TaxTMI 
TaxTMI 
2023 (5) TMI 311
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....ax (International Taxation)-3(1)(2), Mumbai (hereinafter referred to as 'the learned AO'), issued under section 143(3) read with section 144C(13) of the Act, in pursuance of the directions issued by Dispute Resolution Panel 3, Mumbai (DRP), on the following grounds: Ground No. 1: 1. On facts and circumstances of the case, the learned AO, under the directions of the Hon'ble DRP, erred in assessing the total income of the Assessee at INR 171,359,838, as against INR 'Nil' as reported by the Assessee in its return of income furnished for the AY 2018-19. Ground No. 2: 2. The learned AO erred in not accepting the Assessee's computation of capital gains as per the first proviso to section 48 of the Act read with Rule 115A of the Income- tax Rules, 1962 (Rules) which is resulting in long term capital loss of INR 36,387,392 for the AY 2018-19 on the ground that in case of the Assessee, the capital gains has to be computed under the section 112(1)(c)(iii) of the Act without giving the effect to the first and second proviso to section 48 of the Act. Ground No. 3: 3. The learned AO erred in initiating penalty proceedings under section 270A of the Act. Eac....
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.... assessee submitted that before coming to section 112, the capital gains on shares by applying the 1st proviso to section 48 results in loss, which in terms of section 74 of the Act is required to be carried forward to the subsequent assessment year. Thus, there is no income in the current year to which provisions of section 112 of the Act can be applied. 5. The Assessing Officer vide draft assessment order dated 07/06/2021 passed under section 143(3) of the Act did not agree with the submissions of the assessee and by referring to the decision of Hon'ble Supreme Court in CIT vs Gold Coin Health Food Private Limited, [2008] 304 ITR 308 (SC) held that the term "income" also includes loss. The Assessing Officer also referred to the decision of the Hon'ble Supreme Court in CIT vs Harprasad & Co Ltd. [1975] 99 ITR 118 to support the conclusion that income is understood to include losses also. The Assessing Officer further held that provisions of section 112(1)(c)(iii) supplement the provision of section 48, which is a special provision applicable in certain specific circumstances, and therefore the assessee is not given any option to choose the provision as per its convenience....
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....in long-term capital gains in the present case. 9. We have considered the rival submissions and perused the material available on record. In the present case, it is undisputed that the assessee is a non-resident company and has sold 37,31,750 unlisted shares of an Indian company/private company during the year. The assessee computed the capital gains by applying the provisions of 1st proviso to section 48, which resulted in a long-term capital loss of Rs.3,63,87,392 to the assessee. On the contrary, as per the Revenue, since the assessee is a foreign company and has sold unlisted shares of an Indian company/private company, therefore, section 112(1)(c)(iii) shall be applicable for the computation of capital gains, which specifically excludes the provisions of 1st and 2nd proviso to section 48 of the Act. Thus, as per the Revenue, in the present case, as per the provisions of section 112(1)(c)(iii) of the Act, the assessee has earned long-term capital gains of Rs.17,13,59,838, which is taxable at the rate of 10%. 10. Before proceeding further, it is relevant to analyse certain provisions of the Act, which are necessary for adjudication of the issue at hand. The term "income" has b....
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....dent from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted" 12. Thus, section 45 of the Act is the charging section for the purpose of bringing to tax any profits or gains arising from the transfer of a capital asset, while section 48 of the Act provides the manner of computation of income chargeable under the head "capital gains". As per section 48 of the Act, income chargeable under the head "capital gains" shall be computed by deducting from the full value of sale consideration the amount of expenditure incurred wholly and exclusively in connection with the transfer, the cost of acquisition of the asset, and the cost of any improvement. 1st proviso to section 48 applies to a non-resident, who has income by way of long-term capital gains arising from the transfer of a capital asset being shares or debentures of an Indian company when the shares and debentures were acquired/purchased by conversion of for....
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....iving effect to the 1st and 2nd proviso to section 48 of the Act. As per the assessee, section 112 of the Act is not applicable to the present case, as the same deals with a situation where the total income of an assessee includes any income arising from the transfer of a long-term capital asset, which is chargeable under the head "capital gains" and since the assessee incurred loss as per section 48 read with 1st proviso, therefore the same will not fall under section 112 of the Act. 16. Before dealing with this submission of the assessee, it is firstly to be determined, in the facts of the present case, which of the provisions, i.e. section 48 or section 112, shall be applicable for the computation of income chargeable under the head "capital gains". As per the assessee, section 112 of the Act only provides the rate of tax, which is a step subsequent to the determination of total income and for the computation of income chargeable under the head "capital gains", section 48 of the Act, which provides the mode of computation of capital gains, is applicable and since the assessee is a non-resident and has earned capital gains from transfer of unlisted shares, therefore the benefit ....