JP MORGAN FUNDS , Mumbai V. DCIT (IT) 3(1)(1), Mumbai

ITA 2430/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3317 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2015-2016
• Appeal Filed On: 18-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Cost of acquisition; Capital Gains
• Section: 6; 271(1)(c); 2; 143(3); 250

Judgement Text

ITA NO. 2430/MUM/2019 ASSESSMENT YEAR: 2015 - 16 PAGE 1 OF 4 INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH, MUMBAI [CORAM: PRAMOD KUMAR (VICE PRESIDENT) AND C.N PRASAD (JUDICIAL MEMBER)] ITA NO. 2430/MUM/2019 ASSESSMENT YEAR: 2015 - 16 JP MORGAN FUNDS ..... APPELLANT C/O SRBC & ASSOCIATES LLP, 14 TH FLOOR, THE RUBY, 29 - SENAPATHI BAPAT MARG, DADAR (W) MUMBAI 400028 [PAN: AABCJ4972E] VS. DEPUTY COMMISSIONER OF INCOME TAX (IT) 3(1)(1) MUMBAI. ..RESPONDENT APPEARANCES: RAJAN R. VORA FOR THE APPELLANT VIJAYKUMAR G. SUBRAMANYAM FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING: : MAY 28 , 2021 DA TE O F PRONOUNCEMENT : AUGUST 12 , 2021 O R D E R PER PRAMOD KUMAR, VP: 1. BY WAY OF THIS APPEAL, THE ASSESSEE - APPELLANT HAS CHALLENGED THE CORRECTNESS OF THE ORDER DATED 11 TH JANUARY 2019, PASSED BY THE LEARNED CIT(A) IN THE MATTER OF ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2015 - 16. 2. GRIEVANCES RAISED BY THE APPELLANT ARE AS FOLLOWS: - AGGRIEVED BY THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 57, MUMBAI [HEREINAFTER REFERRED TO AS THE LEARNED CIT(A)] DATED 11 JANUARY 2019 UNDER SECTION 250 OF THE INCOME - TAX, 1961 (ACT) AND BASED ON FACTS AND CIRCUMSTANCES OF THE CASE, JP MORGAN FUNDS (THE APPELLANT) RESPECTFULLY SUB MITS THAT THE LEARNED CIT(A) ERRED IN PARTLY UPHOLDING THE ORDER OF THE DEPUTY COMMISSIONER OF INCOME - TAX (INTERNATIONAL TAXATION) 3(1)(1), MUMBAI (HEREINAFTER REFERRED TO AS THE LEARNED ASSESSING OFFICER) ON THE FOLLOWING GROUNDS: 1. IN TREATING THE COST OF ACQUISITION OF THE BONUS DEBENTURES RECEIVED FROM BLUE DART EXPRESS LIMITED (BDEL) IN THE NATURE OF DIVIDEND [AS DEFINED UNDER ITA NO. 2430/MUM/2019 ASSESSMENT YEAR: 2015 - 16 PAGE 2 OF 4 SECTION 2(22)(B) OF THE ACT, ON WHICH DIVIDEND DISTRIBUTION TAX HAD BEEN DISCHARGED] AS NIL WHILE COMPUTING THE CAPITAL G AINS ARISING ON THE SALE OF THESE DEBENTURES, INSTEAD OF TREATING THE COST OF ACQUISITION AS THE AMOUNT OF DIVIDEND, WHICH WAS, ISSUED IN THE FORM OF BONUS DEBENTURES. 