EMERGING MARKETS GROWTH FUND, INC, MUMBAI V. ADIT ()IT) 3(2), MUMBAI

ITA 3107/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8795 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 24-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 21-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Capital asset; Opportunity of being heard; Cost of acquisition
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J : MUMBAI BEFORE SHRI H.L.KARWA, HONBLE PRESIDENT AND SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER ITA.NO.3107/MUM/2010 ASSESSMENT YEAR 2007-2008 EMERGING MARKETS GROWTH FUND MUMBAI 400 057 PAN AAACE1943K VS. ASSISTANT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) -3 (2) MUMBAI 400 038 (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI SANJIV M. SHAH FOR RESPONDENT : SHRI S.D.SRIVASTAVA (CIT/DR) DATE OF HEARING : 24-09-2012 DATE OF PRONOUNCEMENT : 26-09-2012 ORDER PER H.L.KARWA, PRESIDENT THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A)-10, MUMBAI DATED 9 TH MARCH, 2010 RELATING TO THE ASSESSMENT YEAR 2007-2008. GROUND NO.1 OF THE APPEAL READS AS UNDER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT(A) ERRED IN NOT ALLOWING THE CARRY FORWARD OF LONG TER M CAPITAL LOSSES OF RS.2,966,690,736/- SUFFERED IN A.Y. 2007-08. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE IS REGISTERED AS A FOREIGN INSTITUTIONAL INVESTOR (FII) WITH SECURIT IES AND EXCHANGE BOARD OF INDIA (SEBI) AND CARRYING OUT INVESTMENT ACTIVITI ES IN INDIA AS PER THE REGULATIONS OF FII. FOR THE ASSESSMENT YEAR 2007-20 08, THE ASSESSEE FILED ITS RETURN ON NOVEMBER, 2007 DECLARING TOTAL INCOME OF RS.1,136,721,774/-. AS PER THE ASSESSING OFFICER, DURING THE PERIOD RELEVA NT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED CAPITA L GAINS ON SALE OF SHARES 2 AND DIVIDEND INCOME. THE ASSESSING OFFICER AFTER VE RIFICATION OF DETAILS FILED BY THE ASSESSEE, COMPUTED THE INCOME OF THE ASSESSEE A S UNDER : CAPITAL GAINS -LONG TERM CAPITAL GAINS UNDER SECTION 111A -LESS: LONG TERM CAPITAL GAINS EXEMPT U/S. 10 (38) 7,308,329,383 7,308,329,383 NIL -SHORT TERM CAPITAL GAINS (NON STT) 18,8 58 LESS: SHORT TERM CAPITAL LOSS UNDER SECTION 111A 18,858 NIL SHORT TERM CAPITAL GAINS UNDER SEC.111A LESS : SHORT TERM CAPITAL LOSS UNDER SECTION 111A 1,233,171,803 (96,450,029) 1,136,721,774 INCOME FROM OTHER SOURCES DIVIDEND LESS: EXEMPT U/S. 10 (34) 422,961,735 (422,961,735) NIL TOTAL TAXABLE INCOME (ROUNDED OFF) 1,136,721,770 3. