TaxTMI 
TaxTMI 
2020 (8) TMI 508
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....forward of long term capital loss of Rs. 90,80,571/- claimed by the appellant; 1.1 That the CIT(A) erred on facts and circumstances of the case and in law in holding that since the 'income' includes 'loss', hence section 10(38) of the Income Tax Act, 1961 ('the Act') will not only apply to STT paid transactions generating positive income but also similar transactions generating negative income (loss); 1.2 That the CIT(A) erred on facts and in law in not appreciating that since source of income arising from transfer of shares held as long term capital asset is not exempt from tax, the appellant is entitled to set off and/or carry forward long term capital loss of Rs. 90,80,571/- on transfer of shares. ' 03. Appeal of the assessee was filed belatedly by 18 days; he has also moved an application for condonation of the above delay on March 2, 2017. The application states that the applicant is an individual employed with Triveni engineering Ltd and thereafter at Triveni turbine Ltd with effect from 10 May 2011 deriving main source of income as salary, interest income from bank deposits and capital gain/losses. The learned CIT ' A decided the appeal of the assessee b....
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....o find all these characteristics in this appeal. Therefore, in the interest of the justice; we condone the delay admitting the appeal of the assessee and proceed to decide the issue on merits. 08. Facts of case in a narrow compass shows that assessee filed his return of income on 31 August 2012 declaring total income of Rs. 167,09,146 which was subsequently revised on 25th of March 2014 declaring same taxable income. Case of assessee was selected for scrutiny through computer assisted scrutiny system [CASS] and notice u/s 143 (2) was issued on 8/8/2013 by the Asst Commissioner, circle ' 2, Noida, who was having PAN jurisdiction of the assessee. Subsequently as per order passed u/s 127 of The Income Tax Act, dated 1 July 2010 the case was transferred to the Asst Commissioner of Income Tax, Central Circle, Noida, and the learned AO. 09. During the course of assessment proceedings, AO found that reasons for the revision in return of income shown by assessee is that he has incurred a long-term capital loss of Rs. 1,25,36,949/- which was claimed in the original return. The above loss included a loss of Rs. 9,080,571/- pertaining to the transfer of equity shares and equity oriented....
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....hall not be reduced from the book profit of the company and therefore such as 'source' is also not contemplated to be exempt from tax under the act. 11. The learned assessing officer rejected the contention of the assessee and held that word 'income' includes loss, therefore not only be positive income, but also any negative income i.e. loss, is not to be considered to be the part of total income of the assessee. Therefore exemptions provided u/s 10 (38) will not apply to the transactions generating positive income from transfer of security transaction tax paid securities but also similarly apply to the nature of transactions resulting in negative income or losses. Accordingly, he held that long-term capital loss of Rs. 9,080,571/' is not allowable to the assessee. He also supported his contention stating that since assessee has not claimed such loss in revised return of income furnished by him, no separate addition is required to be made on this account. Accordingly the returned income of the assessee of Rs. 1,67,09,146 was assessed at by order u/s 143 (3) of the act dated 31st of March 2014. 12. Aggrieved by the above assessment order, assessee preferred an appeal before th....
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.... It will further kindly be appreciated that while capital gain, per se, on transfer of shares and equity oriented mutual fund, as a source, is liable to tax in the hands of every resident individual, it is only in certain specified circumstance that such income is exempt from tax. 1.22 In terms of section 10(38) of the Act, long-term capital gains arising on transfer of equity share and equity oriented mutual fund is, it will be noticed, not includable in the total income of the assessee in certain specified circumstances. The said section is reproduced hereunder for ready reference: '10. Incomes not included in total income. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- ............................ (38) any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund where- (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No.2) Act, 2004 comes into force; and (b) such tra....
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....nces loss arising from such source cannot, it is respectfully submitted, be held to be denied, simply on the ground that income from such source is, in certain specified circumstances, exempt from tax. XXXXXXX 1.28 The Hon'ble Supreme Court in the case of CIT vs. Karamchand Premchand Ltd: 40 ITR 106 (SC) considered identical legal issue. In that case, the assessee-company had certain income from managing agency business in British India and had a pharmaceutical business in the Baroda State, which was then an independent state. In respect of the pharmaceutical business, the assessee suffered loss and claimed the same to be set off against business income in British India. The said claim was denied by the assessing officer on the ground that provisions of the then applicable Business Profits Tax Act, 1947 (in short 'BPT Act') did not apply to the business carried on in a State outside British India unless the profits of the business in an Indian state were received or deemed to have been received in or brought into India. On further appeal, the first appellate authority decided the issue in favour of assessee. On appeal filed by the Revenue, the order of the assessi....
