TaxTMI 
TaxTMI 
2024 (6) TMI 331
X X X X Extracts X X X X
X X X X Extracts X X X X
....h action u/s 132 of the Act was conducted on 13.03.2014 at the residential and office premises of the IRC group and its key persons. The assessee was also covered in the said search. Thereafter the statutory notices were duly issued and served on the assessee. During the assessment proceedings, the AO called for various information from the assessee which were supplied and replied by the assessee and finally the assessment was framed making various additions including the addition of Rs. 47,90,616/- resulting on non-allowance of set off of loss from sale of equity shares on recognized stock exchange with STT paid against the profit on sale of unquoted equity shares. The AO rejected the said action on the ground that the long term capital gain on sale of quoted shares is exempt u/s 10(38) of the Act and similarly the loss incurred was also not liable to be set off against the other taxable income. 4. In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by upholding the order of AO on this issue on the same reasoning that since long term gain from sale of securities /shares are exempt in terms of provisions of Section 10(38) of the Act and therefore on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in Section 48 of the Act and submitted that the section itself enumerates mode of computation of gain from sale of capital asset . The Ld. A.R vehemently submitted that the capital asset as defined in section 2(14) of the Act includes inter alia shares and securities. The ld. Counsel for the assessee drew attention of the Bench to the provisions of Section 10(38) of the Act which provide for exemption of any income by way of long term capital gain resulting from sale of shares/ securities with STT paid from the ambit of income. The Ld. A.R contended that the nothing has been provided in Section 10(38) of the Act or for that matter in Section 45 to 48 of the Act to state that long term capital loss resulting from sale of shares/securities with STT paid is to be ignored on the ground that Section 10(38) of the Act exempts the income arising from the transfer of long term capital asset being an equity share or unit subject to fulfillment of certain conditions such as transfer to be made on the stock exchange and STT paid on the sale of securities. The Ld. A.R submitted that the legislature had not put any embargo or exclusion in respect of long term capital loss on sale of shares/secu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cannot be any charge of income tax. The Ld. A.R has referred to Section 70, 71 and 74 of the Act as to how the aggregation of income the resultant amount is a loss from eligible unit it shall be eligible for carry forward and set off of losses in accordance with provision of Section 72 of the Act. The Ld. A.R has submitted that the issue is squarely covered by the decision of Co-ordinate bench wherein the identical issue has been decided in favour of the assessee by holding that loss resulting from sale of securities/quoted shares on stock exchange with STT paid would be eligible for set off against the income resulting from any other source of income and there is no embargo placed on such set off against any other income as the source of income has not been excluded from charging provisions and it is only a particular type of income has been exempted u/s 10(38) of the Act. The Ld. A.R in defense of argument relied on the decision of Co-ordinate Bench in the case of United Investments vs. ACIT [TS-379-ITAT-2019 (Kol)] and Raptakos Brett & Co. Ltd. vs. DCIT [TS-326-ITAT-2015 (Mum)-TP]. The Ld. A.R has relied on the decision of Hon'ble jurisdictional High Court in the case of Royal ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....law when the two construction are there then the construction favorable to the assessee has to be followed as has been held by the Hon'ble Apex Court in the case of CIT vs. Vegetable Products Ltd. 88 ITR 192 (SC).The Ld. A.R finally prayed that in view of the aforesaid legal position the appeal of the assessee may be allowed by setting aside the order of Ld. CIT(A) and directing the AO to allow the set off of long term capital loss resulting from sale of equity shares with STT paid against the loss suffered from sale of unquoted shares by the assessee during the year. 6. The Ld. D.R on the other hand relied on the orders of the authorities below by submitting that the the law is very clear on this issue as when the long term capital gain from sale of shares/securities is exempt u/s 10(38) of the Act that the analogy loss arising from the sale of shares/securities cannot be allowed to be set off against the income under the same or other heads of income because that would have effected of reducing the taxable income of the assessee which is not the intent of legislation. The Ld. D.R submitted that the conjoint reading of Section 2(14), 45, 47, 48, 70 & 71 of the Act and the vario....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s has been provided in (i) to (vi) to the said section. Further the gain arising from the transfer of long term capital asset is treated for long term capital gain chargeable to tax u/s 45 and section 47 does not provide any exception that transfer of long term equity shares are not treated as transfer for the purpose of Section 45. Section 48 provides for computation of capital gain. After perusing the aforesaid sections conjointly and together ,we find that nowhere any exclusion or exception has been provided to the long term capital gain resulting from sale of equity shares. In our opinion, its only the long term capital gain resulting from sale of shares/securities which was granted exemption u/s 10(38) subject to the fulfillment of certain conditions and not the entire source which was excluded from the aforesaid sections . Therefore we are of the considered view that when the entire source is not excluded from the charging section and only special type of income is excluded then the interpretation of law has to be made strictly and cannot be deemed to include the any other income or loss resulting or falling within the same source. The case of the assessee is squarely covered....