ITO 20(3)(3), MUMBAI V. SONIA PANKAJ RAZDAN, MUMBAI

ITA 4751/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55232 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 28-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 13-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Capital asset; Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO, JUDICIAL MEMBER. I.T.A. NO. 475 1/MUM/2009 ASSES SMENT YEAR : 2005-06. THE INCOME TAX OFFICER, MRS. SONIA PANKAJ RAZDAN, 20(3)(3), MUMBAI. VS. BUNGALOW NO.3 BELLS COT CHS, LOKHANDWALA COMPLEX, 4BUNGALOW ANDHERI (W), MUMBAI 4000058. PANABVPR1753R APPELLANT. RESPONDENT. APPELLANT BY : SHRI S UNIL KUMAR SINGH. RESPO NDENT BY : SHRI M. SUBRAMANIAN. DATE O F HEARING : 28-07-2011. DATE O F PRONOUNCEMENT : 09-09-2011. O R D E R. PER P.M. JAGTAP, A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LEARNED CIT(APPEALS)-XXXII, MUMBAI DATED 29-05-2009 AND THE SOLITARY ISSUE ARISING OUT OF THE SAME IS WHETHER THE LEARNED CIT(APPEALS) WAS CORRECT IN HOLDING THAT THE CLAIM OF THE ASSESSEE THAT THE SHORT TERM CAPITAL L OSS FOR THE PERIOD 01-10-2004 TO 31-03-2005 BE FIRST SET OFF AGAINST THE SHORT TERM CAPITAL GAIN FOR THE PERIOD 01-04- 2004 TO 30-09-2004 INSTEAD OF FIRST ADJUSTING THE SAME AGAINST THE SHORT CAPITAL GAIN FOR THE SAME PERIOD OF SIX MONTHS AS HELD BY T HE AO. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO IS BASICALLY AN INVESTOR IN SHARES AND SECURITIES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS 2 ITA NO.4751/MUM/2009 ASSESSMENT YEAR : 2005-05 FILED BY HER ON 16-08-2005 DECLARING TOTAL INCOME O F RS.30,94,195/- FOR THE PERIOD 01-04-2004 TO 30-09-2004 FORMING PART OF THE YEAR U NDER CONSIDERATION, THE ASSESSEE HAD EARNED SHORT TERM CAPITAL GAIN ON SALE OF SECURITIES AMOUNTING TO RS.75,91,478/- AND AFTER ADJUSTING SHORT TERM CAPIT AL LOSS FOR THE SAME PERIOD, A NET SHORT TERM CAPITAL GAIN OF RS.58,50,073/- WAS EARNE D BY THE ASSESSEE. FOR THE REMAINING PERIOD OF 01-10-2004 TO 31-03-2005, THE A SSESSEE HAD EARNED SHORT TERM CAPITAL GAIN OF RS.40,73,939/- AND SUFFERED A SHORT TERM CAPITAL LOSS OF RS.61,43,192/-. IN THE COMPUTATION OF TOTAL INCOME UNDER THE HEAD SHORT TERM CAPITAL GAIN, THE LOSS OF RS.61,43,192/- SUFFERED DURING THE PERIOD FROM 01-10- 2004 TO 31-03-2005 WAS FIRST ADJUSTED AND SET OFF B Y THE ASSESSEE AGAINST THE NET SHORT TERM CAPITAL GAIN OF RS.58,50,073/- FOR THE P ERIOD 01-04-2004 TO 30-09-2004 AND THE BALANCE LOSS OF RS.2,90,119/- WAS ADJUSTED AND SET OFF AGAINST THE SHORT TERM CAPITAL GAIN OF RS.40,73,939/- FOR THE PERIOD 01-10-2004 TO 31-03-2005. THE SHORT TERM CAPITAL GAIN REMAINING AFTER SUCH SET OF F AMOUNTING TO RS.37,83,820/- WAS OFFERED BY THE ASSESSEE TO TAX AT THE RATE OF 1 0%. THE AO NOTED THAT THE TAX PAYABLE ON THE SHORT TERM CAPITAL GAIN FOR THE PERI OD 01-04-2004 TO 30-09-2004 WAS 30% WHEREAS THE TAX PAYABLE ON SHORT TERM CAPITAL GAIN FOR THE PERIOD 01-10-2004 TO 31-03-2005 WAS REDUCED TO 10% AS A RESULT OF INT RODUCTION OF SECURITIES TRANSACTION TAX (STT) WITH EFFECT FROM 01-10-2004 O N THE TRANSACTIONS OF SALE OF SECURITIES. ACCORDING TO THE AO, KEEPING IN VIEW TH ESE DIFFERENT RATES OF TAX APPLICABLE TO THE SHORT TERM CAPITAL GAINS FOR THE PERIOD 01-04-2004 TO 30-09-2004 AND 01-10-2004 TO 31-03-2005, SHORT TERM CAPITAL LO SS ON SALE OF SECURITIES FOR THE PERIOD 01-10-2004 TO 31-03-2005 SHOULD HAVE BEEN FI RST SET OFF AGAINST SHORT TERM CAPITAL GAIN FOR THE SAME PERIOD AND ONLY THE BALAN CE AMOUNT OF LOSS