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE MAIN CONTEN TION OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT IT HAD SUFFERED LONG TERM CAPIT AL LOSSES OF RS.2,966,690,736/- AND THE SAME WAS CLAIMED TO BE C ARRIED FORWARD UNDER SECTION 74 OF THE I.T. ACT, 1961 (IN SHORT THE ACT ) TO BE SET OFF AGAINST THE LONG TERM CAPITAL GAINS OF SUBSEQUENT YEARS. HOWEVER, IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOT DISCUSSED THE ISSUE RELAT ING TO CARRIED FORWARD OF LONG TERM CAPITAL LOSS TO BE SET OFF AGAINST THE LONG TE RM CAPITAL GAINS OF SUBSEQUENT ASSESSMENT YEARS. 3 4. THE CIT(A) REJECTED THE CLAIM OF THE ASSESSEE ST ATING THAT SINCE THE LONG TERM CAPITAL GAINS ON TRANSFER OF CAPITAL ASSETS AR E SUBJECTED TO STT (SECURITIES TRANSACTION TAX), THESE ARE NOT CHARGEABLE TO TAX, HENCE, THESE COULD NOT BE INCLUDED IN THE TOTAL INCOME AS PER THE PROVISIONS OF SECTION 10 (38) OF THE ACT. HE, THEREFORE, HELD THAT THE INCOME OR LOSS WAS OUT OF THE PURVIEW OF TAXATION AND CONSEQUENTLY THE SAID INCOME OR LOSS WOULD NOT FALL UNDER ANY HEAD OF INCOME. ACCORDINGLY, GROUND NO.1 OF THE APPEAL WAS DISMISSED. 5. NOW, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUN AL AGAINST THE ORDER OF THE CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIALS AVAILABLE ON RECORD. WE HAVE ALSO PERUSED THE PROVISIONS OF SECTION 10(38) OF THE ACT WHICH, READ AS UNDER : SECTION 10 (38) ANY INCOME ARISING FROM THE TRAN SFER OF A LONG TERM CAPITAL ASSET, BEING AN EQUITY SHARE IN A COMP ANY OR A UNIT OF AN EQUITY ORIENTED FUND WHERE (A) THE TRANSACTION OF SALE OF SUCH EQUITY SHARE OR UNI T IS ENTERED INTO ON OR AFTER THE DATE ON WHICH CHAPTER VIII OF THE FINANCE (NO.2) ACT, 2004 COMES INTO FORCE; AND (B) SUCH TRANSACTION IS CHARGEABLE TO SECURITIES TRANSA CTION TAX UNDER THAT CHAPTER. (PROVIDED THAT THE INCOME BY WAY OF LONG TERM CAPIT AL GAIN OF A COMPANY SHALL BE TAKEN INTO ACCOUNT IN COMPUTING TH E BOOK PROFIT AND INCOME TAX PAYABLE UNDER SECTION 115JB) EXPLANATION FOR THE PURPOSES OF THIS CLAUSE, EQU ITY ORIENTED FUND MEANS A FUND 4 (I) WHERE THE INVESTIBLE FUNDS ARE INVESTED BY WAY OF E QUITY SHARES IN DOMESTIC COMPANIES TO THE EXTENT OF MORE THAN (SIXTY FIVE) PERCENT OF THE TOTAL PROCEEDS OF SUCH FUND; AND (II) WHICH HAS BEEN SET UP UNDER A SCHEME OF A MUTUAL FU ND SPECIFIED UNDER CLAUSE (23D) ? PROVIDED THAT THE PERCENTAGE OF EQUITY SHAREHOLDING OF THE FUND SHALL BE COMPUTED WITH REFERENCE TO THE ANNUAL AVER AGE OF THE MONTHLY AVERAGES OF THE OPENING AND CLOSING FIGURES ) 7. SHRI SANJIV M. SHAH, LEARNED COUNSEL FOR THE ASS ESSEE VEHEMENTLY ARGUED THAT THE CIT(A) HAS NOT CORRECTLY APPRECIATE D THE ABOVE PROVISIONS OF THE ACT. HE FURTHER SUBMITTED THAT THE CIT(A) WAS NOT J USTIFIED IN HOLDING THAT THE LONG TERM CAPITAL LOSSES OF RS.2,966,690,736/- HAVE ARISEN FROM EXEMPT SOURCE OF INCOME FALLING UNDER SECTION 10(38) OF THE I.T. ACT AND HENCE CANNOT BE SET- OFF THE CARRY FORWARD TO THE SUBSEQUENT YEARS. LEAR