VIPUL A SHAH, MUMBAI V. ACIT RG 25(3), MUMBAI

ITA 3190/MUM/2010

• Counselvise Citation: 319019914 RSA 2010
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2004-2005
• Appeal Filed On: 23-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Assessee Lawyers: PARESH SAPARIA
• Keywords: Capital asset; Gift; Cost of acquisition
• Section: 2; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI PRAMOD KUMAR (A.M) ITA NO.3190/MUM/2010(A.Y. 2004-05) MR. VIPUL A. SHAH, 301, PADMA PRIYA APT., ABOVE PNB BANK, 42-A, PRESIDENCY SOCIETY, N.S.ROAD, JVPD SCHEME, VILE PARLE (W), MUMBAI 49. PAN:ABAPS 8115K (APPELLANT) VS. THE ACIT 25(3), BANDRA KURLA COMPLES, BANDRA (E), MUMBAI. (RESPONDENT) APPELLANT BY : SHRI. PARESH SAPARIA REVENUE BY : SMT. ASHIMA GUPTA ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 28/01/2010 OF CIT(A)-XXXV, MUMBAI, RELATING TO AY 04-05. 2. THE GROUNDS OF APPEAL OF THE ASSESSEE READ AS FO LLOWS: 1. THE LEARNED CIT(A) ERRED IN NON GRANTING SET OF F OF INDEXED LONG TERM CAPITAL LOSS AGAINST NON INDEXED LONG TERM CAPITAL GAINS. 2. THE SET OFF OF INDEXED LONG TERM CAPITAL LOSS AG AINST NON INDEXED LONG TERM CAPITAL GAINS REQUIRES TO BE ALLOWED. 3. THE ASSESSEE IS AN INDIVIDUAL. HE CARRIES ON TH E BUSINESS OF SHARE TRADING. FOR AY 04-05, HE FILED A RETURN OF INCOME OFFERING INCOME UNDER THE HEAD CAPITAL GAINS AS FOLLOWS: INCOME FROM CAPITAL GAINS: LONG TERM CAPITAL GAIN/LOSS AS PER STATEMENT NO.1 ATTACHED (6,47,991) AS PER STATEMENT NO.2 ATTACHED 2,65,054 AS PER STATEMENT NO.3 ATTACHED 69,86,923 ___ 63,11,93 3 ADD: SHORT TERM CAPITAL GAIN (AS PER STATEMENT ATTACHED) 59,35,818 1,22,47,751 ITA NO.3190/MUM/2010(A.Y. 2004-05) 2 SEC.48 OF THE INCOME TAX ACT, 1961 (THE ACT) PROVID ES FOR THE MODE OF COMPUTING CAPITAL GAINS. MODE OF COMPUTATION. 48. THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAIN S SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATI ON RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET THE FOL LOWING AMOUNTS, NAMELY : ( I ) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN C ONNECTION WITH SUCH TRANSFER; ( II ) THE COST OF ACQUISITION OF THE ASSET AND THE COS T OF ANY IMPROVEMENT THERETO: PROVIDED THAT IN THE CASE OF AN ASSESSEE, WHO IS A NON-RESI DENT, CAPITAL GAINS ARISING FROM THE TRANSFER OF A CAPITA L ASSET BEING SHARES IN, OR DEBENTURES OF, AN INDIAN COMPANY SHALL BE COMPUTED BY CONVERTING THE COST OF ACQUISITION, EXPENDITURE INCURRED WHOLLY AND EXCLUS IVELY IN CONNECTION WITH SUCH TRANSFER AND THE FULL VALUE OF THE CONSIDERATI ON RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET INTO TH E SAME FOREIGN CURRENCY AS WAS INITIALLY UTILISED IN THE PURCHASE OF THE SHARES OR DEBENTURES, AND THE CAPITAL GAINS SO COMPUTED IN SUCH FOREIGN CURRENCY SHALL BE RECONVERTED INTO INDIAN CURRENCY, SO, HOWEVER, THAT THE AFORESAID MANNER OF COMPUTATION OF CAPITAL GAINS SHALL BE APPLICABLE IN RESPECT OF CAPITAL GAI NS ACCRUING OR ARISING FROM EVERY REINVESTMENT THEREAFTER IN, AND SALE OF, SHAR ES IN, OR DEBENTURES OF, AN INDIAN COMPANY : PROVIDED FURTHER