SHOULD HAVE BEEN SET OFF AGAINST THE SHORT TERM CAPITAL GAIN FO R THE PERIOD 01-04-2004 TO 30-09- 2004 AND THE BALANCE AMOUNT OF SHORT TERM CAPITAL G AIN AFTER SUCH SET OFF WAS 3 ITA NO.4751/MUM/2009 ASSESSMENT YEAR : 2005-05 CHARGEABLE TO TAX AT THE RATE OF 30% BEING THE SHOR T TERM CAPITAL GAIN FOR THE PERIOD 01-04-2004 TO 30-09-2004. HE HELD THAT THE SET OFF OF SHORT TERM CAPITAL LOSS FOR THE PERIOD 01-10-2004 TO 31-03-2005 CLAIMED BY THE ASSE SSEE FIRST AGAINST SHORT TERM CAPITAL LOSS FOR THE PERIOD 01-04-2004 TO 30-09-200 4 INSTEAD OF SHORT TERM CAPITAL GAIN FOR THE SAME PERIOD WAS WITH AN INTENTION TO A VOID TAX ON SHORT TERM CAPITAL GAIN AT THE RATE OF 20% WHICH WAS NOT ACCEPTABLE. A CCORDINGLY HE BROUGHT THE SHORT TERM CAPITAL GAIN OF RS.37,83,820/- TO TAX IN THE HANDS OF THE ASSESSEE AT THE RATE OF 30% AS AGAINST 10% OFFERED BY THE ASSESSEE IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 28-12-2007. 3. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) CHALLE NGING THE ACTION OF THE AO IN ADJUSTING THE SHORT TERM CAPITAL LOSS FOR THE PERIO D 01-10-2004 TO 31-03-2005 FIRST AGAINST THE SHORT TERM CAPITAL LOSS FOR THE SAME PE RIOD AS AGAINST ITS CLAIM FOR SETTING OF THE SAID LOSS FIRST AGAINST SHORT TERM C APITAL GAIN FOR THE PERIOD 01-04- 2004 TO 30-09-2004. IT WAS CONTENDED ON BEHALF OF THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) THAT THERE WAS NO PROVISION IN THE INC OME-TAX ACT TO SEGREGATE THE TRANSACTION OF CAPITAL GAIN INTO TWO PERIOD AND THE N WORK OUT THE GAINS/LOSS SEPARATELY. RELIANCE WAS PLACED ON THE PROVISIONS O F SECTION 70 WHEREBY THE SET OFF OF LOSS IN RESPECT OF SHORT TERM CAPITAL ASSET WAS ALLOWED TO BE ADJUSTED AGAINST PROFITS EARNED FROM SHORT TERM CAPITAL ASSET DURING THE YEAR WITHOUT MAKING ANY BIFURCATION OF THE TRANSACTIONS BETWEEN TWO PERIOD. REFERENCE WAS ALSO MADE TO THE PROVISIONS OF SECTION 111A TO CONTEND THAT THESE PR OVISIONS ALSO NOWHERE SUGGESTED THAT THE LOSS INCURRED DURING THE PERIOD 01-10-2004 TO 31-03-2005 COULD NOT BE SET OFF FIRST AGAINST THE SHORT TERM CAPITAL GAIN FOR THE PERIOD 01-04-2004 TO 30-09-2004. IT WAS CONTENDED THAT NEITHER THE PROVI SIONS OF SECTION 70 NOR THE PROVISIONS OF SECTION 111A THUS RESTRICT OR SPECIFY THE MANNER OF SET OFF OF LOSS 4 ITA NO.4751/MUM/2009 ASSESSMENT YEAR : 2005-05 AGAINST GAINS WHILE COMPUTING THE INCOME UNDER THE HEAD SHORT TERM CAPITAL GAINS FOR THE YEAR UNDER CONSIDERATION AS ADOPTED BY THE AO AND THE SET OFF CLAIMED BY THE ASSESSEE SHOULD BE ALLOWED. RELIANCE IN SUPPORT OF THIS CONTENTION WAS PLACED ON BEHALF OF THE ASSESSEE ON THE CBDT CI RCULAR F.NO. 53-IT-54 DATED 7 TH JULY, 1955 AS WELL AS THE DECISION OF THE MUMBAI B ENCH OF ITAT IN THE CASE OF MOHANLAL N. SHAH (HUF) VS. ACIT REPORTED IN 26 SOT 380. 4. THE LEARNED CIT(APPEALS) FOUND MERIT IN THE SUBM ISSIONS MADE BY THE ASSESSEE AND ALLOWED THE SET OFF OF LOSS CLAIMED BY THE ASSESSEE UNDER THE HEAD SHORT TERM CAPITAL GAIN FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO.7 TO 10 OF HIS IMPUGNED ORDER : 7. I HAVE CONSIDERED THE FACTS OF THE CASE AND THE CONTENTIONS OF THE APPELLANT VIS--VIS THE REASONING GIVEN BY THE AO I N THE ASSESSMENT ORDER. THE BASIC ISSUE TO BE DECIDED IS WHETHER THE FINANC IAL YEAR CAN BE DIVIDED INTO TWO PERIODS FOR THE PURPOSE OF TAXATION FOR TH E REASON THAT THE RATE OF TAXATION HAS CHANGED IN THE MIDDLE OF THE YEAR FOR TAXING INCOME FROM SHORT TERM CAPITAL GAINS. THE PROVISIONS CONTAINED IN THE INCOME TAX ACT