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....ding the Baroda business except in so far as the profits thereof are brought into the taxable territories. What it says in express terms is that the Act shall not apply to any income, profits or gains of business accruing or arising in an Indian State etc. It does not say that the business itself is excluded from the purview of the Act. We have to read and construe the third proviso in the context of the substantive part of section 5 which takes in the Baroda business and the phraseology of the first and second provisos thereto, which clearly uses the language of excluding the business referred to therein. The third proviso does not use that language and what learned counsel for the appellant is seeking to do is to alter the language of the proviso to make it read as though it excluded business the income, profits or gains of which accrue or arise in an Indian State. The difficulty is that the third proviso does not say so; on the contrary, it uses language, which merely exempts from tax the income, profits or gains unless such income, profits or gains are received in or brought into India. Next, we have to consider what the expression "income, profits or gains" means. In the conte....
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....correctly answered the question of law referred to it. The appeal fails and is dismissed with costs.' (Emphasis supplied) 1.29 On perusal of the aforesaid, it will kindly be appreciated that in the aforesaid decision, even though income from business in Baroda was as such outside the purview of the BPT Act but was taxable under certain circumstances, the Court held that the source of income per se is not exempt. The Court held that since business income from Baroda business, being the source is not outside the ambit of the BPT Act, loss from such source cannot be denied to the assessee. 1.30 Following the aforesaid decision, the Calcutta High Court in the case of Royal Calcutta Turf Club v. CIT: 144 ITR 709 (Cal) held that loss on account of breeding of horses and pigs can be set off, despite the fact that income from these two sources was exempt under section 10(27) of the Act. The pertinent observations of the Court are reproduced hereunder: '......... 6. In this connection, it may not be wholly inappropriate to refer to the provisions of section 24 of the 1922 Act, which provided for set off of loss in computing the aggregate income. Sub-section (1) of....
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....ain incomes are not included under section 10 of the Act. It depends on the particular case where certain income in respect of which the Act is made inapplicable and in such a case the profit and loss resulting from such a source do not enter into the computation at all. But there are other sources which for certain economic reasons are not included or excluded by the will of the Legislature. In such a case, we must look to the specific exclusion that has been made. The question in this case is whether section 10(27) is a source which does not enter into the computation at all or is a source, the income in respect of which is excluded in the computation of total income. How this question will have to be viewed, has been looked into by the Supreme Court in several decisions to some of which our attention was drawn. We may first refer to a decision upon which reliance was placed on behalf of the revenue. Before we do so, we must also notice the definition of the 'total income' as provided in section 2(45) of the Act which stipulates that 'total income' means total income referred to on section 5, computed in the manner laid down in the Act. Section 5 defines scheme of....
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....s, whether Long term capital loss on sale of equity shares can be set off against 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 ....
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....8) is only a part of the source of capital gain on shares and only a limited portion of 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 sub-section (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 profits 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....
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....J 660 (Mum* Trib.) * Rare Investment vs. CIT: ITA No. 3409/Mum/2018 (Mum Trib.)* * Shri Somnath Vaijanath Sakre vs. ACIT: ITA 2605/Pun/2016 (Pune Trib.)* 1.37 In view of the aforesaid, it is respectfully reiterated that since source of income by way of capital gain arising on transfer of equity shares and equity oriented mutual fund are fundamentally liable to and not exempt from tax, loss on such transaction could not have been denied to the appellant merely on the ground that long-term capital gain is exempt under section 10(38) of the Act. 1.38 In that view of the matter, it is submitted that the action of the CIT (A)/assessing officer in not allowing carry forward of long-term capital loss of Rs. 90,80,571 is erroneous and calls for being deleted. 16. Mrs Rakhi Vimal, Senior Departmental Representative also submitted a written synopsis of her argument as under:- A) In addition to the arguments/reasoning as held in the Assessment Order and Order of The CIT (A) following arguments/points may kindly be considered- (i) Section 2(14),45,47,70,74 needs to be read together with section 10(38) of the IT Act. Section 2(45) defines....
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....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 section 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 section 10 of the Act. In 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 into the computation at all. (iv) Loss is only negative income, and that the definition of 'income' under section 2(24) of the Act includes 'loss'. In other words, it bears the same character and quality as does the positive income. Accordingly, if a particular income is exempt from tax, so that it does not enter the computation process (for and toward determination of total income u/s. 2(45)), it would be so for such income whether positive or negative, i.e., loss. In fact, in the case of Harprasad & Co. (P.) Ltd. (as ....
