated from sections 48 to 55. Further sub section (3) of section 70 and section 71 provides for set off of loss in respect of capital gain. 8. From the conjoint reading and plain understanding of all these sections it can be seen ....
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....source is treated as exempt and not the entire capital gain (on sale of shares). If an equity share is sold within the period of twelve months then it is chargeable to tax and only if it falls within the definition of Long term capital asset and, further fulfils the conditions mentioned in subsection (38) of section 10 then only such portion of income is treated as exempt. There are further instances like debt oriented securities and equity shares where STT is not paid, then gain or profit from such shares are taxable. Section 10 provides that certain income are not to be included while computing the total income of the assessee and in such a case the profit or loss resulting from such a source of income do not enter into computation at all. However, a distinction has been drawn where the entire source of income is exempt or only a part of source is exempt. Here it needs to be seen whether section 10(38) is source of income which does not enter into computation at all or is a part of the source, the income in respect of which is excluded in the computation of total income. For instance, if the assessee has income from Short term capital gain on sale of shares; Long term capital g....
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....of the provisions of Clause (27) of s. 10 of the 1961 Act, the loss suffered from this source could also not merit the exclusion. Under the I.T. Act, there are certain incomes which do not enter into the computation of the total income at all. In this connection we have to bear in mind the scheme of the charging section which provides that the incomes shall be charged and s. 4 of the Act provides that the Central Act enacts that the incomes shall be charged for any assessment year and in accordance with and subject to the provisions of the 1961 Act in respect of the total income of the previous year or years or whatever the case may be. The scheme of " total income " has been explained by s. 5 of the Act which provides that subject to the provisions of the Act, the total income of the previous year of a person who is a resident includes all income from whatever source it is derived. In computing the total income, certain incomes are not included under s. 10 of the Act. It depends on the particular case where certain income, in respect of which the Act is made inapplicable to the scheme of the Act, and in such a case, the profit and loss resulting from such a source do not enter int....
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.... profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Although Section 6 classifies income under six heads, the main charging provision is Section 3 which levies income-tax, as only one tax, on the 'total income ' of the assessee as defined in Section 2(15). An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the ' total amount of income, profits and gains referred to in Section 4(1)'. Secondly, it must be 'computed in the manner laid down in the Act'. If either of these conditions fails, the income will not be a part of the total income that can be brought to charge." While concluding the issue their Lordships observed that "it may be remembered that the concept of carry forward of loss does not stand in vacuo. It involves the notion of set- off. Its sole purpose is to set off the loss against the profits of a subsequent year. It pre-supposes the permissibility and possibility of the carried- forward loss being absorbed or set off against the profits an....
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.... that the source both capital gain and capital loss on sale of units of US64 is itself excluded and not only the income arising out of capital gain. The Hon'ble Tribunal have noted the history of US64 Scheme and the purpose for which such scheme was launched. In this context of transfer of US64 scheme the Tribunal held that the provisions were not meant to enable the assessee to claim loss by indexation for set off against other capital gain chargeable to tax. This decision is slightly distinguishable and secondly, we have already discussed the issue at length and have held that the ratio of Hon'ble Calcutta is applicable in the present case. Lastly, coming to the decision of Hon'ble Gujarat High Court in the case of Kishorebhai Bhikhabhai Virani (supra), we find that the issue involved in the present case was almost the same, wherein the Hon'ble High Court after following the decision of Hon'ble Supreme Court in the case of Harprasad & Company Pvt. Ltd. (supra), had decided the issue against the assessee. Since we have already noted down the ratio of Hon'ble Calcutta High Court, wherein the Hon'ble High Court has discussed this issue in detail after rel....