THAT WHERE LONG-TERM CAPITAL GAIN ARISES FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET, OTHER THAN C APITAL GAIN ARISING TO A NON- RESIDENT FROM THE TRANSFER OF SHARES IN, OR DEBENTU RES OF, AN INDIAN COMPANY REFERRED TO IN THE FIRST PROVISO, THE PROVISIONS OF CLAUSE ( II ) SHALL HAVE EFFECT AS IF FOR THE WORDS COST OF ACQUISITION AND COST OF AN Y IMPROVEMENT, THE WORDS INDEXED COST OF ACQUISITION AND INDEXED COST OF ANY IMPROVEMENT HAD RESPECTIVELY BEEN SUBSTITUTED: PROVIDED ALSO THAT NOTHING CONTAINED IN THE SECOND PROVISO SHALL APPLY TO THE LONG-TERM CAPITAL GAIN ARISING FROM THE TRAN SFER OF A LONG-TERM CAPITAL ASSET BEING BOND OR DEBENTURE OTHER THAN CAPITAL IN DEXED BONDS ISSUED BY THE GOVERNMENT :] PROVIDED ALSO THAT WHERE SHARES, DEBENTURES OR WARRANTS REFERRED TO IN THE PROVISO TO CLAUSE ( III ) OF SECTION 47 ARE TRANSFERRED UNDER A GIFT OR AN IRREVOCABLE TRUST, THE MARKET VALUE ON THE DATE OF SUCH TRANSFER SHALL BE DEEMED TO BE THE FULL VALUE OF CONSIDERATION RECEIV ED OR ACCRUING AS A RESULT OF TRANSFER FOR THE PURPOSES OF THIS SECTION : PROVIDED ALSO THAT NO DEDUCTION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS IN RESPECT OF ANY SUM PAID ON ACCOUNT OF SECURITIES TRANSACTION TAX UNDER CHAP TER VII OF THE FINANCE (NO. 2) ACT, 2004.] ITA NO.3190/MUM/2010(A.Y. 2004-05) 3 EXPLANATION .FOR THE PURPOSES OF THIS SECTION, ( I ) FOREIGN CURRENCY AND INDIAN CURRENCY SHALL H AVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN SECTION 2 OF THE F OREIGN EXCHANGE REGULATION ACT, 1973 (46 OF 1973); ( II ) THE CONVERSION OF INDIAN CURRENCY INTO FOREIGN C URRENCY AND THE RECONVERSION OF FOREIGN CURRENCY INTO INDIAN CURREN CY SHALL BE AT THE RATE OF EXCHANGE PRESCRIBED IN THIS BEHALF; ( III ) INDEXED COST OF ACQUISITION MEANS AN AMOUNT WH ICH BEARS TO THE COST OF ACQUISITION THE SAME PROPORTION AS COST INFLATION I NDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATIO N INDEX FOR THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE OR FOR THE YEAR BEGINNING ON THE 1ST DAY OF APRIL, 1981, WHICHEVER IS LATER; ( IV ) INDEXED COST OF ANY IMPROVEMENT MEANS AN AMOUN T WHICH BEARS TO THE COST OF IMPROVEMENT THE SAME PROPORTION AS COST INF LATION INDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATION INDEX FOR THE YEAR IN WHICH THE IMPROVEMENT TO THE ASSET TOOK PLACE; ( V ) COST INFLATION INDEX, IN RELATION TO A PREVIOU S YEAR, MEANS SUCH INDEX AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO SEVENTY-FI VE PER CENT OF AVERAGE RISE IN THE CONSUMER PRICE INDEX FOR URBAN NON-MANU AL EMPLOYEES FOR THE IMMEDIATELY PRECEDING PREVIOUS YEAR TO SUCH PREVIOU S YEAR, BY NOTIFICATION 21 IN THE OFFICIAL GAZETTE, SPECIFY, IN THIS BEHALF. 