NED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE LONG TERM CAPITAL LOSSES OF RS .2,966,690,736/- (NON STT PAID) ARISES OUT OF EXCHANGE OF SHARES WHICH IS AN OFF-MARKET TRANSACTION NOT CARRIED OUT ON THE STOCK EXCHANGE AND HENCE, THERE IS NO QUESTION OF PAYMENT OF SECURITIES TRANSACTION TAX (STT). SHRI SANJIV M. SHAH, LEARNED COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSEE HELD 2,847,11 2 SHARES OF SET (SATELLITE SINGAPORE) PVT. LTD. (SET SINGAPORE). ON MAY 31, 2006 THE ASSESSEE RECEIVED 177,946 SHARES OF SET INDIA PVT. LTD. AS AN EXCHANG E FOR 2,847,112 SHARES HELD IN SET SINGAPORE (IN THE RATIO OF ONE SHARE OF SET INDIA FOR 16 SHAREHOLDING IN SET SINGAPORE) AS A RESULT OF ACQUI SITION OF 100% SHARE HOLDING OF SET SINGAPORE BY SET INDIA. SHRI SANJIV M. SHAH, LEARNED COUSNEL FOR THE ASSESSEE SUBMITTED THAT THE CAPITAL GAINS ( LOSSES ARISING ON THE AFORESAID TRANSACTION) HAD BEEN ARRIVED AS BELOW : 5 PARTICULARS AMOUN T AMOUNT DATE OF EXCHANGE OF TRANSACTION MAY 31,2006 NO. OF SHARES HELD IN SET SINGAPORE 2,847, 112 NO.OF SHARES OF SET INDIA RECEIVED IN EXCHANGE (A) (1 : 16) 177,946 VALUE OF 1 SET INDIA SHARE DETERMINED FOR EXCHANGE (IN USD) (B) (NOTE 1) 38.06 TOTAL SALE CONSIDERATION (A)*(B) (IN USD) LESS: COST OF ACQUISITION OF 2,847,112 SHARES OF SE T SINGAPORE AS BELOW : ( IN USD) DATE OF ACQUISITION NO . OF SHARES PURCHASE COST STAMP DUTY TOTAL COST MAY 15,2000 2,118,490 72,250,000 -- 72,250,000 APRIL 2002 510,000 510,000 -- 510,000 OCTOBER 2002 212,500 212,500 -- 212,500 FEB.2003 6,122 6,122 -- 6,122 2,847,112 72,978,622 -- 72,978,622 LONG TERM CAPITAL LOSS ON EXCHANGE TRANSACTION (IN USD) 6,772,625 72,978,622 (66,205,997) LONG TERM CAPITAL LOSS ON EXCHANGE TRANSACTION (IN I NR)(NOTE 2) (2,966,690,736) 8. SHRI SANJIV M. SHAH, LEARNED COUNSEL FOR THE ASS ESSEE SUBMITTED THAT THE CARRY FORWARD OF THE AFORESAID LONG TERM CAPITA L LOSS WAS CLAIMED UNDER SECTION 74 OF THE ACT TO BE SET OFF AGAINST THE LON G TERM CAPITAL GAINS OF SUBSEQUENT YEARS. 9. IT IS OBSERVED THAT THERE IS NO DISCUSSION IN TH E ORDER OF THE ASSESSING OFFICER REGARDING THE ABOVE CLAIM OF THE ASSESSEE. FURTHER, WE MAY ALSO OBSERVE HERE THAT BOTH THE AUTHORITIES BELOW HAVE NOT MENTI ONED THE RELEVANT FACTS REGARDING THE ISSUE INVOLVED IN THIS CASE. IN THE A BSENCE OF FACTS AND FINDINGS ON RECORD, WE ARE NOT IN A POSITION TO ADJUDICATE T HE SAME. FURTHER, THE CIT(A) HAS HELD THAT THE LONG TERM CAPITAL LOSS OF RS.2,96 6,690,736/- HAD ARISEN FROM 6 EXEMPT SOURCE OF INCOME FALLING UNDER SECTION 10 (3 8) OF THE ACT. HOWEVER, THE PLEA TAKEN BY THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT THE CIT(A) HAS WRONGLY ASSUMED THAT THE ABOVEMENTIONED LOSS ARISES OUT OF THE TRANSACTION IN RESPECT OF WHICH STT HAS BEEN