MORE PARTICULARLY THE PROVISIONS OF SECTION 70 & SECTION 111A OF THE ACT NOWHERE PRESCRIBE ANY SPECIFIC METHOD OF COMPUTING OR WORKI NG THE SHORT TERM CAPITAL GAINS BY BIFURCATING THE TRANSACTIONS ALTOG ETHER IN TWO PARTS AND FIRST SETTING OFF THE GAINS WITH LOSS IN EACH OF THE RESP ECTIVE PERIOD AND THEREAFTER TO ADJUST THE SAME WITH THE GAINS OR LOSS OF THE SE COND PERIOD. IN FACT, THE PROVISION OF SECTION 70 OF THE ACT ONLY SOPECIFIES THAT THE LOSS FROM SHORT TERM CAPITAL ASSET WOULD BE SET OFF WITH THE GAINS FROM SHORT TERM CAPITAL ASSET AND NOTHING FURTHER. THE AMENDMENT MADE IN SE CTION 111A OF THE ACT ALSO DOES NOT SPECIFY ANY SUCH BIFURCATION OF GAINS OR LOSS INTO TWO SEPARATE PERIODS. NO DOUBT THE GAINS ARISING WITH EFFECT FRO M 1/10/2004 ARE CHARGED TO TAX AT 10% SUBJECT TO THE TRANSACTION BEING TAXE D UNDER STT, IT HOWEVER DOES NOT EXPLAIN THE MANNER IN WHICH THE SHORT TERM CAPITAL GAINS WILL BE COMSPUTED OR HOW THE ASSESSEE WOULD BE ENTITLED TO SET OFF THE LOSS WITH GAINS. I HAVE ALSO CONSIDERED THE FORM FOR FILING T HE RETURN OF INCOME AND EVEN THE FORM DOES NOT GIVE ANY SUCH PRESCRIPTION O R METHODOLOGY OF SEGREGATING THE TRANSACTION IN 2 PARTS FOR THE PURP OSES OF SETTING OFF THE LOSS WITH GAINS ARISING FROM TRANSACTIONS OF TRANSFER O F SHORT TERM CAPITAL ASSETS. 5 ITA NO.4751/MUM/2009 ASSESSMENT YEAR : 2005-05 THUS, I AM OF THE CONSIDERED VIEW THAT THE SET OFF OF LOSS WITH GAINS IS AVAILABLE FOR THE ENTIRE FINANCIAL YEAR WITHOUT ANY SUCH BIFURCATION OF SET OFF OF LOSS WITH GAINS DISTRIBUTED IN TWO PERIODS AND I N FACT EVEN THE AO HAS ALLOWED THE SET OFF OF LOSS WITH GAINS OF THE ENTIR E YEAR AFTER DIVIDING THE SAME INTO 2 PERIODS. HOWEVER HE HAS IGNORED THE PRO VISIONS OF THE ACT WHICH DO NOT LAY DOWN ANY CONCEPT OR METHODOLOGY FO R ADJUSTMENT OF LOSS WITH GAINS IN 2 PERIODS SEPARATELY AND INDEPENDENTL Y. AS PER THE PROVISIONS OF THE ACT, SECTION 70 DEALS WITH INTRA-HEAD SET OF F AND SECTION 71 DEALS WITH INTER-HEAD SET OFF. BUT THERE IS NO PROVISION IN TH E ACT WHICH PROVIDES FOR INTRA-HEAD SET OFF OF LOSS TO BE FURTHER DIVIDED IN TO TWO PARTS/PERIODS FOR SET OFF OF LOSS. 8. IN THIS CONNECTION, THE CIRCULAR ISSUED BY THE C BDT IN THE YEAR 1955 IS HELPFUL IN INTERPRETING WHETHER ANY OPTION IS AVAIL ABLE TO THE APPELLANT TO SET OFF THE LOSS WITH GAINS AND OFFER THE GAINS FOR TAX ATION AT THE RATE OF 10%. THE CIRCULAR CLEARLY SPELLS OUT THAT CONSTRUCTION MOST BENEFICIAL TO THE ASSESSEE NEEDS TO BE ADOPTED AND THE DEPARTMENT SHOULD ADOPT THE MODE WHICH GIVES THE MAXIMUM BENEFIT TO THE ASSESSEE. KEEPING IN VIE W THE SAID CIRCULAR OF THE CBDT, THE OPTION IS AVAILABLE TO THE ASSESSEE AND NOT TO THE DEPARTMENT FOR GIVING THE BENEFIT TO THE ASSESSEE. THUS, IN TE RMS OF SET OFF OF LOSS WITH GAINS, IT IS THE ASSESSEE WHO IS HAVING THE OPTION TO SET OFF THE LOSS WITH GAINS IN SUCH A MANNER THAT WOULD GIVE HIM/HER MAXIMUM BE NEFIT. IN THIS VIEW OF THE MATTER, THE COMPUTATION OF SHORT TERM CAPITAL G AINS AS PER THE APPELLANT WOULD NEED TO BE ACCEPTED SINCE THE OPTION IS GIVEN TO THE APPELLANT TO MAXIMIZE THE BENEFIT OF THE PROVISIONS. IN FACT, IN THE PRESENT CASE, THE APPELLANT HAS FOLLOWED THE GENERAL CONCEPT OF ACCOU NTING PRINCIPLE AND WELL ESTABLISHED METHOD OF ACCOUNTING I.E. FIFO AS BASIS FOR COMPUTING THE SET OFF OF LOSS WITH GAINS I.E. THE FIRST GAIN IS TO BE SET OFF AGAINST THE FIRST LOSS AND THEREAFTER, IF STILL THERE IS A NET GAIN IN THE FIR ST HALF, IT WILL BE SET-OFF WITH THE LOSS IN THE 2 ND