4. THE MODE OF COMPUTATION OF CAPITAL GAIN IS TO RE DUCE FROM THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET, THE COST OF ACQUISITION OF THE CAPITAL ASSET AND ITS IM PROVEMENT AND EXPENSES CONNECTED WITH TRANSFER OF THE CAPITAL ASSET. WHILE REDUCIN G THE COST OF ACQUISITION OF CAPITAL ASSET, UNDER THE SECOND PROVISO THE ASSESSEE HAS TH E OPTION TO INCREASE THE COST OF ACQUISITION BY APPLYING THE COST INFLATION INDEX FO R THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATION INDEX FOR T HE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE. THUS THE CAPITAL GAIN CHARGE ABLE TO TAX WILL BE LESS. IN THAT SENSE THE BENEFIT OF COST INDEXATION ALLOWED TO AN ASSESSEE IS A BENEFIT TO THE ASSESSEE. IT IS TO BE NOTED THAT THE BENEFIT OF IN DEXED COST IS AVAILABLE ONLY WHEN THE CAPITAL GAIN ARISES OUT OF TRANSFER OF A LONG TERM CAPITAL ASSET. SECTION 112 OF THE ACT PROVIDES AS FOLLOWS: ITA NO.3190/MUM/2010(A.Y. 2004-05) 4 TAX ON LONG-TERM CAPITAL GAINS. 112. (1) WHERE THE TOTAL INCOME OF AN ASSESSEE INCLUDES ANY INCOME, ARISING FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET, WHICH IS CHA RGEABLE UNDER THE HEAD CAPITAL GAINS, THE TAX PAYABLE BY THE ASSESSEE ON THE TOTA L INCOME SHALL BE THE AGGREGATE OF, ( A ) IN THE CASE OF AN INDIVIDUAL OR A HINDU UNDIVIDE D FAMILY, BEING A RESIDENT, ( I ) THE AMOUNT OF INCOME-TAX PAYABLE ON THE TOTAL IN COME AS REDUCED BY THE AMOUNT OF SUCH LONG-TERM CAPITAL GAINS, HAD THE TOTAL INCOME AS SO REDUCED BEEN HIS TOTAL INCOME ; AND ( II ) THE AMOUNT OF INCOME-TAX CALCULATED ON SUCH LONG -TERM CAPITAL GAINS AT THE RATE OF TWENTY PER CENT : PROVIDED THAT WHERE THE TOTAL INCOME AS REDUCED BY SUCH LON G-TERM CAPITAL GAINS IS BELOW THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME-TAX, THEN, SUCH LONG-TERM CAPITAL GAINS SHAL L BE REDUCED BY THE AMOUNT BY WHICH THE TOTAL INCOME AS SO REDUCED FALL S SHORT OF THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME-TAX AND TH E TAX ON THE BALANCE OF SUCH LONG-TERM CAPITAL GAINS SHALL BE COMPUTED AT T HE RATE OF TWENTY PER CENT ; ( B ) IN THE CASE OF A DOMESTIC COMPANY, ( I ) THE AMOUNT OF INCOME-TAX PAYABLE ON THE TOTAL IN COME AS REDUCED BY THE AMOUNT OF SUCH LONG-TERM CAPITAL GAINS, HAD THE TOTAL INCOME AS SO REDUCED BEEN ITS TOTAL INCOME ; AND ( II ) THE AMOUNT OF INCOME-TAX CALCULATED ON SUCH LONG -TERM CAPITAL GAINS AT THE RATE OF TWENTY PER CENT : ( C ) IN THE CASE OF A NON-RESIDENT (NOT BEING A COMPA NY) OR A FOREIGN COMPANY, ( I ) THE AMOUNT OF INCOME-TAX PAYABLE ON THE TOTAL IN COME AS REDUCED BY THE AMOUNT OF SUCH LONG-TERM CAPITAL GAINS, HAD THE TOTAL INCOME AS SO REDUCED BEEN ITS TOTAL INCOME ; AND ( II ) THE AMOUNT OF INCOME-TAX CALCULATED ON SUCH LONG -TERM CAPITAL GAINS AT THE RATE OF TWENTY PER CENT ; ( D )] IN ANY OTHER CASE OF A RESIDENT, ( I ) THE AMOUNT OF INCOME-TAX PAYABLE ON THE TOTAL IN COME AS REDUCED BY THE AMOUNT OF LONG-TERM CAPITAL GAINS, HAD THE TOTA L INCOME AS SO REDUCED BEEN ITS TOTAL INCOME ; AND ( II ) THE AMOUNT OF INCOME-TAX CALCULATED ON SUCH LONG -TERM CAPITAL GAINS AT THE RATE OF TWENTY PER CENT. EXPLANATION. ITA NO.3190/MUM/2010(A.Y. 2004-05) 5 PROVIDED THAT WHERE THE TAX PAYABLE IN RESPECT OF ANY INCOM E ARISING FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET, BEI NG LISTED SECURITIES OR UNIT OR ZERO COUPON BOND, EXCEEDS TEN PER CENT OF THE AMOUN T OF CAPITAL GAINS BEFORE GIVING EFFECT TO THE