PAID. THE CASE OF THE ASSESSEE IS THAT THE LONG TERM CAPITAL LOSS OF RS.2,966,690,736/- HAS ARISEN ON ACCOUNT OF AN OFF-MARKET TRANSACTION AND EXCHANGE OF SHARES AND NOT TRANSACT ED ON THE RECOGNIZED STOCK EXCHANGE OF INDIA. THUS, THE SAME IS NOT CHARGEABLE TO SECURITIES TRANSACTION TAX AND HENCE THE QUESTION OF APPLICABILITY OF SECT ION 10(38) DOES NOT ARISE, SUBMITTED THE LEARNED COUNSEL FOR THE ASSESSEE. CON SIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE SET ASIDE THE ORDER OF THE CIT(A) AND REMIT THE ISSUE TO THE FILE OF ASSESSING OFFICER WI TH A DIRECTION TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW, AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND OF APPEAL I S ALLOWED FOR STATISTICAL PURPOSES. 10. GROUND NO.2 OF THE APPEAL READS AS UNDER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT(A) ERRED IN NOT ALLOWING THE CARRY FORW ARD OF LONG TERM CAPITAL LOSSES OF RS.744,860,999/- SUFFERED IN A.Y. 2005-06 WHICH HAS ARISEN ON SALE TRANSACTIONS DURING THE PERIOD P RIOR TO OCTOBER 1, 2004 ON THE RECOGNIZED STOCK EXCHANGE IN INDIA A ND WHICH IS NOT CHARGEABLE TO SECURITIES TRANSACTION TAX. 11. AT THE VERY OUTSET, SHRI SANJIV M. SHAH, LEARNE D COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR THE ASSESSMENT YEAR 200 5-2006, THE ASSESSING OFFICER VIDE HIS ORDER DATED 25 TH AUGUST, 2010 HAS ALLOWED THE CARRY FORWARD OF LONG TERM CAPITAL LOSS OF RS.744,860,999/- SUFFERED IN ASSESSMENT YEAR 2005- 2006 TO BE SET OFF AGAINST THE LONG TERM CAPITAL GA INS OF SUBSEQUENT ASSESSMENT YEARS UNDER SECTION 74 OF THE ACT. A COPY OF THE SA ID ORDER IS AVAILABLE AT PAGE 110 OF THE PAPER BOOK. SHRI SANJIV M. SHAH, LEARNED COUNSEL FOR THE ASSESSEE 7 ALSO SUBMITTED THAT FOR THE ASSESSMENT YEAR 2006-20 07, THE ASSESSING OFFICER HAS ACCEPTED THE CLAIM OF THE ASSESSEE. 12. KEEPING IN VIEW THE ABOVE, WE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE IS SUE RELATING TO THE YEAR UNDER CONSIDERATION IN ACCORDANCE WITH LAW AFTER AFFORDIN G AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 13. FOR STATISTICAL PURPOSES, THE APPEAL OF THE ASS ESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH SEPTEMBER, 2012. SD/- SD/- (D.KARUNAKARA RAO) (H.L. KARWA) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATE 26 TH SEPTEMBER, 2012 VBP/- COPY TO 1. EMERGING MARKETS GROWTH FUND, C/O. HSBC, 2 ND FLOOR, SHIV, PLOT NO. 139-140B, WESTERN EXPRESS HIGHWAY, SAHAR ROAD J UNCTION, VILE PARLE (E), MUMBAI 400 057 PAN AAACE1943K 2. ASSISTANT DIRECTOR OF INCOME TAX (INTERNATIONAL TAX ATION) - 3 (2), SCINDIA HOUSE, N.M. ROAD, MUMBAI 400 038. 3. CIT(A) - 10, MUMBAI 4. DIT (INTERNATIONAL TAXATION), MUMBAI 5. DR J BENCH 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, MUMBAI