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....iterated the principle that 'if the loss is from a source or head of income not liable to tax or congenitally exempt from income-tax' the assessee is neither required to show the same in the return nor is the assessing officer required to determine. Before referring to the relevant observations of the Court, it may be pertinent to highlight the facts of that case. In that case, the capital loss related to assessment year 1955-56. The Court noticed [refer page 14/ CL PB], 'The position that emerges is that 'capital gains' arising between April 1, 1948, and March 31, 1956, were not taxable. The capital loss in question relates to this period'. ii. Meaning thereby, the Court noticed the fundamental fact that the capital loss related to the period when the source/ head of income, viz. 'capital gains' is, per se, not liable to tax at all. In the aforesaid facts, the argument on behalf of the assessee was that even though the source was not taxable, the relevant section continued to be part of the statute and consequently, the assessee is entitled to claim carry forward of capital loss. Rejecting this contention of the assessee, the Court observed as under [refer @pg.17....
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.... the ground that it was not a "revenue loss". His further finding that it was a "capital loss" was only incidental and, in fact, was not necessary. ..................................... 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 and gains, if any, of the subsequent year. Set off implies that the tax is exigible and the assessee wants to adjust the loss against profit to reduce the tax demand. It follows that if such set-off is not permissible or possible owing to the income or profits of the subsequent year being from a non-taxable source, there would be no point in allowing the loss to be "carried forward". Conversely, if the loss arising in the previous year was under a head not chargeable to tax, it could not be allowed to be. carried forward and absorbed against income in a subsequent year from a taxable source.' (Emphasis supplied) iii. On perusal of the aforesaid, particularly the high....
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.... carried forward and set off against capital gains, if any, in the future, even though tax was not chargeable under section 12B of the 1922 Act, on capital gains derived during 1-4-1948 to 31-3-1956. On a reference, the High Court held that if capital loss was incurred in a year in which capital gains did not attract tax under section 12B, such loss would still be loss under the head 'Capital gains' and it could be carried forward and set off against capital gains in a subsequent year. On appeal to the Supreme Court by the Commissioner, the Supreme Court held, reversing the decision of the High Court, that the capital loss could not be determined and the assessee was not entitled to the carry forward of the loss of Rs. 28,662. The Supreme Court further held that if the loss was from a source or head of income not liable to tax or congenitally exempt from income-tax, neither the assessee was required to show the same in the return, nor was the ITO under any 5 obligation to compute or assess it much less for the purpose of 'carry forward'. The Supreme Court noted that during the long period section 12B did not make income under the head 'Capital gains' chargea....
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....er-incuriam/ sub-silentio] . It may also be pertinent to note that the Tribunal in Raptakos (supra) also considered the decision of the Gujarat High Court in the case of Kishorebhai Bhikhabhai Virani: [2015] 367 ITR 261 (Guj.) [Placed at pages 165-167 of Case Laws PB-2] wherein the Court held that since income arising from transfer of equity shares/ units is exempt under section 10(38) of the Act, loss on sale of shares is not available for set off. It is respectfully submitted that the decision in Kisorebhai (supra) cannot be applied in preference to the other binding decisions referred above, since the decision is sub-silentio and per-incuriam, for the following reasons: (a) First and foremost, the decision of the apex Court in the case of Karamchand Premchand (supra) was not even referred to nor considered; (b) Secondly, the decision of the Calcutta High Court in Royal Calcutta (supra), which considered the decisions in Karamchand and Harprasad (supra), was not referred nor considered; (c) Thirdly, the decision in the case of Harprasad (supra) was relied upon and referred to only for the proposition that income includes loss. The fundamental facts and ....
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.... (a) The Tribunal held that the decision has been considered by the Mumbai Bench in the case of Raptakos (supra) [refer pg.97]; (b) The Tribunal also followed the decision of the Supreme Court in the case of CIT V. Vegetable Products Ltd: [1972] 88 ITR 192 (SC) wherein the Court held that if two views are possible, then, the view favourable to the assessee must be adopted. The Mumbai Bench of the Tribunal in the case of DDIT v. Asia Pacific Performance SICAV: 30 ITR (T) 333 (Mum. Trib.) [refer pages 168-176@ 172 of case law PB-2], held that loss on transfer of long-term capital assets specified under section 10(38), on which securities transaction tax is paid, cannot be set off against the income under the head 'Longterm capital gains', on which no securities transaction tax is paid and accordingly, confirmed levy of penalty under section 271(1)(c) of the Act. In that case, the assessee, a non-resident, was a company incorporated in and a tax resident of Luxembourg, carrying on investment activity in Indian securities market. In return of income, the assessee claimed set off of STT paid long-term capital loss, which was denied. Most importantly, the as....