PROVISIONS OF THE SECOND PROVI SO TO SECTION 48 , THEN, SUCH EXCESS SHALL BE IGNORED FOR THE PURPOSE OF COMPUTIN G THE TAX PAYABLE BY THE ASSESSEE. EXPLANATION. FOR THE PURPOSES OF THIS SUB-SECTION, ( A ) LISTED SECURITIES MEANS THE SECURITIES ( I ) AS DEFINED IN CLAUSE ( H ) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (32 OF 1956); AND ( II ) LISTED IN ANY RECOGNISED STOCK EXCHANGE IN INDIA ; ( B ) UNIT SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE ( B ) OF EXPLANATION TO SECTION 115AB .]] (2) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INC LUDES ANY INCOME ARISING FROM THE TRANSFER OF A LONG-TERM CAPITAL AS SET, THE GROSS TOTAL INCOME SHALL BE REDUCED BY THE AMOUNT OF SUCH INCOME AND T HE DEDUCTION UNDER CHAPTER VI-A SHALL BE ALLOWED AS IF THE GROSS TOTAL INCOME AS SO REDUCED WERE THE GROSS TOTAL INCOME OF THE ASSESSEE. (3) WHERE THE TOTAL INCOME OF AN ASSESSEE INCLUDES ANY INCOME ARISING FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET, THE TOTA L INCOME SHALL BE REDUCED BY THE AMOUNT OF SUCH INCOME AND THE REBATE UNDER SECT ION 88 SHALL BE ALLOWED FROM THE INCOME-TAX ON THE TOTAL INCOME AS SO REDUC ED. 5. AS PER THE PROVISIONS OF SEC.112(1) (D) THE RATE OF TAX ON LONG TERM CAPITAL GAIN IS 20%. HOWEVER PROVISO TO SEC.112(1) PROVIDES THA T IF THE ASSESSEE GIVES UP THE RIGHT TO CLAIM INDEXATION BENEFIT UNDER THE SECOND PROVISO TO SEC.48, THEN THE RATE OF TAX ON LONG TERM CAPITAL GAIN IS ONLY 10%. 6. IN THE CASE OF THE ASSESSEE WE HAVE ALREADY SEEN THAT THE LONG TERM CAPITAL GAIN THAT ACCRUED TO THE ASSESSEE DURING THE PREVIO US YEAR WAS A SUM OF RS.63,11,933. WE HAVE ALSO SEEN THAT IN ARRIVING A T THIS FIGURE THE ASSESSEE HAD SET OFF THE LONG TERM CAPITAL LOSS OF RS.6,74,991 AGAIN ST THE LONG TERM CAPITAL GAIN OF RS. 69,86,923 + 2,65,054. WHILE COMPUTING THE LONG TER M CAPITAL LOSS THE ASSESSEE AVAILED OF THE BENEFIT OF INDEXATION AS PER THE SEC OND PROVISO TO SEC.48 OF THE ACT. HOWEVER, WHILE COMPUTING THE LONG TERM CAPITAL GAIN THE ASSESSEE DID NOT AVAIL THE BENEFIT OF INDEXATION AND RATHER TOOK THE BENEFIT O F PROVISO TO SEC.112(1) OF THE ACT BY ITA NO.3190/MUM/2010(A.Y. 2004-05) 6 WHICH LONG TERM CAPITAL GAIN WAS TAXABLE ONLY AT 10 % AS AGAINST THE NORMAL RATE OF 20% HAD THE BENEFIT OF INDEXATION BEEN CLAIMED. 7. THE QUESTION BEFORE THE AO WAS WHETHER THE SET O FF OF LONG TERM CAPITAL LOSS AGAINST THE LONG TERM CAPITAL GAIN AS CLAIMED BY TH E ASSESSEE COULD BE ALLOWED. THE CLAIM FOR SUCH SET OFF IS TO BE DECIDED IN ACCORDAN CE WITH THE PROVISIONS OF SEC.70(3) OF THE ACT. WE SHALL EXTRACT THE ENTIRE PROVISIONS OF SEC.70 OF THE ACT AS THE SAME WOULD BE RELEVANT WHILE DEALING WITH THE ARGUMENTS ADVANCED BEFORE US BY THE PARTIES. THE PROVISIONS OF SEC.70 OF THE ACT, READ AS FOLLOWS: SET OFF OF LOSS FROM ONE SOURCE AGAINST INCOME FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME. 70. (1) SAVE AS OTHERWISE PROVIDED IN THIS ACT, WHERE T HE NET RESULT FOR ANY ASSESSMENT YEAR IN RESPECT OF ANY SOURCE FALLING UN DER ANY HEAD OF INCOME, OTHER THAN CAPITAL GAINS, IS A