3. THE ASSESSEE BEFORE US IS A NON - RESIDENT COMPANY, ENGAGED IN THE BUSINESS AS A FORE IGN INSTITUTIONAL INVESTOR REGISTERED WITH SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI). DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD RECEIVED CERTAIN DEBENTURES IN RESPECT OF WHICH THE ASSESSEE HAD CLAIMED COST OF ACQUISITION OF RS. 13,85,580/ - BUT THESE DEBENTURES WERE ALLOTTED AS BONUS DEBENTURES WITHOUT ANY COST OF ACQUISITION. THE PLEA OF THE ASSESSEE THAT THESE SHARES DO NOT RESULT IN AN INCOME TAXABLE IN THE HANDS OF THE ASSESSEE AND THAT COST OF ACQUIRING THESE DEBENTURES WAS RS. 13,85,580/ - REPRESENTING DIVIDEND UNDER SECTION 2(22)(B) ON WHICH DIVIDEND DISTRIBUTION TAX WAS DULY PAID, WAS REJECTED BY THE ASSESSING OFFICER. HE DID SO BY OBSERVING AS FOLLOWS: - 5. BONUS DEBENTURES OF BLUE DART EXPRESS LIMITED (BDEL): - FROM THE NOTES TO COMPUTATION INCOME FILED DURING THE ASSESSMENT PROCEEDINGS, IT IS NOTED THAT ASSESSEE WAS ALLOTTED 1,38,558/ - BONUS DEBENTURES OF BLUE DAR EXPRESS LIMITED DURING THE YEAR. THE ASSESSEE HAS STATED THAT DIVI DEND AMOUNT SUBJECTED TO DDT I.E. 13,85,580/ - HAS BEEN CONSIDERED AS THE COST OF ACQUISITION OF THE BONUS DEBENTURES FOR THE PURPOSE OF COMPUTING CAPITAL GAINS. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO HOW THE DIVIDEND AMOUNTING TO RS. 13,85,580/ - CLAIMED B Y THE ASSESSEE IS EXEMPT FROM TAXATION. THE ASSESSEE VIDE ITS SUBMISSION DATED 15.12.2017 REITERATED THE SAME AS GIVEN IN NOTES WITH THE COMPUTATION OF INCOME. THE ASSESSEES CLAIM IS NOT ACCEPTED AS DEBENTURES ARE DEBT INSTRUMENTS AND CARRY A FIXED RAT E OF INTEREST. THE ASSESSEE HAD RECEIVED SUCH BONUS DEBENTURES WITHOUT INCURRING ANY COST. THUS, THE COST OF ACQUISITION AMOUNTING TO RS. 13,85,580/ - AS CLAIMED BY THE ASSESSEE AS DIVIDEND NOT TAXABLE IS REJECTED AND THE AMOUNT OF RS. 13,85,580/ - IS BEING ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS INCOME FROM THE SOURCES IN CURRENT ASSESSMENT YEAR. PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE I.T ACT 1961 INITIATED FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. ADDITION: RS 13,85,580/ - ) WITHOUT PREJUDICE TO THE ABOVE, IF THE AMOUNT OF RS. 13,85,580/ - IS ALLOWED TO THE ASSESSEE AS EXEMPT INCOME OF THE CURRENT ASSESSMENT YEAR AT ANY STAGE OF APPEAL, THEN THE COST OF ACQUISITION OF THESE DEBENTURES SHOULD BE TREATED AS NIL WHILE COMPUTING TH E CAPITAL GAINS ON SALE OF THESE DEBENTURES AS AND WHEN SUCH TRANSACTIONS HAPPENS. 4. AGGRIEVED ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT COMPLETE SUCCESS. WHILE LEARNED CIT(A) AGREED THAT THE DEBENTURES RECEIVED BY THE ASSESSE E HAVE ALREADY BEEN SUBJECTED TO DIVIDEND DISTRIBUTION TAX, AND CANNOT BE, THEREFORE, TAXED AS INCOME FROM OTHER SOURCES, LEARNED CIT(A) ALSO HELD THAT WHENEVER THESE SHARES ARE TO BE SOLD, COST OF ACQUISITION THEREOF WILL BE TAKEN AS NIL. WHILE HOLDING SO, LEARNED