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....fact, the observation, 'capital assets, income from which is not chargeable under section 45, constitutes a separate source of income and, two, being so, i.e., tax exempt under section 10(38), would thus not go to form part of the total income' quoted itself shows that the Tribunal proceeded on absolutely erroneous basis/ premise. It will be appreciated that section 45 prescribes that any profits/gains on transfer of a capital asset shall be chargeable to tax as capital gains. Income from transfer of shares, be it short-term or long-term, is, per se, liable for taxation. It is only exempt from tax if long term gain on equity shares is liable to STT and not otherwise. Even in that case, such shares, per se, are not excluded from the definition of a 'capital asset'. There cannot be a dispute that income from transfer of shares, per se, is not excluded from capital gains taxation and therefore, the aforesaid observations that source is exempt, is not correct. (e) The Tribunal has not considered the fundamental proposition of law that when the source of income, per se, is not exempt from tax, loss arising from such source cannot be denied. (f) The Tribunal has not at ....
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....stent with the earlier decisions of a higher court or a court of the same rank; (v) if it is a precedent sub silentio or not fully argued; (vi) when it is rendered per incuriam, i.e., in ignorance of a statutory provision or binding precedent - however, the rule of per incuriam is of limited application, and if the provision of the Act was noticed and considered, then the judgment cannot be ignored as being per incuriam merely on the ground that it has erroneously reached the conclusion; and (vii) when it is an erroneous decision, i.e, a decision conflicting with the fundamental principles of law.' (emphasis supplied). (vii) The Supreme Court in the case of Sandeep Kumar Bafna v. State of Maharashtra: (2014) 16 SCC 623 [refer pages 117-2017 @ 196 of Case Laws PB-2] explained the principle of per-incuriam in the following words: '19. It cannot be overemphasized that the discipline demanded by a precedent or the disqualification or diminution of a decision on the application of the per incuriam rule is of great importance, since without it, certainty of law, inconsistency of rulings and comity of courts would become a costly casualty. A decision or....
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....ect only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a coordinate Bench which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter to a Bench of superior strength or in some cases to a Bench of superior jurisdiction.' (emphasis supplied) xvi. Applying the aforesaid decisions, for the reasons discussed supra, the decision of the Gujarat High Court in Kishorebhai (supra) and the Tribunal in Asia Pacific (supra) are rendered perincuriam and sub- silentio, and cannot, therefore, be preferred over the binding decisions of the Supreme Court in Karamchand Premchand (supra) and Harprasad (supra) and also the decision of the Gujarat High Court in Royal Turf (supra). xvii. Most importantly, it is trite law that even in case of ambiguity, the view favourable to the assessee must be adopted as has been held in the following decisions: - CIT V. Vegetable Products: [ 1972] 88 ITR 192 (SC) - ACIT V. Vireet Investment (P) Ltd: [2017] 165 ITD 27 (Del) (SB) xviii. Most importantly, the Supreme Court in K....
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.... 261 [2015] 275 CTR 572, 55 Taxmann.com 91 (Gujarat High Court) In this case Hon'ble High court held that Loss arising on sale of capital asset covered under section 10(38) would not be includible in computation of assessee's income and therefore would not be available for set off against capital gain. Hon'ble High Court has further held that the term 'income' under section 10(38) of the Act would also include the loss. Extract from the order is reproduced as under- ''7. The fact that the capital asset in question, namely, the shares of Suashish Diamond Ltd. was covered under section 10(38) of the Act was not in dispute. That being the position, by virtue of section 10(38) of the Act, in computing the total income of the previous year, any income covered under such clause shall not be included. If that be so, the loss also arising out of such an asset and covered by the said clause would likewise be not includable in computation of the income of the assessee for the year under consideration The contention of the learned counsel for the assessee that for the purpose of section 10(38) of the Act the term "income" would not include "loss", cannot be accepted ....