LOSS, THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST HIS INCOME FROM ANY OTHER SOURCE UNDER THE SAME HEAD. (2) WHERE THE RESULT OF THE COMPUTATION MADE FOR AN Y ASSESSMENT YEAR UNDER SECTIONS 48 TO 55 IN RESPECT OF ANY SHORT-TERM CAPITAL ASSET IS A LO SS, THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SU CH LOSS SET OFF AGAINST THE INCOME, IF ANY, AS ARRIVED AT UNDER A SIMILAR COMPU TATION MADE FOR THE ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASSET. (3) WHERE THE RESULT OF THE COMPUTATION MADE FOR AN Y ASSESSMENT YEAR UNDER SECTIONS 48 TO 55 IN RESPECT OF ANY CAPITAL ASSET (OTHER THAN A SHOR T-TERM CAPITAL ASSET) IS A LOSS, THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST THE INCOME, IF ANY, AS ARRIVED AT UNDER A S IMILAR COMPUTATION MADE FOR THE ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASS ET NOT BEING A SHORT-TERM CAPITAL ASSET.] 8. A BARE PERUSAL OF THE PROVISIONS OF SEC.70(3) OF THE ACT WOULD SHOW THAT LONG TERM CAPITAL LOSS CAN BE SET OFF AGAINST INCOME IN THE FORM OF LONG TERM CAPITAL GAIN. THE AO HOWEVER WAS OF THE VIEW THAT THE SET OFF CAN BE PERMITTED ONLY WHEN THE MODE OF COMPUTATION OF LONG TERM CAPITAL LOSS AND L ONG TERM CAPITAL GAIN ARE SIMILAR. IN THIS CASE WE HAVE ALREADY SEEN THAT WHEN ARRIVIN G AT THE LONG TERM CAPITAL LOSS THE ASSESSEE OPTED FOR THE BENEFIT OF INDEXATION AS PER THE SECOND PROVISO TO SEC.48 OF THE ACT, BUT WHEN ARRIVING AT THE LONG TERM CAPITA L GAIN THE ASSESSEE DID NOT OPT FOR BENEFIT OF THE SECOND PROVISO TO SEC.48 OF THE ACT, RATHER HE OPTED FOR THE BENEFIT OF ITA NO.3190/MUM/2010(A.Y. 2004-05) 7 LESSER RATE OF TAX AS PROVIDED UNDER THE PROVISO TO SEC.118(1) OF THE ACT. THUS ACCORDING TO THE AO THE COMPUTATION OF CAPITAL LOSS AND CAPITAL GAIN BEING NOT SIMILAR THE SET OFF COULD NOT BE ALLOWED IN TERMS OF SEC.70 (3) OF THE ACT. 9. WE MAY CLARIFY THAT WHILE DETERMINING THE LONG T ERM CAPITAL LOSS AFTER OPTING FOR THE BENEFIT OF INDEXATION, THE ASSESSEE HAD ALSO CA LCULATED THE RESULTS HAD THE BENEFIT OF INDEXATION NOT BEEN CLAIMED. ACCORDING TO SUCH CALCULATION THE ASSESSEE WOULD HAVE DERIVED A CAPITAL GAIN OF RS.3,46,571 WI THOUT THE BENEFIT OF INDEXATION INSTEAD OF LOSS OF RS.6,6,74,991. THUS AS PER BOOK S OF ACCOUNTS WITHOUT BENEFIT OF INDEXATION THE ASSESSEE HAS EARNED LONG TERM CAPITA L GAIN OF RS.3,46,571. THE LONG TERM CAPITAL GAIN OF RS.2, 65,054 BEING I TEM NO.2 OF THE COMPUTATION OF LONG TERM CAPITAL GAIN, IS THE NET RESULT OF LONG TERM C APITAL GAIN COMPUTATION AS FOLLOWS: ACTUAL LONG TERM CAPITAL GAIN ON SALE OF SHARES WAS RS.38,51,126. THE ASSESSEE CLAIMED EXEMPTION U/S.54F TO THE EXTENT OF RS. 35,86,072 WHICH WAS ALLOWED ONLY TO THE EXTENT OF RS.17,86,476. THUS L ONG TERM CAPITAL GAIN WAS DETERMINED AT RS.20,64,650. 