HALF. SINCE, I HAVE ALREADY HELD THAT THERE IS NO CONCEPT OF SETTING OFF THE LOSS WITH GAINS BY DISTRIBUTING THE SAME IN TWO DIFFERENT PERIODS, THE APPELLANT HAS MERELY SET OFF THE FIRST GAIN WITH FIRST LOSS AND THE NET SHORT TERM CAPITAL GAINS ARISING IN THE EARLIER PART OF THE FINANCIAL YEAR IS THEN SET OFF AGAINST THE FURTHER LOSS, IF ANY, ARIS ING DURING THE FINANCIAL YEAR. THE NET RESULT (GAIN OR LOSS) SO ARRIVED AT WILL TH EN BE ADJUSTED AGAINST THE GAIN ARISING IN THE 2 ND PERIOD. IF THE ULTIMATE RESULT AFTER SET OFF OF LO SS WITH GAINS IS A NET GAINS WHICH IS EQUAL TO OR LESS THAN THE SHORT TERM CAPITAL GAIN EARNED IN THE LATER PART OF THE FINANCIAL YEAR, THE N THIS ULTIMATE NET SHORT TERM CAPITAL GAINS WOULD BE CHARGEABLE AT THE RATE OF 10 % AND NOT 30%. SINCE IN THE FACTS OF THE CASE OF THE APPELLANT, THE SHORT T ERM CAPITAL GAIN OFFERED FOR 6 ITA NO.4751/MUM/2009 ASSESSMENT YEAR : 2005-05 TAXATION IS LESS THAN THE OVERALL SHORT TERM CAPITA L GAIN EARNED WITH EFFECT FROM 1/10/2004, THE SAME SHOULD BE HELD TO BE GAINS EARNED IN THE LATER PERIOD AND HENCE, THE RATE OF TAXATION APPLICABLE W OULD BE 10% AND NOT 30% AS ADOPTED BY THE AO. 9. THE DECISIONS RELIED UPON BY THE AR ARE APPLICAB LE AS REGARDS THE OPTION AVAILABLE TO THE APPELLANT IS CONCERNED. IN THE CASE BEFORE THE MUMBAI ITAT IN MOHANLAL N. SHAH (HUF), SUPRA, THE FACTS WE RE THAT THE ASSESSEE SOLD SHARES AND UNITS OF TWO CONCERNS. IN RESPECT O F SALE OF SHARES THE ASSESSEE OPTED FOR NOT TAKING BENEFIT OF INDEXATION AS PER PROVISO TO SECTION 48 AND TO PAY TAX @10% AS PROVIDED U/S. 112, WHEREA S IN RESPECT OF SALE OF UNITS OF ONE OF THE CONCERNS THE ASSESSEE OPTED FOR TAKING BENEFIT OF INDEXATION AS PER PROVISO TO SECTION 48 AND THEREAF TER THE ASSESSEE SET OFF THE LOSS ARISING FROM SALE OF UNITS WITH THAT OF GAINS ARISING FROM SALE OF SHARES. THE AO HELD THAT THE ASSESSEE COULD NOT AVAIL THE B ENEFIT OF INDEXATION ON A PICK AND CHOOSE BASIS AND THAT THE CAPITAL GAINS BE CALCULATED ON ONE OF THE BASIS ADOPTED, WHICH WAS CONFIRMED BY CIT(A). THE T RIBUNAL HOWEVER HELD THAT LEGISLATURE HAS INTENDED THAT THE ASSESSEE MAY AVAIL THE BENEFIT OF INDEXATION ON EACH OF THE SPECIFIED LONG-TERM CAPIT AL ASSET AND PAY 20 PER CENT TAX THEREON OR PAY 10 PER CENT WITHOUT INDEXAT ION. THE TRIBUNAL SPECIFICALLY HELD THAT THE OPTION IS WITH THE ASSES SEE AND THAT OPTION CAN BE EXERCISED ON PICK AND CHOOSE BASIS. SIMILAR VIEW HA S BEEN TAKEN IN THE CASE OF DEVINDER PRASAD KALRA, SUSPRA. THEREFORE, IN THE ABSENCE OF ANY SPECIFIC PROVISION IN THE ACT THE OPTION IS AVAILABLE WITH T HE APPELLANT IN THE MATTER OF SET OFF OF LOSS WITH GAINS WITHOUT GIVING ANY CONSI DERATION TO THE RATES OF TAXATION. 10. IN REGARD TO THE GENERAL PRINCIPLE OF INTERPRET ATION, WHERE THE LANGUAGE IS CLEAR AND NOT CAPABLE OF ANY OTHER CONSTRUCTION, THEN, HOWEVER ILLOGICAL THE POSITION, HOWEVER ABSURD THE RESULT, AND EVEN IF TH E SAID CONSTRUCTION MAY DEFEAT THE OBJECTS OF THE LEGISLATURE, THE STATUTE MUST BE CONSTRUED ACCORDING TO THE PLAIN LANGUAGE USED BY THE LEGISLATURE, AND MORE SO, IF THE PLAIN LANGUAGE SUPPORTS THE ASSESSEE AGAINST THE TAXING D EPARTMENT. IN CIT V. ELPHINSTONE SPG & WVG MILLS CO LTD, (1960) 40 ITR 1 42 (SC) THE SUPREME COURT HAS HELD THAT WHEN THE WORDS OF THE TAXING ST ATURE FAIL, SO MUST THE TAX. IN CIT V. NAGA HILLS TEA CO. LTD. (1973) 89 ITR 236 , 240 (SC), THE SUPREME COURT EXPLAINED THE POSITION THUS: IF A PR OVISION OF A TAXING STATUTE CAN BE REASONABLY INTERPRETED IN TWO WAYS, THAT INT ERNATION WHICH IS FAVOURABLE TO THE ASSESSEE, HAS GOT TO BE ACCEPTED. THIS IS A WELL ACCEPTED VIEW OF LAW IN VIEW OF THE ABOVE DISCUSSION THEREF ORE, I AM OF THE VIEW THAT 7 ITA NO.4751/MUM/2009 ASSESSMENT YEAR : 2005-05 THE APPELLANT IS ENTITLED TO HER CLAIM OF TAXATION OF NET SHORT TERM CAPITAL GAIN AT 10% AND THE AO IS DIRECTED TO TAX THE SHORT TERM CAPITAL GAINS AT THE RATE OF 10%. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE AS ABOVE, THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT A SIMILAR I SSUE HAD COME UP FOR CONSIDERATION BEFORE THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF FIRST STATE INVESTMENTS (HONGKONG) LTD. VS. ADIT (INTERNATIONAL TAXATION) R EPORTED IN 33 SOT 26 WHEREIN SHORT TERM CAPITAL GAIN WAS OFFERED TO TAX BY THE A SSESSEE ON THE BASIS OF FOLLOWING WORKING : RS. SHORT-TERM CAPITAL GAIN (UP TO SEPT.30, 2004) 3, 654,959 LESS : SHORT-TERM CAPITAL LOSS (UP TO SEPT.30, 2 004) (814,966) LESS : SHORT-TERM CAPITAL LOSS (POST SEPT.30, 20 04) (2,839,993) TOTAL NIL SHORT-TERM CAPITAL GAIN (POST SEPT. 30,2004) 47,216,333 LESS : SHORT-TERM CAPITAL LOSS (POST S EPT. 30,2004) (14,083,881) NET SHORT TERM CAPITAL GAIN TAXABLE @ 1 0% AS PER 33,132,452 SECTION 111A THE AO, HOWEVER, DID NOT ACCEPT THE ABOVE WORKING M ADE BY THE ASSESSEE FOR THE SAME REASONS AS GIVEN IN THE PRESENT CASE AND WORKE D OUT THE SHORT TERM CAPITAL GAINS AS UNDER : 8 ITA NO.4751/MUM/2009 ASSESSMENT YEAR : 2005-05 RS. SHORT-TERM CAPITAL GAIN ON SALE OF SHARES EARNED DURING THE PERIOD 1-4-04 TO 30-9-04 (OTHERS) 3,6 54,959 LESS: SHORT-TERM CAPITAL LOSS ON SALE OF SHARES ARISEN DURING THE PERIOD 1-4-04 TO 30-9-0 4 (OTHERS) (814,966) NET SHORT-TERM CAPITAL GAINS TAXABLE @ 30% 2,839,993 SHORT-TERM CAPITAL GAIN ON SALE OF SHARES EARNED ON OR AFTER 1-10-04 (UNDER SECTION 111A) 47,216,333 LESS : SHORT-TERM CAPITAL LOSS ON SALE OF SHARES A RISEN 16,923,874 NET SHORT-TERM CAPITAL GAINS TAXABLE @ 10 % UNDER SECTION 111A 30,292,459 ON APPEAL, THE LEARNED CIT(APPEALS) CONFIRMED THE A BOVE WORKING MADE BY THE AO AND WHEN THE MATTER REACHED TO THE TRIBUNAL ON F URTHER APPEAL FILED BY THE ASSESSEE, THE TRIBUNAL ACCEPTED THE WORKING MADE BY THE ASSESSEE WHILE OFFERING THE INCOME UNDER THE HEAD SHORT TERM CAPITAL GAIN FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPHS 8 TO 12 OF ITS ORDER : 8. AT THIS JUNCTURE, IT WILL BE RELEVANT TO CONSID ER THE LANGUAGE OF SECTION 70, WHICH RUNS AS UNDER : 70. (1) SAVE AS OTHERWISE PROVIDED IN THIS ACT, WH ERE THE NET RESULT FOR ANY ASSESSMENT YEAR IN RESPECT OF ANY SOURCE FA LLING UNDER ANY HEAD OF INCOME, OTHER THAN CAPITAL GAINS, IS A LO SS, 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 A NY ASSESSMENT YEAR UNDER SECTION 48 TO 55 IN RESPECT OF ANY SHORT-TERM CAPITAL ASSET IS A LOSS THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMO UNT OF SUCH LOSS SET- OFF AGAINST THE INCOME, IF ANY, AS ARRIVED AT UNDER A SIMILAR 9 ITA NO.4751/MUM/2009 ASSESSMENT YEAR : 2005-05 COMPUTATION MADE FOR THE ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASSET. (3) WHETHER THE RESULT OF THE COMPUTATION MADE FOR ANY ASSESSMENT YEAR UNDER SECTION 48 TO 55 IN RESPECT OF ANY CAPIT AL ASSET (OTHER THAN A SHORT-TERM CAPITAL ASSET) IS A LOSS, THE ASSESSEE S HALL BE 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 ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASSET NOT BEING A SHORT-TERM C APITAL ASSET. 