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.... conditions as stated by the apex court in Harprasad & Co. (P.) Ltd. (supra) fail. The observations made by the hon'ble high court qua capital gains while distinguishing the said decision by the apex court, i.e., of the income under reference being intrinsically not income, would thus apply with equal force in the instant case, as it did in the case of Harprasad & Co. (P.) Ltd. (supra). It is this that led us to state of the reliance by the assessee on the decision in the case of Royal Calcutta Turf Club (supra) as completely misplaced.'' ''3.4 We next consider the assessee's argument, made with reference to the decisions in the case of CIT v. Naga Hills Tea Co. Ltd . [1973] 89 ITR 236 (SC)and Navnitlal Ambalal v. CIT [1976] 105 ITR 735 (Bom.) of the benefit of doubt being available to it, inasmuch as if two views are reasonably possible, one in favour of the subject ought to be adopted. Toward this, as aforenoted, 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 cou....
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.... 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." (Page 6/8) '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 presupposes the permissibility and possibility of the carried-forward loss being absorbed or set off against the profits and gains, if any, of the subsequent year. Set off implies that the tax is exigible and the assessee wants to adjust the loss against profit to reduce the tax-demand. It follows that if such set-off is not permissible or possible owing to the income or profits of the subsequent year being from a non-taxable source, there would be no point in allowing the loss to be "carried forward". Conversely, if the loss arising in the previous year was under a head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in a subsequent year, from a taxable source.'(Page 8/8) d) S....
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.... to incomes which are absolutely exempt from tax as per Section 10, Section 11 etc., falling under Chapter III. This position is made clear by s. 66 itself as it speaks only of "incomes on which tax is not payable" and similar words are used in Chapter VII only thus leaving out by implication incomes which do not form part of total income at all as per Chapter III from the scope of s. 66.(Para 16) '' ''From the charging provisions of the Act, it is clear that both profit as well as loss which is negative profit must enter into computation, wherever it becomes material. The charge is on total income of the assessee. Section 2(45) defines total income to mean total amount of income referred to in section 5, computed in the manner laid down in the Act. 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'. 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. If income includes loss and if income on transfer of units o....
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.... been excluded by the will of the Legislature and not the capital gain alone. In that view of the matter we do not find any infirmity in the order of the CIT(A). We also clarify that the question whether conversion of Units of US 64 into 6.75% tax free bonds would amount to transfer or not does not arise in this case, since the AO after holding that there was no transfer, nevertheless computed capital loss at a sum less than what was claimed by the Assessee. For the reasons given above, Gr. No. I raised by the Assessee is dismissed.' (Para 34) e) Commissioner of Income tax Vs S.S. Thiagaraja, [1981] 129 ITR 115 (Madras High Court) In this case Hon'ble Court held the ratio that 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. "The provisions of ss. 70 and 71 relating to set off of loss from one head against income from another contemplate loss from a source, the income from which is liable to tax. 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 ....
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....assessee and the revenue that if the 'income' arising on the sale of such shares is positive i.e. profit/gain , it would be exempt under this Section. But dispute is that when assessee incurs 'loss' on transfer of such long term capital assets , whether same shall be ignored for the purpose of computation of the income of the assessee or shall be considered part of the income computation mechanism and should be allowed to be set-off in accordance with other provisions of the act and shall also be carried forward. 27. This issue has arise in because in this year assessee has incurred long- term capital loss on sale of shares which was subject to securities transaction tax. The assessee wants that this loss should be allowed to enter into the computation of total income of the assessee and if is not set-off against any other capital gain in that year, then it should be allowed to be carried forward in future years. In nutshell, the controversy is exemption provisions u/s 10 (38) that 'income' arising from transfer of a long-term capital asset shall only include positive i.e. Gain or the negative i.e. Losses also. 28. Precisely the provisions of the section speaks like this:-....
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....pose of section 45 and section 48 provides for computation of capital gain, which is arrived at after deducting cost of acquisition i.e. cost of any improvement and expenditure incurred in connection with transfer of capital asset, even for arriving of gain in transfer of equity shares; lastly, sections 70 & 71 elaborates the mechanism for set off of capital gain. Nowhere, any exception has been made/ carved out with regard to Long term capital gain arising on sale of equity shares. The whole genre of income under the head 'capital gain' on transfer of shares is a source, which is taxable under the Act. If the entire source is exempt or is considered as not to be included while computing the total income then in such a case, the profit or loss resulting from such a source do not enter into the computation at all. However, if a part of the source is exempt by virtue of particular "provision" of the Act for providing benefit to the assessee, then in our considered view it cannot be held that the entire source will not enter into computation of total income. In our view, the concept of income including loss will apply only when the entire source is exempt and not in the cases ....
