TaxTMI 
TaxTMI 
2021 (3) TMI 1488
X X X X Extracts X X X X
X X X X Extracts X X X X
.....3. raised by the assessee is as to whether the ld CITA was justified in confirming the action of the ld AO in denying claim of exemption u/s 10(38) of the Act in respect of long term capital gains derived by the assessee on sale of equity shares which had suffered securities transaction tax (STT). 3.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee is engaged in the business of General Insurance wherein the 100% of share capital was held by the Central Government. We find that the assessee had filed its return of income for the Asst Year 2011-12 on 29.9.2011 declaring total income of Rs. 204,39,85,482/-. We find that the assessee had claimed exemption u/s 10 as under in the return of income :- Income from LTCG on transfer of shares Exempt u/s 10(38) Rs. 588,85,02,720/- Income from VCF as tax is paid by Fund Rs. 22,52,211/- Interest on Tax Free Bonds u/s 10(15)(i) Rs. 1,76,12,403/- Dividend income received from VCF u/s 10(34) Rs. 4,40,105/- Dividend income u/s 10(34) Rs. 388,58,24,247/- 3.2. We find that out of the aforesaid claim of exemption u/s 10 of the Act is concerned, the ld AO ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Finance (No.2) Act, 2004 comes into force; and (b) such transaction is chargeable to Securities Transaction Tax under that chapter: ................................." 3.5. We find that the ld AO denied the claim of exemption u/s 10(38) of the Act in respect of income from long term capital gains on sale of shares in the sum of Rs 588,85,02,720/- by holding that :- "a) section 44 read with rule 5 of the First Schedule makes the figure of profit disclosed by the Profit and Loss account drawn as per the Insurance Act as absolute and binding both on the assessee as well as the revenue, and only the adjustments specified in clauses to Rule 5 of the First Schedule can be given effect to while computing the total income. b) the appellant does not have any income which can be classified as "Long Term Capital Gains"(LTCG) rather the same forms part of its regular business activities and as such it cannot claim any exemption u/s. 10(38) which is applicable to LTCG. Equity shares forms part of appellant's business activities during the previous year as appellant cannot be considered as an "investor" of shares." 3.6. We find that the assessee had pl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....10(38) of the Act in respect of the profits made by it on the sale of equity shares which have been subjected to STT, has been disputed by the revenue by relying upon the amendment made with effect from Asst Year 2011-12 in Rule 5(b) of the First Schedule to the Act. In our considered opinion, there are two independent, distinct and separate issues which need to be addressed herein :- (i) whether profits and gains made by a general insurance corporation, on the sale of investments, are generally taxable? (ii) whether, if such profits and gains are taxable, such a corporation is entitled to the benefit of the exemption in Section 10(38) of the Act? 3.8.1. We find that the fact that the above two issues are distinct and separate has been recognised by the Hon'ble Jurisdictional High Court in the case of PCIT vs New India Assurance Co. Ltd reported in 254 Taxman 238 (Bom) where the issue in dispute is squarely addressed by the Court. The question raised before the Hon'ble Court for the Asst Year 2006-07 is as under:- "Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in law in allowing exemption to the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the appeal of the GIC (supra) was admitted. (Underlining provided by us) 9. Moreover, we find that this Court in General Insurance Corpn. (supra) had also relied upon the communication dated 21st February, 2006 of the CBDT to the Chairman of the Insurance Regulatory and Developing Authority.. In the above communication, it has been clarified that exemption available to any other assessee under clause 10(38) relating to long term capital, would also be available to a person carrying on non-life Insurance business. Mr. Suresh Kumar very fairly states that the CBDT communication dated 21st February, 2006 addressed by the CBDT to the Chairman, IRTA, as well as the decision of this Court in GIC (supra) would be binding upon the Revenue. 10. In view of the above, the question as framed does not give rise to any substantial question of law. 11. Accordingly, Appeal dismissed. No order as to costs 3.9. We find that the Hon'ble Jurisdictional High Court on recognizing this difference, dismissed the revenue's appeal challenging the grant of the exemption u/s 10(38) of the Act, even though it had earlier admitted a Revenue appeal regarding the taxability of pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....duly offered to tax such profits on sale of investments which are not subjected to STT. We find that the assessee had claimed exemption u/s 10(38) of the Act only for long term capital gains on sale of shares which had been subjected to STT. In this regard, the ld AR drew our attention to the relevant page of the factual paper book wherein against a total profit on sale of investment of Rs. 715,60,30,000/-, the assessee had claimed an exemption u/s 10(38) of the Act for only Rs. 588,85,02,720/- and paid tax on the balance of Rs. 126,75,27,280/- as shown below: Total profit on sale of investment Rs. 715,60,30,000/- Less : Exemption claimed u/s 10(38) of the Act Rs. 588,85,02,720/- Balance Capital Gains chargeable to tax and offered to tax Rs. 126,75,27,280/- 3.11.1. Hence it could be safely concluded that the assessee had duly considered and complied with the amendment brought in Rule 5(b) of First Schedule to the Act with effect from Asst Year 2011-12. 3.12. We also find that the ld AR drew our attention to the fact that the same practice has been consistently followed by the assessee for all the subsequent Asst Years as would be evident from the tabulation ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e ld AR argued that Section 44 of the Act can have no application to incomes enumerated in Section 10 of the Act which are ab initio excluded at source from total income. In other words, as incomes enumerated in Section 10 of the Act [including Section 10(38)] do not enter into the scope of total income at all, they are not hit by Section 44 of the Act which specifically applies only to incomes chargeable under different heads. With regard to shift in head of income from capital gains to business income by the lower authorities with regard to profit on sale of investment, the ld AR relied on the CBDT Circular No. 6/2016 dated 29.2.2016 wherein it was stated that all investments sold by the assessee on which shares that were held for more than 12 months shall be eligible for exemption u/s 10(38) of the Act and the same shall not be disturbed by the revenue. For the sake of convenience, the said CBDT Circular (which is binding on the department) is reproduced hereunder:- CIRCULAR NO.6/2016 [F.NO.225/12/2016-ITA-II] SECTION 45, READ WITH SECTION 28(i), OF THE INCOME-TAX ACT, 1961 -CAPITAL GAINS, CHARGEABLE AS - ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHARES AND SECURITIES - CA....
X X X X Extracts X X X X
X X X X Extracts X X X X
....siness income, (b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years; (c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT. 4. It is, however, clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term Capital Gain/Short Term Capital Loss or any other sham transactions. 5. It is reiterated that the above principles have been formulated with the sole objective of reducing liti....