9. THE SECTION IN THE PRESENT FORM WAS SUBSTITUTED BY THE FINANCE ACT, 2002 WITH EFFECT FROM 1-4-2003. PRIOR TO THE AMENDM ENT SECTION 70 READS AS UNDER : SECTION 70. SET-OFF OF LOSS FROM ONE SOURCE AGAINS T INCOME FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME. SAVE AS OTHERWISE PROVIDED IN THIS ACT, WHERE THE NET RESULT FOR ANY ASSESSMENT YEAR IN RESPECT OF ANY SOURCE FALLING UNDER ANY HEAD OF INC OME IS A LOSS, THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SU CH LOSS SET-OFF AGAINST HIS INCOME FROM ANY OTHER SOURCE UNDER THE SAME HEAD. 10. ON A COMPARATIVE READING OF BOTH THE SETS OF P ROVISIONS, IT CAN BE SEEN THAT WHEREAS THE PRE-SUBSTITUTED SECTION 70 PROVIDE D FOR THE SETTING OFF LOSS FROM ANY SOURCE AGAINST THE INCOME FROM ANY OTHER S OURCE UNDER THE SAME HEAD, THE NEW SECTION 70 HAS DRAWN A DISTINCTION BE TWEEN THE LOSS UNDER THE HEAD CAPITAL GAINS VIS--VIS THE OTHER HEADS OF I NCOME. SUB-SECTION (1) PROVIDES THAT IF THERE IS A LOSS IN RESPECT OF ANY SOURCE FALLING UNDER ANY HEAD OF INCOME OTHER THAN THE CAPITAL GAIN, THE ASSESSEE SHALL BE ENTITLED TO HAVE SET-FF THE LOSS FROM ONE SOURCE AGAINST ITS INCOME FROM ANY OTHER SOURCE UNDER THE SAME HEAD, SAY, PROFITS AND GAINS OF BUS INESS OR PROFESSION, HE SHALL BE ENTITLED TO HAVE SUCH LOSS SET-FF AGAINST INCOME FROM ANY OTHER SOURCE FALLING UNDER THE SAME HEAD. FOR EXAMPLE, IF THERE IS A LOSS IN BUSINESS ONE AND PROFIT IN BUSINESS TWO, THE ASSESS EE IS ENTITLED TO SET-FF THE LOSS FROM BUSINESS ONE AGAINST THE PROFIT OF BUSINE SS TWO. HOWEVER, A DIFFERENT TREATMENT HAS BEEN PRESCRIBED FOR THE SET -OFF OF LOSSES FROM ONE SOURCE AGAINST THE INCOME FROM OTHER SOURCE(S) UNDE R THE HEAD CAPITAL GAINS. SUB-SECTION (2) OF SECTION 70 DEALS WITH TH E SET-OFF OF ANY SHORT-TERM 10 ITA NO.4751/MUM/2009 ASSESSMENT YEAR : 2005-05 CAPITAL LOSS WITH ANY OTHER CAPITAL GAIN. IT MEANS THE INTERHEAD SET-OFF OF SHORT-TERM CAPITAL LOSS IS PERMISSIBLE AGAINST ANY INCOME UNDER THE HEAD CAPITAL GAIN. HOWEVER, THE POSITION IS SLIGHTLY D IFFERENT UNDER SUB-SECTION (3) WHEN IT COMES TO DEALING WITH THE SET-OFF OF LO NG- TERM CAPITAL LOSS. THIS PROVISION STATES THAT THE LONG-TERM CAPITAL LOSS CA N BE SET-OFF ONLY AGAINST THE LONG-TERM CAPITAL GAIN AND NOT THE SHORT-TERM CAPIT AL GAIN. SO THE OPTION WHICH IS AVAILABLE TO THE ASSESSEE FOR SETTING OFF THE SHORT-TERM CAPITAL LOSS AGAINST THE SHORT-TERM CAPITAL GAIN OR LOSS-TERM CA PITAL GAIN, IS NOT THERE WHEN THERE IS A LONG-TERM CAPITAL LOSS, WHICH CAN B E SET-OFF ONLY AGAINST THE LONG-TERM CAPITAL GAIN AND NOT AGAINST THE SHORT-TE RM CAPITAL GAIN. 11. IN THE PRESENT APPEAL, THE CONTROVERSY IS STILL NARROWER INASMUCH AS THE SHORT-TERM CAPITAL LOSS WHICH WAS SET-OFF BY THE A SSESSEE AGAINST THE SHORT- TERM CAPITAL GAIN, HAS BEEN ACCEPTED AND THE NET FI GURE OF SHORT TERM CAPITAL GAIN AFTER SET-OFF OF SHORT-TERM CAPITAL LOSS CONTI NUES TO REMAIN THE SAME. THE DISPUTE IS ONLY ABOUT THE CHOICE OF SETTING OFF OF SHORT-TERM CAPITAL LOSS SUFFERED AFTER THE CUT-OFF DATE AGAINST THE SHORT T ERM CAPITAL GAIN EARNED PRIOR TO THE CUT-OFF DATE. THIS POSITION HAS ARISEN DUE T O THE INTRODUCTION OF SECTION 111A FOR THE FIRST TIME FROM THIS YEAR ONLY WHICH P ROVIDES FOR LOWER RATE OF TAX ON SHORT-TERM CAPITAL GAINS ARISING ON THE TRAN SACTIONS WHICH HAVE SUFFERED SECURITIES TRANSACTION TAX. IT IS FURTHER PERTINENT TO MENTION THAT SUCH DISPUTE IS RELEVANT ONLY FOR THE FIRST YEAR OF THE OPERATION OF THIS PROVISION AND CANNOT CROP UP IN THE LATER YEARS. HERE WE ARE CONCERNED