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.... Court observed that "under the Income tax Act, 1961 there are certain incomes which do not enter into the computation of the total income at all. In computing the total income of a resident assessee, certain incomes are not included under s.10 of the Act. It depends on the particular case; where the Act is made inapplicable to income from a certain source under the scheme of the Act, the profit and loss resulting from such a source will not enter into the computation at all. But there are other sources which, for certain economic reasons, are not included or excluded by the will of the Legislature. In such a case, one must look to the specific exclusion that has been made." The Hon'ble High Court was besieged with the following question "Whether under s.10(27) read with s.70 of the I.T. Act, 1961, was the assessee entitled to set off the loss on the two heads, namely, Broodmares Account and the Pig Account, against its income of other sources under the head "Business"" Their Lordships after analysing the provisions of section 70 and section 10(27) observed in the following manner: "In this case it is important to bear in mind that set-off is being cl....
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....estion will have to be viewed, has been looked into by the Supreme Court in several decisions to some of which our attention was drawn." After discussing the various decisions of the Hon'ble Supreme Court specifically the decision of in the case of Karamchand Premchand Ltd. (supra), the Hon'ble High Court came to the following conclusion: "cl.(27) of s.10 excludes in express terms only "any income derived from a business of live-stock breeding or poultry or dairy farming. It does not exclude the business of livestock breeding or poultry or dairy farming from the operation of the Act. Therefore, the losses suffered by the assessee in the broodmares account and in the pig account were admissible deductions in computing its total income" Thus, the ratio laid down by the Hon'ble Calcutta High Court is clearly applicable and accordingly we follow the same in the present case. 9. Now coming to the argument of the learned DR and learned CIT(A) that income includes loss and if income is exempt then loss will also not be taken into computation of the income, and such an argument is with reference to the decision of Hon'ble Supreme Court in....
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....e loss arising in the previous year was under a head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in a subsequent year from a taxable source." The ratio and the principle laid down by the Hon'ble Apex Court would not apply here in this case, because the concept of income includes loss will apply only when entire source is exempt or is not liable to tax and not in the case where only one of the income falling within such source is treated as exempt. The Hon'ble Apex Court on the other hand, itself has stated that if loss from the source or head of income is not liable for tax or congenitally exempt from income tax, then it need not be computed or shown in the return and Assessing Officer also need not assess it. This distinction has to be kept in mind. Hon'ble Calcutta High Court in Royal Turf Club have discussed the aforesaid decision of the Hon'ble Supreme Court and held that the same will not apply in such cases. Thus, in our conclusion, we hold that section 10(38) excludes in expressed terms only the income arising from transfer of Long term capital asset being equity share or equity fund which is chargeable to ....
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....he Assessing Officer to allow the claim of set off of Long term capital loss on sale of shares against the Long term capital gain arising on sale of land.' [Highlight and underline supplied by us] Based on the above decision of the coordinate bench, subsequently some benches followed this decision. Therefore, we do not find any necessity of reproducing either the citation of those decisions or the content thereof because they do not lay down any new principles or did not consider any new arguments but those specifically relies on this tribunal decision. 30. Whereas one of the decision of Coordinate Bench, of course while deciding the levy of penalty u/s 271 (1) ( c) of the income tax act , but dealing with the controversy and also referring to the decision of the coordinate bench referred to above , in Deputy Director of Income-tax, (International Taxation V Asia Pacific Performance SICAV [2015] 55 taxmann.com 333 (Mumbai - Trib.)/[2014] 30 ITR(T) 333 (Mumbai - Trib.) Dated 27 December 2013 held as under :- We shall first discuss the assessee's explanation on the merits. The issue, as would be apparent from the foregoing, is the validity in law of the se....
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....e begin by reproducing/enlisting the observations by the apex court from the said decisions. In CIT (Central) v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118 (SC), also relied upon by the Assessing Officer, which decision was also in context of capital gains, and under the Indian Income-tax Act, 1922 (pages 124, 125) : "From the charging provisions of the Act, it is discernible that the words 'income' or 'profits and gains' should be understood as including losses also, so that, in one sense 'profits and gains' represent 'plus income' whereas losses represent 'minus income'*. In * CIT v. Karamchand Premchand Ltd. [1960] 40 ITR 106; [1960] 3 SCR 727 (SC) and CIT v. Elphinstone Spg. and Wvg. Mills Co. Ltd. [1960] 40 ITR 142; [1960] 3 SCR 953 (SC). other words, loss is negative 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....