10. . THE AO ACCORDINGLY DETERMINED THE LONG TERM C APITAL GAIN OF THE ASSESSEE AS FOLLOWS: AS PER STATEMENT NO.1 (AS DISCUSSED ACTUAL LOSS) R S. 3,46,571 AS PER STATEMENT NO.2(RECOMPUTED ABOVE) RS.20,64,650 AS PER STATEMENT NO.3 RS.69,86,923 ------------------- 87,05,002 ----------------- 11. ON APPEAL BY THE ASSESSEE THE CIT(A) BY ORDER D ATED 26.11.2007 ALLOWED THE ASSESSEES APPEAL AND DIRECTED THE AO TO ACCEPT THE COMPUTATION OF CAPITAL GAIN AS CLAIMED BY THE ASSESSEE. ON FURTHER APPEAL BY THE REVENUE, THE ITAT IN ITA NO. 962/MUM/2008 BY ORDER DATED 8/9/2009 DIRECTED THE C IT(A) TO CONSIDER THE ISSUE AFRESH IN THE LIGHT OF THE PROVISIONS OF SEC.70(3) OF THE ACT AND THE DECISION OF THE MUMBAI ITAT IN THE CASE OF MOHANLAL N.SHAH (HUF) 26 SOT 380 (MUM). THE CIT(A) BY THE IMPUGNED ORDER UPHELD THE ORDER THE AO FOR T HE FOLLOWING REASONS: ITA NO.3190/MUM/2010(A.Y. 2004-05) 8 3. I HAVE CONSIDERED THE SUBMISSION OF THE REPRE SENTATIVE AND THE STAND TAKEN BY THE A.O. ADMITTEDLY, THE APPELLANT WORKED OUT THE LONG TERM CAPITAL GAINS WITHOUT INDEXATION BUT WORKED OUT THE LONG TE RM CAPITAL LOSS WITH INDEXATION AND SET OFF THE SAME AGAINST THE LONG TE RM CAPITAL GAINS. IT IS TRUE THAT THE APPELLANT IS HAVING THE OPTION TO COMPUTE LONG TERM CAPITAL GAINS WITH OR WITHOUT INDEXATION AND THE TAX RATE WOULD ACCORD INGLY VARY. HOWEVER, WHILE SETTING OFF LONG TERM CAPITAL LOSS AGAINST CAPITAL GAINS, THE PROVISIONS OF SECTION 70(3) ARE APPLICABLE. AS PER SECTION 70(3), THE AS SESSEE IS ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST THE INCOME , IF ANY, AS ARRIVED AT UNDER A SIMILAR COMPUTATION MADE FOR THE A.Y IN RESPECT O F ANY OTHER CAPITAL ASSET NOT BEING A SHORT TERM CAPITAL ASSET. AS RIGHTLY H ELD BY THE AO THE IMPORTANT WORDS IN SECTION 70(3) ARE UNDER SIMILAR COMPUTATI ON AND THE HONBLE TRIBUNAL HAS ALSO HIGHLIGHTED THESE WORDS IN ITS OR DER DATED 8/9/2009. IT IS TRUE THAT THE HONBLE TRIBUNAL DEALT WITH A SIMILAR ISSU E IN THE CASE OF MOHANLAL N. SHAH (HUF) (26 SOT 380) IN WHICH THE ASSESSEE HAD C ALCULATED LONG TERM CAPITAL GAINS FROM SALE OF SHARES WITHOUT INDEXATIO N WHICH WAS OFFERED FOR TAXATION AT THE FLAT RATE OF 10% AS PER PROVISO TO SECTION 112(1) OF THE ACT AGAINST WHICH LONG TERM CAPITAL LOSS ON SALE OF UNI TS AFTER INDEXATION WAS SET OFF. EVEN THOUGH THE FACTS BEFORE THE MUMBAI TRIB UNAL WERE SIMILAR TO THE CASE OF THE APPELLANT., THE HONBLE TRIBUNAL INTERP RETED THE WORK A USED BEFORE THE CAPITAL ASSET IN SECTIONS 48 AND 112 AND DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT. EVEN THOUGH SECTION 70(3) WAS R EPRODUCED IN THE ABOVE DECISION, THE REAL SIGNIFICANCE AND IMPORTANCE OF T HE WORDS SIMILAR COMPUTATION WERE NOT BROUGHT TO THE NOTICE OF THE HONBLE TRIBUNAL. IF THE ISSUE INVOLVED IN THE CASE OF THE APPELLANT IS COVE RED BY THE DECISION OF HONBLE MUMBAI TRIBUNAL IN THE CASE OF MOHANLAL M. SHAH, AS ARGUED BY THE REPRESENTATIVE, THERE WAS NO NECESSITY FOR THE HON BLE TRIBUNAL TO SET ASIDE THIS ISSUE TO THE FILE OF CIT(A). THUS THE HONBLE TRIBUNAL WAS AWARE OF THE FACT THAT THE WORDS SIMILAR COMPUTATION IN SECTI ON 70(3) WERE NOT EXAMINED IN DEPTH WHILE DEALING WITH THE CASE OF MOHANLAL N. SHAH. I FIND THAT THE CRUX OF THE ISSUE INVOLVED IN THIS APPEAL REVOLVES AROU ND THE INTERPRETATION OF WORDS UNDER SIMILAR COMPUTATION IN SECTION 70(3). THIS MEANS THAT ONLY