TaxTMI 
TaxTMI 
2010 (2) TMI 28
X X X X Extracts X X X X
X X X X Extracts X X X X
....ailable as there was no provision for payment of securities transaction tax (STT) at that time. Further, the said long-term capital loss also included loss on account of sale of properties which was allowable for carry forward." 2. The assessee is an individual. His source of income during the previous year was income from house property, capital gains and income from other sources. The assessee filed return of income showing income of Rs. 54,03,950 as under: (i) Income from house property 7,74,205 (ii) Short-term capital gain on sale of bonds of RBI 3,83,132 (iii) Income from other sources 45,43,025 &....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp; ----------- 9,15,22,738 (iv) Loss on sale of Pune bungalow on 29-11-2004 14,02,753 ----------- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ------------ 2.3 As the above long-term capital gain had arisen after 1st Oct., 2004 and as securities transaction tax (STI) was paid in respect of sale of these shares the above amount of Rs. 33,01.57,200 was claimed to be exempt under s. 10(38). The long-term capital gain on sale of shares, made after 1st Oct., 2004, on which SIT is paid was completely exempt under s. 10(38) of the IT Act. This section was introduced by the Finance (No. 2) Act, 2004, w.e.f. 1st Oct., 2004. The section reads as under: "Chapter III INCOME WHICH DO NOT FORM PART OF TOTAL INCOME INCOMES NOT INCLUDED IN TOTAL INCOME: Sec. 10. 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 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, 2005 comes into force; and (b)....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... working out the capital gains in terms of the provisions as it existed for the asst. yr. 2005-06. Introduction of s. 10(38) will allow benefit in terms of taxability of total income from that date but cannot dilute the fact that the long-term capital loss did not exist at the end of the previous year. The AO's action in not allowing the carry forward of the loss is therefore justified. The ground Nos. 1 and 2 is dismissed." 3. The learned Authorised Representative furnished fact sheet, which has been placed on record. The learned Authorised Representative submitted, that the observations of the CIT(A) that loss was incurred prior to 1st Oct., 2004, and the said loss has been incurred during the previous year, the accrual of such loss was subject to modification on further accrual of similar type of income till previous year came to (an) end. It was submitted that the CIT(A) was not correct in holding that the assessee earned income after 1st Oct., 2004 which is exempt and this fact will not dilute the fact that long-term capital loss accrued only at the end of the previous year and therefore, the long-term capital gain upto the year had to be set off against the said loss. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ramjilal Rais vs. CIT (1965) 58 ITR 181 (All); (4) ITO vs. Trilok Tirath Vidyavati Chuttani Charitable Trust (2004) 91 TTJ (Chd) 1044 : (2004) 90 ITD 569 (Chd); (5) Asstt. CIT vs. Yokogawa India Ltd. (2007) 111 TTJ (Bang) 548 : (2007) 13 S0T 470 (Bang); (6) Asstt. CIT vs. Honeywell Technology Solutions Lab. (P) Ltd., (ITA Nos. 344 & 345/Bang/2009, dt. 4th Aug., 2009) for asst. yrs. 2003-04 and 2004-05. 3.3 The learned Authorised Representative while referring a decision of Mumbai Special Bench in the case of Jt. CIT vs. Montgomery Emerging Markets Fund (2006) 102 TTJ (Mumbai)(SB) 31 : (2006) 100 ITD 217 (Mumbai)(SB) submitted 1Ihat every share is a separate source. 3.4 The learned Authorised Representative further submitted that the decisions relied upon by the CIT(A) in the cases of CWT vs. Pachigolla Narasimha Rao and ACC Ltd. vs. CTO 48 STC 466 (SC) are distinguishable on facts. 3.5 The learned Authorised Representative submitted that on acceptance of the Revenue's view there are absurd results in interpretation. 3.6 The learned Authorised Representative submitted that there is a long-term capital loss after 1st Oct., 2004, which is shown in the computation....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eals with incomes which do not form part of total income and are contained in ss. 10 to 13B of the Act. Chapter IV deals with the computation of total income. Firstly income is categorized under various heads of income. This is laid down in s. 14 of the Act, which lays down that save as otherwise, provided by this Act, all incomes shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income-Salaries, income from house property, profits and gains of business or profession, capital gains, income from other sources. Chapter V then brings income of other persons, which are to be included in the total income of an assessee and this is contained in ss. 60 to 65 of the Act. Chapter VI (containing ss. 66 to 80) then lays down provisions regarding aggregation of income and set off or carry forward of loss. Sec. 60 reads as under: "Total income-in computing the total income of an assessee, there shall be included all income on which no income-tax is payable under Chapter VII." 5.2 The provisions of s. 66 are not applicable to incomes which are absolutely exempt from tax as per s. 10 and s. 11 etc., falling under Chap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....us exemptions which I have enumerated, although tax is not payable, they should all be included in the total income for the purpose of determining the rate payable in respect of income-tax. Now, the short and conclusive answer to that contention is s. 16 of the Indian IT Act. It is that section which in terms includes in the total income of an assessee only certain sums which are exempted from the payment of tax. Therefore, by implication, where the sums are not included in the total income by s. 16, those sums are not only exempted from the payment of tax, but they are also excluded from the total income. Now, when we look at s. 16, it does not include the sum covered by s. 25(4) as a sum which is to be included in the total income of the assessee. The scheme, therefore, of the IT Act is clear and is very different from what Mr. Joshi suggests it is. The scheme is that wherever one finds an exemption or exclusion from payment of tax, the exemption or exclusion also operates for the purpose of computing the total income. Not only is the sum not liable to tax, but it is also not to form part of the total income for the purpose of determining the rate. When the legislature intends th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g-term capital gain which was exempt under s. 10(38) of the Act, is income arrived at under similar computation made as the long-term capital loss was arrived at and therefore the long-term capital loss has to be set off against long-term capital gain. In other words the case of the Revenue is that the long-term capital gain is income notwithstanding the fact that it is exempt under s. 10(38) of the Act. This reasoning in our view is fallacious. We have already pointed out that incomes which do not form part of the total income do not enter the computation of total income at all i.e., under any of the heads of income mentioned in s. 14 of the Act. Therefore, the question of aggregating them under Chapter VI at all does not arise. Therefore, the question of set off of the same under s. 70(3) of the Act also does not arise for consideration. Therefore, the right of carry forward under s. 74(1) of the Act in respect of the long-term capital loss suffered by the assessee is not hit by the provisions of s. 70(3) of the Act. 5.6 In Ramjilal Rais vs. CIT an identical stand was taken by the assessee. The, facts in the aforesaid case were that the assessee HUF suffered loss in business d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Act. The Bombay High Court took this view in CIT vs. N.M. Raiji (1949) 17 ITR 180 (Bom), and we are in respectful agreement with that decision. 4, The assessee points out that before its amendment by the IT (Amendment) Act, 1939, the definition of 'total income' was: 'Total income means total amount of income, profits and gains from all sources to which this Act applies computed in the manner laid down in s. 16.' As a result of the Amendment Act of 1939, the present definition of 'total income' is: 'Total amount of income, profits and gains referred to in sub-s. (1) of s. 4 computed in the manner laid down in this Act.' 5. It is contended that the amendment extended the scope of the definition of 'total income' so that it covered not only the sums specifically referred to in s. 16, but also those sums mentioned under other provisions of the Act in respect of which it was declared that no tax was payable. It appears to us that the contention is stated rather widely. It is not every sum declared by the Act to be exempt which is liable to be included in the total income. It is only those sums which the Act specifically requires to be so included. To our mind, the ame....