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....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 [2007] 289 ITR 83 (SC); [2007] 9 SCC 665. Reference to the order by this court dismissing the Revenue's Civil Appeal No. 7961 of 1996 in CIT v. Prithipal Singh and Co. [2001] 249 ITR 670 (SC) is also not very important because that was in relation to the assessment year 1970-71 when Explanation 4 to section 271(l)(c) was not in existence. The view of this court in Harprasad's case [1975] 99 ITR 118 (SC) leads to the irresistible conclusion that income also includes losses." (Emphasis Supplied) In sum and substance all these decisions having been rendered in different contexts and fact-settings, is that loss is only negative income and that the definition of "income" under section 2(24) of the Act includes "loss". In other words, it bears the same character and quality as does the positive income. According....
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....ct inclusively, per sub- clause (vi) defines income to include capital gains chargeable under section 45 of the Act. In as much as therefore "capital gains" is not chargeable under section 45, the same stand excluded at the very threshold, i.e., is not income by definition. Coming to the facts of the case proper, we begin by reproducing section 10(38) of the Act, which reads as under: "Chapter III. Incomes which do not form part of total income 10. Incomes not included in total income.-In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-..... (38) any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund where- (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force ; and (b) such transaction is chargeable to securities transaction tax under that Chapter : Provided that the income by way of long-term capital gain of a company shall be taken into ....
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....;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 therefrom. 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 CIT (Central) v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118 (SC) as extracted hereinabove (at paragraph 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 (paragraph 14 of the decision). Section 2(24) of the Act which defines income under the Act inclusively, in its relevant part, reads as under: "2. Definitions. - In this Act, unless the context otherwise requires, - (24) 'income' includes-...... (vi) any capital gains chargeable under section 45." (Emphasis Supplied) Clearly, therefore, any capital gain, i.e., any profit or gain ....
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....gh 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 Hariprasad & Company (P.) 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 relying upon series of decisions of Hon'ble Supreme Court and have reached to a conclusion as discussed above, and, therefore, we are respectfully following the ratio of the decision of the Calcutta High Court. Further the said decision have not been referred or distinguished by the Hon'ble Gujarat High Court. 32. Now coming to the decision of the honourable Gujarat High Court in Kishorbhai Bhikhabhi Virani ( Supra) which decided the identical issue wherein following three main issues were raised A. Whether, in the facts and in the circumstances of the case, the Tribunal was justified in law in corifirming the disallowance of the appellant's claim regarding set off and carried forward....
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....Revenue and against the asses-see, basing reliance on the provisions contained in section 10(38) of the Act and also referring to various other provisions including section 70(3) of the Act. The Tribunal relied on the decision of the apex court in the case of CIT v. Harprasad and Co. P. Ltd. [1975] 99 ITR 118. 4. The assessee is now in appeal before us. Having heard the learned counsel for the assessee, we see no error in the decision of the Tribunal. Section 74 of the Act pertains to losses under the head "Capital gains" and clause (b) of sub-section (1) of section 74 of the Act provides, inter alia, that where in respect of any assessment year, the net result of the computation under the head "Capital gains" is a loss, the whole loss shall, subject to the other provisions of Chapter VI, be carried forward to the following assessment year and in so far as it relates to a long- term capital asset, it shall be set off against income, if any, under the head of "Capital gains" assessable for that assessment year in respect of any other capital asset not being a short-term capital asset. It is this provision that the learned counsel for the assessee has placed heavy reliance o....
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....n equity share in a company or a unit of an equity oriented fund where- (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004, comes into force ; and (b) such transaction is chargeable to securities transaction tax under that Chapter: Provided that the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB." 7. The fact that the capital asset in question, namely, the shares of Suashish Diamond Ltd. was covered under section 10(38) of the Act was not in dispute. That being the position, by virtue of section 10(38) of the Act, in computing the total income of the previous year, any income covered under such clause shall not be included. If that be so, the loss also arising out of such an asset and covered by the said clause would likewise be not includable in computation of the income of the assessee for the year under consideration The contention of the learned counsel for the assessee that for the purpose of section 10(38) of the Act the term "income" would ....
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....rned authorised representative has submitted that the decision of the honourable Gujarat High Court should not be followed by us but we must follow the decision of the coordinate benches, as the decision of the honourable Gujarat High Court is 'sub silentio' and 'per incuriam' for the reasons given by the learned authorised representative. 37. Firstly, we as tribunal are not authorised to state that any decision of the honourable High Court is 'sub silentio' or 'per incuriam'. It is neither in our domain nor do we have any authority because we are subordinate to the honourable High Court. However, the argument of the learned authorised representative that we should follow the decision of the coordinate bench in Raptakose Brett & co Ltd (supra) and not the decision of the honourable Gujarat High Court are required to be dealt with on merits because other wise our order would not be complete. So, We deal with each of the argument of the learned authorised representative as Under. (a) First and foremost, the decision of the apex Court in the case of Karamchand Premchand (supra) was not even referred to nor considered by Honourable Gujarat High court; (i) we come to the ....