WITH THE SET-OFF OF SHORT-TERM CAPITAL LOSS FROM ONE OR MORE TRANSAC TIONS WITH THE SHORT-TERM CAPITAL GAIN FROM ONE OR MORE TRANSACTIONS SPREAD O VER THE YEAR, BOTH BEFORE AND AFTER THE CUT-OFF DATE. EFFECTIVELY THE QUESTIO N IS ABOUT THE SETTING OFF OF SHORT-TERM CAPITAL LOSS AND SUCH SET-OFF IS GOVERNE D BY SUB-SECTION (2) OF SECTION 70, WHICH HAS BEEN REPRODUCED ABOVE. PRIMAR ILY THE USE OF WORD ANY TO REPRESENT THE TRANSACTION WHICH RESULTED I N THE SHORT-TERM CAPITAL LOSS OR SHORT-TERM CAPITAL GAIN, AS THE CASE MAY BE , FROM EACH TRANSACTION DISTINCTLY, SUPPOSE THE ASSESSEE ENTERED INTO ONE T RANSACTION OF PURCHASE AND SALE OF THE SHARES OF COMPANY A, WHICH RESULTED I NTO SHORT-TERM CAPITAL LOSS AND THERE ARE OTHER 9 TRANSACTIONS OF PURCHASE AND SALE OF SHARES WHICH RESULTED INTO SHORT-TERM CAPITAL LOSS OR SHORT-TERM CAPITAL GAIN AS THE CASE MAY BE, IT IS MANDATORY TO DETERMINE SHORT-TERM CAP ITAL LOSS OR SHORT-TERM CAPITAL GAIN IN RESPECT OF EACH OF THE 10 TRANSACTI ONS. THEN THE EMPLOYMENT OF THE EXPRESSION ANY OTHER CAPITAL ASSET IN THE LATER PART OF THE SUB-SECTION FOR THE PURPOSE OF SET-OFF CLEARLY INDICATES THAT THE SHORT-TERM CAPITAL LOSS 11 ITA NO.4751/MUM/2009 ASSESSMENT YEAR : 2005-05 FROM ONE TRANSACTION HAS TO BE CONSIDERED DISJOINTE DLY FOR SET-OFF AGAINST THE SHORT-TERM CAPITAL GAIN OF ANY OTHER TRANSACTION. F URTHER PRESUME THAT IN THE ABOVE EXAMPLE, ALL 9 OTHER TRANSACTIONS RESULTED IN TO PROFIT. NOW THE QUESTION TO BE DECIDED IS AS TO WHO WILL HAVE THE LAST WORD TO DETERMINE THE PREFERENCE OVER THE ORDER OF THE SET-OFF OF LOSS FR OM THE FIRST TRANSACTION WITH THE SHORT-TERM CAPITAL GAIN IN ANY OR THE OTHER 9 T RANSACTIONS. THE RELEVANT WORDS USED SOMEWHERE IN BETWEEN SUB-SECTION (2) ARE THAT THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET-OFF AGAINST THE INCOME IN RESPECT OF ANY OTHER CAPITAL ASSET. PRIMA FACIE THER IS CUE IN THE LANGUAGE OF THE SUB-SECTION THAT THE OPTION IS WITH THE ASSE SSEE AND HE WILL DECIDE AS TO WHETHER THE SHORT-TERM CAPITAL LOSS FROM THE FIRST TRANSACTION OUGHT TO BE SET OFF AGAINST THE SHORT-TERM CAPITAL GAIN OF THE TRAN SACTION NO.2 OR 3 OR 4, ETC. AS THE CASE MAY BE. OUR VIEW ABOUT THE VESTING OF T HE DISCRETION IN ASSESSEE FOR THE PURPOSES OF SET-OFF OF SHORT-TERM CAPITAL L OSS AGAINST ANY SHORT-TERM CAPITAL GAIN IS FORTIFIED WHEN THE LANGUAGE OF SUB- SECTION (3) OF SECTION 70 IS CONSIDERED, WHICH SPECIFICALLY PROHIBITS THE SETTIN G OFF OF LONG TERM CAPITAL LOSS AGAINST SHORT-TERM CAPITAL GAIN. IT HAS BEEN P ROVIDED IN UNAMBIGUOUS WORDS IN SUB-SECTION (3) THAT THE LONG-TERM CAPITAL LOSS CAN BE SET OFF ONLY AGAINST LONG-TERM CAPITAL GAIN AND NOT AGAINST THE SHORT-TERM CAPITAL GAIN. IF THE INTENTION OF THE LEGISLATURE HAD BEEN NOT TO CO NFER THE CHOICE ON THE ASSESSEE IN THE MATTER OF SETTING OFF OF THE SHORT- TERM CAPITAL LOSS SUFFERED IN THE POST CUT-OFF DATE AGAINST THE SHORT-TERM CAPITA L GAIN OF THE PRE-CUT-OFF DATE, IT WOULD HAVE CLEARLY SET OUT SUCH INTENTION IN THE LANGUAGE OF SUB- SECTION (2) ITSELF, AS HAS BEEN DONE IN SUB-SECTION (3). IN THE ABSENCE OF ANY STIPULATION IN THE REGARD IN SUB-SECTION (2), WE AR E SATISFIED THAT THE CHOICE HAS BEEN LEFT OVER TO THE ASSESSEE IN TAKING DECISI ON ABOUT THE SETTING OFF OF SHORT-TERM CAPITAL LOSS FROM ONE TRANSACTION AGAINS T ANY OTHER SHORT-TERM CAPITAL GAIN WHETHER WITHIN OR OUTSIDE THE CUT-OFF DATE. IF HIGHER BENEFIT POURS IN FROM THE EXERCISE OF THE OPTION IN A PARTI CULAR WAY VIS--VIS THE LOWER BENEFIT RESULTING IN THE OTHER WAY, THEN THE HIGHER BENEFIT AVAILABLE AS PER LAW SHOULD NOT BE DENIED. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MONTGOMERY EMERGING MARKETS FUND (SUPRA) HAS ALS O RULED IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE SET-OFF OF LONG-TE RM CAPITAL LOSS AGAINST THE SHORT-TERM CAPITAL GAIN WAS PERMISSIBLE UNDER SECTI ON 70, IN THE PERIOD PRIOR TO THE AMENDMENT. ALMOST SIMILAR VIEW WAS TAKEN ALL OWING THE ASSESSEE TO EXERCISE OPTION IN V.R. NIMBKARS CASE (SUPRA). 12 ITA NO.4751/MUM/2009 ASSESSMENT YEAR : 2005-05 12. A LOT OF EMPHASIS HAS BEEN LAID BY THE LEARNED CIT(A) ON THE WORDS UNDER SIMILAR COMPUTATION MADE AS USED IN SUB-SEC TION (2). HE HAS OPINED THAT THERE ARE TWO DIFFERENT CATEGORIES OF THE TRAN SACTIONS RESULTING INTO SHORT- TERM CAPITAL GAIN, VIZ, THOSE TAXABLE IN THE FIRST PERIOD AT THE RATE OF 30 PER CENT AND THOSE TAXABLE IN THE SECOND PERIOD AT THE RATE OF 10 PER CENT AND SIMILAR COMPUTATION MADE REFERS TO EITHER OF THE TWO. IN OUR CONSIDERED OPINION, THERE IS A BASIC FALLACY IN THE VIEW ADOPT ED BY THE LEARNED CIT(A) ON THIS ISSUE. SECTIONS 111A AND 115AD FALL IN CHAP TER XII, WHICH PROVIDES FOR DETERMINATION OF TAX IN CERTAIN SPECIAL CASES. THUS, IT IS CLEAR THAT ALL THESE SECTIONS FROM 110 TO 115BC PROVIDE FOR A PART ICULAR RATE OF TAX TO BE APPLIED ON THE INCOMES COVERED UNDER THESE SECTIONS INDIVIDUALLY. HENCE, THESE SECTIONS DO NOT DEAL WITH THE COMPUTATION OF INCOME BUT ONLY PROVIDE FOR THE RATE OF TAX APPLICABLE ON THE INCOME. IT IS SIMPLE AND PLAIN THAT THE MATTER OF COMPUTATION OF INCOME IS A SUBJECT WHICH COMES ANTERIOR TO THE APPLICATION OF THE RATE OF TAX. ONLY WHEN THE INCOM E IS COMPUTED AS PER THE PROVISIONS OF THE ACT, THAT THE QUESTION OF THE APP LICABILITY OF THE CORRECT RATE OF INCOME-TAX COMES INTO BEING. INCOME UNDER THE HE AD CAPITAL GAINS IS DETERMINED AS PER SECTIONS 45 TO 55A. SECTION 48 WI TH THE HEADING MODE OF COMPUTATION PROVIDES THAT THE INCOME CHARGEABLE UN DER THE HEAD CAPITAL GAINS SHALL BE COMPUTED BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCURING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET, THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIV ELY IN CONNECTION WITH SUCH TRANSFER AND THE COST OF ACQUISITION OF THE AS SET ALONG WITH THE COST OF ANY IMPROVEMENT, IF ANY. THUS, THE COMPUTATION OF C APITAL GAIN, WHICH IS PRESCRIBED UNDER SECTION 48, CANNOT BE CONFUSED WIT H THE RATE OF TAX LIABLE TO BE CHARGED ON THE INCOME UNDER THE HEAD CAPITAL GA IN SO COMPUTED. WHEREAS, COMPUTATION OF CAPITAL GAIN IS GOVERNED BY SECTION 48, BUT THE RATES OF TAX, INSOFAR AS WE ARE CONCERNED IN THE PRESENT APPEAL, ARE GOVERNED BY SECTIONS 111A AND 115AD. 6. AS THE ISSUE INVOLVED IN THE PRESENT CASE AS WEL L AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THE CASE OF FIRST S TATE INVESTMENTS (HONGKONG) LTD. (SUPRA), WE RESPECTFULLY FOLLOW THE DECISION OF COO RDINATE BENCH OF THIS TRIBUNAL RENDERED IN THE SAID CASE AND UPHOLD THE IMPUGNED O RDER OF THE LEARNED CIT(APPEALS) ALLOWING RELIEF TO THE ASSESSEE ON THI S ISSUE. 13 ITA NO.4751/MUM/2009 ASSESSMENT YEAR : 2005-05 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON THIS 9 TH DAY OF SEPT. , 2011. SD/- SD/- (VIJAY PAL RAO) (P.M. JAGTAP) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI, DATED: 9 TH AUGUST , 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, I-BENCH. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES , MUMBAI. WAKODE