Smt. Sudha Gopalakrishnan, Bangalore V. The Addition Commissioner of Income Tax, Bangalore

ITA 1238/BANG/2010

• Counselvise Citation: 123821114 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 15-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Assessee Lawyers: H N KHINCHA
• Section: 12; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER I.T.A. NO.1238/BANG/2010 (ASSESSMENT YEAR : 2005-06) SMT. SUDHA GOPALAKRISHNAN, NO.855, 13 TH MAIN, 3 RD BLOCK, KORAMANGALA, BANGALORE-560 034 . APPELLANT. PAN ACHPG0900G VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE 7, BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI H.N. KHINCHA. RESPONDENT BY : SMT. SUSANTHOMAS JOSE. DATE OF HEARING : 14.12.2011. DATE OF PRONOUNCEMENT : 27.12.2011. O R D E R PER N.K. SAINI, A.M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 13.08.2010 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-III, BANGALORE . THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL : 1. THE LEARNED ASSESSING OFFICER HAD ERRED IN ADJ USTING THE LONG TERM CAPITAL GAIN ON SALE OF SHARES EXEMPT UNDER SECTION10(38) OF THE I.T. ACT, 1961 AGAINST THE LONG TERM LOSS ON SALE OF MUTUAL FUND, WHICH IS COMPUTED UNDER PROVISION OF SECTION 45 ONWARDS. 2 ITA NO.1238/BANG/2010 2. THE LEARNED ASSESSING OFFICER HAD ERRED IN NOT APPRECIATING THAT THE INCOME WHICH IS EXEMPT AT THE THRESHOLD ITSELF WOULD NOT F ORM PART OF THE TOTAL INCOME AND HENCE WERE NOT BE GOVERNED BY THE PROVISIONS OF SEC TION 70 TO 74 OF I.T. ACT, 1961 AND THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER. 3. THE ACTION OF THE ASSESSING OFFICER BEING NOT I N ACCORDANCE WITH LAW IS TO BE REJECTED. THE SET OFF AS DONE BY THE ASSESSING OFF ICER AND AS CONFIRMED BY CIT(A) IS WRONG. THE APPELLANT IS TO BE ALLOWED TO, CARRY FO RWARD GROSS LOSS (WITHOUT SET OFF) UNDER THE HEAD LONG TERM CAPITAL GAIN. 4. THE APPELLANT PRAYS THAT SUITABLE RELIEF BE GI VEN TO THE APPELLANT. FROM THE ABOVE GROUNDS, IT IS NOTED THAT THE GRIEVA NCE OF THE ASSESSEE IN THIS APPEAL RELATES TO THE EXEMPTION UNDER SECTION 10(38) OF THE INCOME TA X ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT) FOR THE LONG TERM CAPITAL GAIN ON SALE O F SHARES. 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE IS AN INDIVIDUAL WHOSE MAJOR SOURCES OF TAXABLE INCOME ARE CAPITAL GAINS AND THE INTERES T FROM BANK FDS AND SAVINGS ACCOUNTS. THE A.O. NOTICED THAT THE ACCOUNT STATEMENT SHOWS THAT MUTUAL FUND UNITS WHICH WERE PURCHASED ON 29.12.2003 WERE ACTUALLY REDEEMED ON 30.12.2004 AND THE ASSESSEE RECEIVED DIVIDEND OF RS.5,44,959 ON THESE UNITS ON 26.3.2004 WHICH WERE REINVESTED IN UNITS. THE ASSESSING OFFICER POINTED OUT THAT THE DIVIDEND WAS CLAIMED AS EXEMPT ION UNDER SECTION 10(35) OF THE ACT. ACCORDING TO HIM, THE HOLDING PERIOD WAS ONLY 12 MO NTHS AND SECONDLY THE RECORD DATE FOR DIVIDEND DECLARATION BEING 20.3.2004 AND HAVING RED EEMED THE UNITS WITHIN 9 MONTHS AFTER SUCH DATE, THE ASSESSEE OUGHT TO HAVE IGNORED THE L OSS OF RS.2,77,929 AS PER THE PROVISIONS OF SECTION 94(7) OF THE ACT. THE ASSESSING OFFICER AL SO OBSERVED THAT IN THE STATEMENT OF COMPUTATION OF TOTAL INCOME, THE ASSESSEE HAD SHOWN LONG TERM CAPITAL GAIN OF RS.15,20,646 ON REDEMPTION OF UNITS ON WHICH SECURITIES TRANSACTION TAX (STT) WAS PAID AND NO TAX WAS 3 ITA NO.1238/BANG/2010 PAYABLE. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE LONG TERM CAPITAL LOSS BE NOT SET OFF AGAINST THE LONG TERM CAPITAL GAINS. IN RESPONSE, THE ASSESSEE STATED THAT THE LONG TERM CAPITAL GAINS COME UNDER SECTION 10(38) A ND DID NOT COME UNDER THE PURVIEW OF COMPUTATION OF INCOME. THE ASSESSING OFFICER DID N OT ACCEPT THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT THE PROVISIONS OF INTER-HEAD SET OFF IN SECTION 70 OR CARRY FORWARD PROVISIONS IN SECTION 74 OF THE ACT, SPEAKS OTHERWISE WHICH STATE S THAT THE NET RESULT OF THE COMPUTATION UNDER THE HEAD CAPITAL GAINS IS ONLY TO BE CONSID ERED AND SUCH LOSS IS TO BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEARS. THE ASSESSING OFFI CER SET OFF THE LONG TERM CAPITAL LOSS OF RS.15,20,646 AGAINST OTHER LONG TERM CAPITAL GAINS OF RS.71,39,293 (RS.68,61,364 LONG TERM CAPITAL GAINS + LOSS OF RS.2,77,929 WHICH WAS TREAT ED AS STT). 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A) AND SUBMITTED THAT THE LONG TERM CAPITAL GAINS IN SHARE TRANSACTI ONS ON WHICH STT WAS PAID WAS EXEMPT UNDER SECTION 10(38) OF THE ACT AND THE SAID SECTION 10(3 8) IS IN CHAPTER III OF THE ACT WHICH READS INCOME WHICH DO NOT FORM PART OF TOTAL INCOME, T HEREFORE, THIS INCOME WAS EXEMPT FROM INCOME TAX AND DOES NOT FORM PART OF TOTAL INCOME A T ALL. IT WAS FURTHER STATED THAT THE LONG TERM CAPITAL GAINS FROM SALE OF UNITS WAS CHARGED U NDER SECTION 45 OF THE ACT WHICH WAS IN CHAPTER IV OF THE ACT WITH THE HEADING COMPUTATION OF TOTAL INCOME. IT WAS CONTENDED THAT FOR APPLYING THE PROVISIONS OF SECTION 70(3) OF THE ACT, IT WAS AN INTER-SOURCE ADJUSTMENT UNDER THE SAME HEAD FOR CAPITAL GAINS AND IF THE INCOME DID NOT DID NOT FALL UNDER THE SUB-HEAD CAPITAL GAIN THAN THE PROVISIONS OF SECTION 70/74 OF THE ACT WOULD NOT BE APPLICABLE. IT WAS THUS CONTENDED THAT THE INCOME WHICH WAS EXEMPT UND ER SECTION 10(38) OF THE ACT DID NOT 4 ITA NO.1238/BANG/2010 ENTER THE CHAPTER IV AT ALL. AS SUCH, THE ACTION O F THE ASSESSING OFFICER IN SETTING OFF OF NON-STT AGAINST THE CAPITAL GAIN WAS NOT CORRECT. 4. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT AS PER PROVISIONS OF SECTION 70/74, THE RESULTANT NET AMOUNT OF COMPUTATION UNDER THE HEAD CAPITAL GAINS WAS ONLY TO BE CONSIDERED AND IF TH E RESULTANT WAS A LOSS, SUCH LOSS WAS TO BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR. H E FURTHER OBSERVED THAT IN THE CASE OF THE ASSESSEE, THE LONG TERM CAPITAL LOSS OF RS.15,20,64 6 ON REDEMPTION OF MUTUAL FUND UNITS SHOULD FIRST BE SET OFF AGAINST THE LONG TERM CAPITAL GAIN S OF RS.68,61,364 ON WHICH STT WAS PAID AND NO TAX WAS PAYABLE. IT WAS ALSO OBSERVED THAT THE BASI C PRINCIPLE GOVERNING THE SET OFF OF THE LONG TERM CAPITAL LOSS AND LONG TERM CAPITAL GAINS UNDER THE SAME HEAD SHOULD BE ADJUSTED AGAINST EACH OTHER BEFORE THE CLAIM OF CARRY FORWARD OF LOS SES IF ANY. THE LEARNED CIT(A) WAS OF THE VIEW THAT THE CLAIM OF THE ASSESSEE FOR CARRY-FORWA RD OF THE LONG TERM CAPITAL LOSS WAS RIGHTLY DENIED BY THE ASSESSING OFFICER. 5. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 6. DURING THE COURSE OF HEARING, AT THE VERY OUTSET THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOU R OF THE ASSESSEE BY THE DECISION OF CO- ORDINATE BENCH OF MUMBAI ITAT, IN THE CASE OF G.K. RAMAMURTHY VS. JCIT (2010) 129 TTJ 361 (MUMBAI). COPY OF THE SAID ORDER WAS FURNISHED. 5 ITA NO.1238/BANG/2010 7. IN HER RIVAL SUBMISSION, THE LEARNED DEPARTMENTA L REPRESENTATIVE ALTHOUGH SUPPORTED THE ORDERS OF AUTHORITIES BELOW BUT COULD NOT CONT ROVERT THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND CAREFULLY GONE THROUGH THE MATERIAL ON RECORD. IT IS NOTICED THAT BEFORE INSE RTION OF CLAUSE (38) TO SECTION 10 OF THE ACT, IN THE EXISTING PROVISION OF INCOME TAX ACT, PROFITS A ND GAINS ARISING TO AN INVESTOR FROM THE TRANSFER OF SECURITIES WERE CHARGED TO TAX EITHER A S LONG TERM CAPITAL GAINS OR SHORT TERM CAPITAL GAINS DEPENDING ON THE PERIOD OF HOLDING OF THE SAI D SECURITIES. HOWEVER, AMENDMENT HAS BEEN MADE IN CHAPTER VII OF THE FINANCE (NO.2) BILL , 2004 WHICH TOOK EFFECT FROM OCT., 2004 AND CLAUSE (38) HAS BEEN INSERTED IN SECTION 10 OF THE ACT WHICH PROVIDES EXEMPTION FROM LONG TERM CAPITAL GAINS ARISING OUT OF THE SECURITIES SOLD. THE SAID CLAUSE WAS INSERTED WITH A PARTICULAR OBJECT TO GRANT EXEMPTION TO SUCH INCOME, AS TAX HA S ALREADY BEEN LEVIED ON SOME DIFFERENT FOOTINGS. IN OTHER WORDS, INCOME FROM LONG TERM CA PITAL GAINS WHICH HAS EXEMPTION UNDER SECTION 10(38) OF THE ACT DOES NOT FORM PART OF TH E TOTAL INCOME. THEREFORE IT DOES NOT ENTER THE COMPUTATION OF TOTAL INCOME AT ALL I.E. UNDER A NY OF THE HEADS OF INCOME MENTIONED IN SECTION 14 OF THE ACT. THEREFORE, THE QUESTION OF SET OFF OF THE SAME UNDER SECTION 70(3) OF THE ACT ALSO DOES NOT ARISE. THEREFORE, IN THE PRESENT CASE, THE QUESTION TO SET OFF IN LONG TERM CAPITAL LOSS OF RS.15,20,646 ON REDEMPTION OF MUTUA L FUND UNITS AGAINST THE LONG TERM CAPITAL GAINS OF RS.68,61,364 ON WHICH STT WAS PAID DOES NO T ARISE. THEREFORE, THE QUESTION OF SET OFF OF THE SUM UNDER SECTION 70(3) ALSO DOES NOT ARISE. AS SUCH, THE RIGHT OF CARRY FORWARD UNDER SECTION 74(1) OF THE ACT IN RESPECT OF THE LONG TER M CAPITAL LOSS SUFFERED BY THE ASSESSEE IS NOT 6 ITA NO.1238/BANG/2010 HIT BY THE PROVISIONS OF SECTION 70(3) OF THE ACT. FOR THE AFORESAID VIEW, WE ARE ALSO FORTIFIED BY THE DECISION OF THE ITAT, MUMBAI G BENCH IN THE C ASE OF G.K. RAMAMURTHY VS. JCIT (SUPRA). WE, THEREFORE, CONSIDERING THE TOTALITY OF FACTS OF THE PRESENT CASE, AS DISCUSSED IN THE FORMER PART OF THE ORDER, SET ASIDE THE IMPUGNED ORDER PAS SED BY THE LEARNED CIT(A) AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED . (ORDER PRONOUNCED IN THE OPEN COURT ON 27.12.2011.) SD/- SD/- (P. MADHAVI DEVI) (N.K. SAINI) JUDICIAL MEMB ER ACCOUNTANT MEMBER BANGALORE, DATED: 27.12.2011. *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, -BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, BANGALORE .