CIT(A) OBSERVED AS FOLLOWS: - ITA NO. 2430/MUM/2019 ASSESSMENT YEAR: 2015 - 16 PAGE 3 OF 4 DECISION OF GROUND NO. 2 FROM THE PERUSAL OF ASSESSMENT ORDER IT IS SEEN THAT THE ASSESSING OFFICER HAS WITHOUT PREJUDICE TO THE ADDITION MADE HAS STATED, THAT IF THE AMOUNT OF RS. 13,85,580/ - IS ALLOWED TO THE ASSESSEE AS EXEMPT INCOME OF THE CURRENT ASSESSMENT YEAR AT ANY STAGE OF APPEAL, THEN THE COST OF ACQUISITION OF THESE DEBENTURES SHOULD BE TREATED AS NIL WHILE COMPUTING THE CAPITAL GAINS ON SALE OF THESE DEBENTURES AS AND WHEN SUCH TRANSACTIONS HAPPENS. I HAVE GONE THROUGH THE APPELLANTS SUBMISSION. I FIND THAT APPELLANTS SUBMISSION ARE NOT TENABLE. THE ASSESSING OFFICER HAS RIGHTLY STATED THAT COST OF ACQUISITION OF THESE DEBENTURES SHOULD BE TAKEN AS NIL BECAUSE ARE BONUS DEBENTURES AND APPELLANT H AS NOT INCURRED ANY COST FOR ITS ACQUISITION. HENCE THIS GROUND OF APPEAL IS DISMISSED. 5. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE C ASE IN THE LIGHT OF APPLICABLE LEGAL POSITION. 7. WE FIND THAT SO FAR AS THE PRESENT ASSESSMENT YEAR IS CONCERNED, THE ISSUE WITH RESPECT TO COST OF ACQUISITION OF THESE DEBENTURES IS WHOLLY ACADEMIC BECAUSE THE SALE OF DEBENTURES HAS NOT TAKEN PLACE IN THIS ASSESSMENT YEAR. THERE WAS NO OCCASION FOR THE ASSESSING OFFICER TO GO INTO THE QUESTION TO DECIDE AS TO WHAT SHOULD BE THE COST OF ACQUISITION, FOR THE PURPOSE OF COMPUTING CAPITAL GAINS, FOR THESE DEBENTURES. WE, THEREFORE, VACATE THE FINDINGS OF T HE AO AS ALSO CIT(A) ON THIS ASPECT OF THE MATTER. AS THE COMPUTATION OF CAPITAL GAINS IS NOT AN ISSUE ARISING THIS YEAR, WE DECLINE TO DEAL WITH THAT ASPECT OF THE MATTER. 8. WE, HOWEVER, MAKE IT CLEAR THAT THE ADJUDICATION OF DEBENTURES WILL BE DONE BY THE ASSESSING OFFICER DEALING WITH THE ASSESSMENT YEAR IN WHICH RELATED CAPITAL GAINS ARE BROUGHT TO TAX, IF AND WHEN SO HAPPENS. THAT DECISION MUST REMAIN UNINFLUENCED BY OBSER VATIONS IN THE ORDERS OF THE AUTHORITIES BELOW. 9. IN THE RESULT, THIS APPEAL IS ALLOWED IN THE LIMITED TERMS INDICATED ABOVE . PRONOUNCED IN THE OPEN COURT TODAY ON THE 12 TH DAY OF AUGUST 2021. SD/ - SD/ - C.N PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (VICE PRESIDENT) MUMBAI, DATED THE 12 TH DAY OF AUGUST 2021. ITA NO. 2430/MUM/2019 ASSESSMENT YEAR: 2015 - 16 PAGE 4 OF 4 COPIES TO: (1) THE APPLICANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI SR. NO DESCRIPTION DATE INITIAL 1. DRAFT PREPARED 2 DRAFT PLACED BEFORE AUTHOR ON 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO THE SR PS 6 KEPT FOR PRONOUNCEMENT ON 7 FILE SENT TO THE BENCH CLERK 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DISPATCH