IF THE CAPITAL GAINS AND CAPITAL LOSSES ARE MADE UNDER SIM ILAR COMPUTATION, THE SET OFF COULD BE ALLOWED AND NOT OTHERWISE. IN THIS CI RCUMSTANCES, I FIND THAT THE AO HAS CORRECTLY RESTRICTED THE SET OFF OF CAPITAL LOSS BY REWORKING THE SAME WITHOUT INDEXATION AND SET OFF THE SAME AGAINST NON -INDEXED LONG TERM CAPITAL GAINS. THE ORDER OF THE AO IS PERFECTLY IN ORDER AS PER THE LANGUAGE OF SECTION 70(3) AND I DO NOT FIND ANY REASON TO IN TERFERE WITH THE ASSESSMENT ORDER AND THE SAME IS CONFIRMED. 12. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO.3190/MUM/2010(A.Y. 2004-05) 9 13. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEARN ED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EXPRESSION SIMILAR COMPUTATION AS USED IN SEC.70(3) OF THE ACT REFERS TO THE COMPUTATION OF LONG TERM CAPITAL GAIN REFERRED TO IN SEC.48 TO 55 OF THE ACT. ACCORDING TO HIM IN THE EARLIER PART OF SEC.7 0(3) THE EXPRESSION USED IS WHERE THE RESULT OF THE COMPUTATION MADE FOR ANY ASSESSME NT YEAR UNDER SECTIONS 48 TO 55 IN RESPECT OF ANY CAPITAL ASSET (OTHER THAN A SHOR T-TERM CAPITAL ASSET) IS A LOSS AND IT IS THIS EXPRESSION THAT IS REFERRED TO IN THE LATER PART OF SEC.70(3) AS SIMILAR COMPUTATION. IN THIS REGARD HE POINTED OUT THAT PR OVISO TO SEC.112(1) OF THE ACT CAME INTO THE STATUTE BOOKS MUCH LATER IN POINT OF TIME TO THE PROVISIONS OF SEC.70(3) OF THE ACT AND THEREFORE THE LEGISLATURE WOULD NOT HAVE IN TENDED THAT THE EXPRESSION SIMILAR COMPUTATION USED IN SEC.70(3) OF THE ACT WOULD MEA N A COMPUTATION BY APPLYING EITHER THE PROVISIONS OF SECOND PROVISO TO SEC.48 O F THE ACT OR A COMPUTATION BY APPLYING THE PROVISIONS OF PROVISO TO SEC.112(1) OF THE ACT AND IN CASE THE TWO MODES OF COMPUTATION ARE EMPLOYED THAN THAT WOULD N OT BE SIMILAR COMPUTATION ENVISAGED BY SEC.70(3) OF THE ACT. IN THIS REGARD, THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT WHEN LONG TERM CAPITAL LOSS IS CARRIED FORWARD, THE SAME IS ALLOWED TO BE SET OFF WITHOUT ANY RESTRICT ION WITH REGARD TO THE MODE OF COMPUTATION OF SUCH LOSS. HE ALSO SUBMITTED THAT S EC.70(2) OF THE ACT IN THE CONTEXT OF SET OFF SHORT TERM CAPITAL LOSS HAS USED THE SIM ILAR EXPRESSION. IN THIS REGARD HE SUBMITTED THAT WHILE COMPUTING SHORT TERM CAPITAL L OSS THE MODE OF COMPUTATION CANNOT BE DIFFERENT AS IN THE CASE OF COMPUTATION O F LONG TERM CAPITAL LOSS/GAIN. ACCORDING TO HIM THIS ALSO SUGGESTS THAT THE EXPRES SION SIMILAR COMPUTATION REFERS TO THE COMPUTATION U/S.48 TO 55 OF THE ACT AND NOT THE COMPUTATION SECOND PROVISO TO SEC.48 OF THE ACT VIS--VIS PROVISO TO SEC.112(1) O F THE ACT HE THEREFORE SUBMITTED THAT THE INTERPRETATION AS ADOPTED BY THE CIT(A) WA S NOT IN ACCORDANCE WITH LAW AND THEREFORE THE CLAIM OF THE ASSESSEE SHOULD BE ACCEP TED. 14. THE LEARNED D.R. RELIED ON THE ORDER OF THE IMP UGNED ORDER OF THE CIT(A). ITA NO.3190/MUM/2010(A.Y. 2004-05) 10 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE P ROVISIONS OF SEC.70(3) OF THE ACT READ AS FOLLOWS: (3) WHERE THE RESULT OF THE COMPUTATION MADE FOR A NY ASSESSMENT YEAR UNDER SECTIONS 48 TO 55 IN RESPECT OF ANY CAPITAL ASSET (OTHER THAN A SHOR T-TERM CAPITAL ASSET) IS A LOSS, THE ASSESSEE SHALL BE ENT ITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST THE INCOME, IF ANY, AS AR RIVED AT UNDER A SIMILAR COMPUTATION MADE FOR THE ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASSET NOT BEING A SHORT-TERM CAPITAL ASSET. 