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....ly to profits etc., of that part of the business which arose in an Indian State. If that part of the business has to be treated as a separate business for the purposes of the Excess Profits Tax Act, it is difficult to see how the losses incurred in an Indian State can be taken into consideration for the same purposes. We think that the High Court was in error in thinking that the third proviso to section 5 of the Excess Profits Tax Act did not touch the question which the High Court had to answer. On the contrary, we think that the proviso answers the question against the assessee.' (ii) The second occasion that honourable Supreme Court had of considering the decision of the Karamchand Premchand Ltd was in case of CIT versus Harprasada and Co private limited in 99 ITR 118 at page number 124 wherein it considered the charging provisions of the act and held that the words 'Income' or 'profit or gain' should be understood as it includes 'losses' also. The honourable Supreme Court held as Under:- 'Section 2(6C) provides that "income" includes (among other things)- "(vi) any capital gain chargeable under section 12B. " From the charging provisions of the Ac....
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....the word "income" would include within it both profits as well as losses. This is clear from CIT v. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118 (SC) paragraph 17 of which lays down the law as follows: '17. From the charging provisions of the Act, it is discernible that the words "income" or "profits and gains" should be understood as including losses also, so that, in one sense "profits and gains" represent "plus income" whereas losses represent "minus income" [CIT v. Karamchand Prem Chand, (1960) 3 SCR 727 : 40 ITR 106 (SC) : CIT v. Elphinstone Spg. & Wvg. Mills Co. Ltd. (1960) 3 SCR 953 : 40 ITR 142 (SC)] . In other words, loss is negative 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 i....
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....in a case where on setting of the concealed income against any loss incurred by the assessee under any other head of income or brought forward from earlier years, the total income is reduced to a figure lower than the concealed income or even to a minus figure the penalty would be imposable because in such a case 'the tax sought to be evaded' will be tax chargeable on concealed income as if it is 'total income'. 16. The law is well settled that the applicable provision would be the law as it existed on the date of the filing of the return. It is of relevance to note that when any loss is returned in any return it need not necessarily be the loss of the previous year concerned. It may also include carried-forward loss which is required to be set up against future income under Section 72 of the Act. Therefore, the applicable law on the date of filing of the return cannot be confined only to the losses of the previous accounting years." 25. The necessary consequence thereof would be that even if the assessee has disclosed nil income and on verification of the record, it is found that certain income has been concealed or has wrongly been shown, in that....
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....cutta High Court in case of Royal Calcutta Turf club Ltd. (144 ITR 709) (1983) where the issue of business income was considered. According to us, with respect to the exempt income the expenditures are now ( From 1/4/1962) disallowed Under the provisions of Section 14 A of the income tax act, therefore there cannot be losses in case of an exempt income in the business. In view of this, even before us, if for a second we presume that the honourable Gujarat High Court did not consider the decision of the honourable Calcutta High Court, it does not have any significance on the merits before us. In view of this, we reject this contention of the learned authorised representative. (c) Thirdly, the decision in the case of Harprasad (supra) was relied upon and referred to only for the proposition that income includes loss. The fundamental facts and the legal proposition laid down (as elaborately discussed supra) that during the relevant period capital loss, per se, was not liable to tax and hence loss was held to be not allowable by the apex Court, was not even brought to the notice of the Court. This argument has been adequately dealt with earlier wherein we have held th....
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....under s 271(1)(c) dealing with penalty, the Courts have held that income does not include loss. These judgments were overturned by the introduction of an Explanation in that section. This Explanation was held to be retrospective as it was clarificatory, effectively overruling all the previous judgments holding that income does not include loss. For this, the Supreme Court relied on the judgments in CIT v Harprasad and Co. P. Ltd. and CIT v J.H. Gotla, which were rendered in the context of clubbing of income. Recently, the Supreme Court, while upholding the constitutional validity of the retrospective amendment to s 143(1A), held that it was 'settled law at least since 1975 that the word "income" would include within it both profits as well as losses'.5. The upshot of this discussion is that the law is now fairly settled that "income" includes "loss". It is submitted, however, that when applying this proposition to s 10, a distinction must be made between business income and incomes that fall under the head of capital gains. In the case of business income, the question of a 'loss' under a clause falling within s 10 will not arise at all because the expenditure toward....