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee for the purpose of the business profits Tax Act, 1947 the losses incurred in the native state reduced the British Indian profits of the assessee. The relevant part the decision is extracted below: "that the third proviso to section 5 of the Business Profits Tax Act took out of the ambit of the Act merely the "income, profits or gains" of a business in an Indian State and did not exclude the business itself. The loss suffered by the assessee in the pharmaceutical business carried on in the State of Baroda had to be deducted in computing the business income of the assessee for the purposes of the business profits tax." 7.2. We have also perused the decision of coordinate bench in the case of United Investments vs. ACIT(supra) wherein the identical issue has been decided in faovur of the assessee. The operative part is reproduced as under: "6. We have heard the rival submissions of both the parties. Assailing the order of the Ld. CIT(A), the Ld. AR appearing on behalf of the appellant submitted that the lower authorities erred on facts and in law in treating the long term capital loss incurred on sale of listed shares on the same footing as that of lon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the case of Raptakos Brett & Co. Ltd Vs DCIT (69 SOT 383). Per contra the Ld. DR relied on the order of the lower authorities. He submitted that the term 'income' is understood to include negative income i.e. loss as well and therefore he submitted that when the profits arises from transfer of shares of listed companies on which security transaction is paid is exempt u/s 10(38) of the Act, then as a corollary even the loss arising from such source also cannot be set off against any other income which is chargeable to tax. The Ld. DR accordingly pleaded that the orders of the lower authorities be confirmed. 7. After giving a thoughtful consideration to the facts of the case and the provisions of law; we find that the main issue to be decided in this ground is whether the long term capital loss arising on sale of long term listed shares can be assessed in terms of Section 45 of the Act and thereafter be permitted to be carried forward to be set off. It is the contention of the lower authorities that when the gain arising sale of long term listed shares is exempt from tax u/s 10(38) of the Act then by equal measure any loss arising in the hands of the assessee from tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the parent. In the light of this factual and legal position, the Hon'ble Supreme Court held that if the income was liable for clubbing in the hands of the parent then equally the same principle will apply with respect to loss which was negative income. 8. In our considered opinion the judicial concept that the term 'income' includes loss can be applied only when the entire source of such income falls within the charging provisions of the Act. Accordingly in a case where the source of income is otherwise chargeable to tax but only a specific specie of income derived from such source is granted exemption, then in such case the proposition that the term 'income' includes loss will not be applicable. It is only when the source which produces 'income' is outside the ambit of taxing provisions of the Act, in such case alone the 'income' including negative income can be said to be outside the ambit of taxing provisions and therefore the negative income is also required to be ignored for taxation purposes. As a corollary therefore where only one of the streams of income from the 'source' is granted exemption by the Legislature upon fu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re. The Legislature can grant exemption only when there is a positive income and not where there is a 'loss' or negative income on which admittedly there cannot be any charge of income-tax. In this regard one may gainfully refer to the CBDT Circular No.7/2013 dated 16.07.2013 issued in the context of Section 10A of the Act which also falls within Chapter III of the Act and grants exemption in respect of profits derived by undertaking located in SEZ/ FZE. In the said Circular the CBDT clarified follows: .......................................................... 10. The perusal of the above Circular makes it clear that the exemption under Section 10A is allowable only where the resultant income of the undertaking was positive. The Circular specifically clarifies that in the event the eligible undertaking incurs a loss, then such loss is not to be ignored on matching principle, but it can be set off and/or carried forward in terms of Section 72 of the Act. We therefore find that in analogous situation arising under Section 10A which is also part of Chapter III, the Board has accepted the legal proposition that even though the income is exempt but the loss ari....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecision of Gujarat High Court in the case of Kishorebhai Bhikhabhai Virani vs. ACIT (supra) all other are distinguishable of facts. We note that in the said two decisions of the coordinate benches , the same issue has been decided against the assessee. In the case of Nikhil Sawhney (supra) the Co-ordinate Bench has relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Hariprasad& Co. Pvt. Ltd. which has been rendered on the different principle that the income includes loss however the said legal proposition would held only the entire source is exempt income and not liable to tax and not as in a case where the income falling within such source is treated as exempt. The Hon'ble Supreme Court in the case of Harprasad & Co. Pvt. Ltd. (supra) has been held that the expression 'income' shall include loss because the loss is nothing but negative income. But in our opinion the principle laid down by the Hon'ble Apex Court that income includes negative income can be applied only when the entire source of income falls within the charging provision of Act but where the source of income is otherwise chargeable to tax but only a specific kind of income derived from such source ....