16. A PLAIN READING OF THE PROVISIONS OF SEC.70(3) OF THE ACT SHOWS THAT THE FIRST PART OF THE PROVISIONS REFERS TO A LOSS AS COMPUTED U/S.48 TO 55 OF THE ACT IN RESPECT OF ANY CAPITAL ASSET. THE SECOND PART OF THE PROVI SIONS REFERS TO INCOME IF ANY AS ARRIVED AT UNDER SIMILAR COMPUTATION. THUS THE SEC OND PART REFERS ONLY TO THE MODE OF COMPUTATION U/S.48 TO 55 AND THAT WOULD BE THE CORR ECT INTERPRETATION. IT CANNOT BE SAID THAT THE SECOND PART OF THE PROVISIONS BY USIN G THE EXPRESSION SIMILAR COMPUTATION, REFERS TO A SIMILAR COMPUTATION UNDER EITHER THE SECOND PROVISO TO SEC.48 OR PROVISO TO SEC.112(1) OF THE ACT. AS RIG HTLY CONTENDED ON BEHALF OF THE ASSESSEE, THE PROVISIONS OF SEC.70(3) OF THE ACT EX ISTED MUCH PRIOR TO THE MODE OF COMPUTATION OF CAPITAL GAIN WITHOUT APPLYING THE BE NEFIT OF INDEXATION WHICH WERE INTRODUCED LATER BY AN AMENDMENT IN THE YEAR 2000. IT CANNOT BE THEREFORE THAT THE LEGISLATURE WOULD HAVE CONTEMPLATED WHILE ENACTING THE PROVISIONS OF SEC.70(3) OF THE ACT A SITUATION AS CONTEMPLATED BY PROVISO TO SEC .112(1) OF THE ACT, WHEN IT USED THE EXPRESSION SIMILAR COMPUTATION IN SEC.70(3) O F THE ACT. WE ALSO FIND FORCE IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SIMILAR RESTRICTIONS COULD NOT BE IMPOSED WHEN LONG TERM CAPITAL LOSS IS SOUGHT TO BE CARRIED FORWARD AND SET OFF AGAINST LONG TERM CAPITAL GAIN IN THE LATER ASSESSM ENT YEAR IN TERMS OF THE PROVISIONS OF SEC.74(1)(B) OF THE ACT. THE LEARNED COUNSEL FO R THE ASSESSEE HAD RELIED ON SEVERAL JUDICIAL PRONOUNCEMENTS BEFORE US BUT THOSE DECISIONS DID NOT DEAL WITH THE ISSUE IN THE LIGHT OF THE STAND TAKEN BY THE AO AND THEREFORE THOSE DECISIONS ARE NOT BEING REFERRED TO IN THIS ORDER. FOR THE REASONS S TATED ABOVE, WE HOLD THAT THAT THE EXPRESSION SIMILAR COMPUTATION USED IN SEC.70(3) OF THE ACT DOES NOT REFER TO THE COMPUTATION U/S.48 TO 55 OF THE ACT AND NOT THE COM PUTATION SECOND PROVISO TO ITA NO.3190/MUM/2010(A.Y. 2004-05) 11 SEC.48 OF THE ACT VIS--VIS PROVISO TO SEC.112(1) O F THE ACT BUT THE COMPUTATION U/S.48 TO 55 OF THE ACT. THE AO IS THEREFORE DIREC TED TO ACCEPT THE CLAIM OF THE ASSESSEE IN THIS REGARD. THE APPEAL OF THE ASSESSE E IS ACCORDINGLY ALLOWED. 17. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON TH E 8 TH DAY OF APRIL, 2011. SD/- SD/- (PRAMOD KUMAR) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 8 TH APRIL, 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RF BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.3190/MUM/2010(A.Y. 2004-05) 12 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 29/3/2011 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 30/3/2011 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER