VIBHADEEP INVESTMENT & TRADING LTD, MUMBAI V. ASST CIT (OSD) 3(3), MUMBAI

ITA 4751/MUM/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2143 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 11-11-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 17-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Earning of tax free income; Cost of acquisition
• Section: 143(3); 2(14)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO. 4751/MUM/2012 (ASSESSMENT YEAR: 2005-06) M/S. VIBHADEE P INVESTMENT S & VS. ACIT (OSD) - 3(3) TRADING LIMITED MAFATLAL HOUSE, BACKBAY RECLAMATION, MUMBAI 400020 ROOM NO. 620 AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAN AAACV1946M APPELLANT RESPONDENT APPELLANT BY: SMT. ARATI VISSANJI RESPONDENT BY: SHRI G.M. DOSS DATE OF HEARING: 25.10.2016 DATE OF PRONOUNCEMENT: 28.10.2016 O R D E R PER JASON P. BOAZ, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)- 7, MUMBAI DATED 05.03.2012 FOR A.Y. 2005-06. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER: - 2.1 THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF INVESTMENTS IN SHARES, DEBENTURES AND BONDS, FILED ITS RETURN OF I NCOME FOR A.Y. 2005-06 ON 29.10.2005 DECLARING LOSS OF ` 23,28,41,984/-. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX AC T, 1961 (IN SHORT, 'THE ACT') AND THE CASE WAS SUBSEQUENTLY TAKEN UP FOR SC RUTINY. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 31.12.2007; WHEREIN THE ASSESSEES INCOME WAS DETER MINED AT NIL, THEREBY DISALLOWING THE ASSESSEES CLAIM OF CARRY FORWARD O F LOSS FOR FUTURE SET OFF OF THE LONG TERM CAPITAL LOSS (LTCL) OF ` 23,28,41,984/- ARISING ON SALE OF 19,98,241 SHARES OF NOCIL IN AUGUST, 2004 WHICH HAD BEEN PLEDGED WITH BAJAJ AUTO LTD. AGAINST NON-CONVERTIBLE PREFERENCE SHARES ISSUED BY SUSHMITA HOLDINGS LTD. ITA NO. 4751/MUM/2012 M/S. VIBHADEEP INVESTMENTS & TRADING LTD. 2 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR A.Y. 2 005-06 DATED 31.12.2007, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A)-7, MUMBAI. THE LEARNED CIT(A) DISPOSED OFF THE ASSESSEES APPE AL VIDE THE IMPUGNED ORDER DATED 05.03.2012 ALLOWING THE ASSESSEE PARTIA L RELIEF. THE LEARNED CIT(A), HOWEVER, DISMISSED THE ASSESSEES GROUNDS R AISED IN RESPECT OF ITS CLAIM OF CARRY FORWARD FOR FUTURE SET OFF OF ITS LT CL OF ` 23,28,41,984/- ARISING ON ACCOUNT OF SALE OF 19,98,241 SHARES OF N OCIL PLEDGED WITH BAJAJ AUTO LTD. AGAINST THE NON-CONVERTIBLE PREFERENCE SH ARES ISSUED BY SUSHMITA HOLDING LTD. 3. AGGRIEVED BY THE ORDER OF THE CIT(A)-7, MUMBAI DATE D 05.03.2012 FOR A.Y. 2005-06, THE ASSESSEE HAS PREFERRED THIS APPEA L RAISING THE FOLLOWING GROUNDS: - 1.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, ERRED IN HOLDING THAT LONG TERM CAPITAL LOSS SUSTAINED ON SALE OF EQUITY SHARES OF NOCIL LTD., IS NOT ALLOWED TO BE CARRIED FORWARD FO R FUTURE SET OFF. 1.2 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, OUGHT TO HAVE HELD THAT LONG TERM CAPITAL LOSS SUSTAINED ON SALE OF EQ UITY SHARES OF NOCIL LTD., IS ALLOWED TO BE CARRIED FORWARD FOR FU TURE SET OFF. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL HEREIN AND TO SUBMI T SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDER ED NECESSARY AT ANY TIME BEFORE OR AT THE TIME OF HEAR ING THE APPEAL. 4. GROUND NO. 1 ( 1.1 & 1.2) ALLOWABILITY OF LTCL TO BE CARRIED FORWARD 4.1 IN THESE GROUNDS, THE ASSESSEE ASSAILS THE DEC ISION OF THE LEARNED CIT(A) IN HOLDING THAT LTCL SUSTAINED ON SALE OF EQ UITY SHARES OF NOCIL LTD. IS NOT TO BE ALLOWED TO BE CARRIED FORWARD FOR FUTURE SET OFF. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE ES CLAIM, THAT THE AFORESAID LTCL ON SALE OF EQUITY SHARES OF NOCIL LT D. BE ALLOWED TO BE CARRIED FORWARD FOR SET OFF, IS COVERED BY THE DECI SION OF A COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF RAPTAKOS BRETT & CO . LTD. IN ITA NOS 3317/MUM/.2009 AND 1962/MUM/2010 DATED 10.06.2015. ITA NO. 4751/MUM/2012 M/S. VIBHADEEP INVESTMENTS & TRADING LTD. 3 4.2 PER CONTRA, THE LEARNED D.R. SUPPORTED AND PLAC ED STRONG RELIANCE ON THE DECISION OF THE LEARNED CIT(A) IN THE IMPUGNED ORDER. 4.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED. THE FACTS OF THE MATTER, AS EMANATE FROM THE RECORD, ARE THAT EVIDENTLY THE ASSESSEE HAD PLEDGED SHARES OF NOCIL WITH BAJAJ AUTO LTD. AS A GUARANTOR IN THE ORDINARY COURSE OF BUSINESS VIDE AN AGREEMENT AGAINST THE NON-CONVERTIBLE PREFERENCE SHARES ISSUED BY SUS HMITA HOLDINGS LTD. TO BAJAJ AUTO LTD. M/S. BAJAJ AUTO LTD. INVOKED THE PL EDGE OF SHARES AND SOLD 19,98,241/- SHARES BETWEEN 04.01.2005 AND 11.01.200 5 IN ORDER TO REALIZE MONIES DUE AGAINST THEIR REDEMPTION AND ARREARS OF DIVIDEND AND ACCORDINGLY TRANSFERRED THE SHARES IN ITS OWN NAME. THE SAID SALE RESULTED IN A LTCL OF ` 23,28,41,984/- WHICH THE ASSESSEE CARRIED FORWARD F OR SET OFF IN SUBSEQUENT YEARS. THE AUTHORITIES BELOW OBSERVED THAT SINCE LTCL FROM TRANSFER OF EQUITY SHARES ARE EXEMPT FROM TAX W.E.F . 01.04.2005, I.E. A.Y. 2005-06, THE ASSESSEES CLAIM IN RESPECT OF LTCL TO BE CARRIED FORWARD FOR SET OFF IS NOT ALLOWABLE. 4.3.2 WE HAVE CAREFULLY PERUSED THE ORDER OF THE CO ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF RAPTAKOS BRETT & CO. LTD. I N ITA NOS 3317/MUM/2009 AND 1692/MUM/2010 DATED 10.06.2015, R ELIED UPON BY THE ASSESSEE. WE FIND THAT THE ISSUE OF THE ALLOWAB ILITY OR OTHERWISE OF THE CARRY FORWARD AND/OR SET OFF OF LTCL ON SALE OF SHA RES, AS IN THE SIMILAR ISSUE IN THE CASE ON HAND ALSO, HAS BEEN CONSIDERED AND ADJUDICATED AT PARAS 3 TO 10 THEREOF AS UNDER; HOLDING THAT ASSESS EE IS TO BE ALLOWED TO CLAIM SET OFF OF LTCL ON SALE OF SHARES: - 3. THE BRIEF FACTS OF THE CASE, QUA THE ISSUE RAIS ED IN GROUND NO.1 ARE THAT THE ASSESSEE IS A PHARMACEUTICAL COMPANY, ENGAGED IN MANUFACTURING AND SALE OF PHARMACEUTICALS, FORMULAT IONS, DIETETIC SPECIALITIES AND ANIMAL HUSBANDRY. THE ASSESSEE IN THE COMPUTATION OF INCOME HAD SHOWN LONG TERM CAPITAL LOSS ON SALE OF SHARES AMOUNTING TO RS.57,32,835/- AND LOSS ON SALE OF MUT UAL FUNDS UNITS AMOUNTING TO RS.2,61,655/-. THE SAID LONG TERM CAP ITAL LOSS HAS BEEN SET OFF AGAINST THE LONG TERM CAPITAL GAINS OF RS.94,12,00,000/- ARISING FROM SALE OF LAND AT CHENNAI. THE ASSESSIN G OFFICER HELD THAT THE LOSSES CLAIMED CANNOT BE ALLOWED SINCE THE INCO ME FROM LONG TERM CAPITAL GAIN ON SALE OF SHARES AND MUTUAL FUNDS ARE EXEMPT U/S. ITA NO. 4751/MUM/2012 M/S. VIBHADEEP INVESTMENTS & TRADING LTD. 4 10(38). THAT APART, OF THE LONG TERM CAPITAL LOSS IN RESPECT OF SHARES WHERE SECURITIES TRANSACTION TAX HAS BEEN DEDUCTED, WOULD HAVE BEEN EXEMPT FROM LONG TERM CAPITAL GAIN HAD THERE BEEN P ROFITS, THEREFORE, LONG TERM CAPITAL LOSS FROM SALE OF SHARES CANNOT B E SET OFF AGAINST THE LONG TERM CAPITAL GAIN ARISING OUT OF THE SALE OF LAND. 4. THE LEARNED CIT(A) TOO HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT EXEMPT PROFIT OR LOSS CO NSTRUES SEPARATE SPECIES OF INCOME OR LOSS AND SUCH EXEMPT SPECIES O F INCOME OR LOSS CANNOT BE SET OFF AGAINST THE TAXABLE SPECIES OF IN COME OR LOSS. TAX EXEMPT LOSSES CANNOT BE DEDUCTED FROM TAXABLE INCOM E AND, THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY DISALL OWED THE CLAIM OF LOSSES FROM SHARES TO BE SET OFF AGAINST THE LONG T ERM CAPITAL GAIN FROM SALE OF LAND. 5. BEFORE US THE LEARNED SENIOR COUNSEL, SHRI SOLI DASTUR, SUBMITTED THAT WHAT IS CONTEMPLATED IN SECTION 10(38) IS EXEM PTION OF POSITIVE INCOME AND LOSSES WILL NOT COME WITHIN THE PURVIEW OF THE SAID SECTION. THE SET OFF OF LONG TERM CAPITAL LOSS HAS BEEN CLEARLY PROVIDED IN SECTIONS 70 AND 71. THE LEGISLATION HA S NOT PUT ANY EMBARGO TO EXCLUDE LONG TERM CAPITAL LOSS FROM SALE OF SHARES TO BE SET OFF AGAINST LONG TERM CAPITAL GAIN ARISING ON A CCOUNT OF SALE OF OTHER CAPITAL ASSET. EVEN IN THE DEFINITION OF CAP ITAL ASSET U/S. 2(14), NO EXCEPTION OR EXCLUSION HAS BEEN PROVIDED TO EQUI TY SHARES THE PROFIT/GAIN OF WHICH ARE TREATED AS EXEMPT U/S. 10( 38). CAPITAL GAIN IS CHARGEABLE ON TRANSFER OF A CAPITAL ASSET U/S. 45 A ND MODE OF COMPUTATION HAS BEEN ELABORATED IN SECTION 48. CER TAIN EXCEPTIONS HAVE BEEN PROVIDED IN SECTION 47 TO THOSE TRANSACTI ONS WHICH ARE NOT REGARDED AS TRANSFER. NOTHING HAS BEEN MENTIONED I N SECTIONS 45 TO 48 THAT CAPITAL GAIN OR LOSS ON SALE OF SHARES ARE TO BE EXCLUDED AS SECTION 10(38) EXEMPTS THE INCOME ARISING FROM THE TRANSFER OF LONG TERM CAPITAL ASSET BEING AN EQUITY SHARE OR UNIT. LEGISLATURE HAS GIVEN EXEMPTION TO INCOME ARISING FROM TRANSFER OF LONG TERM CAPITAL ASSET BEING AN EQUITY SHARE IN COMPANY OR UNIT OF E QUITY ORIENTED FUND, WHICH IS CHARGEABLE TO STT. SECTION 10(38) C ANNOT BE READ INTO SECTION 70 OR 71 OR SECTIONS 45 TO 48. IN SUPPORT OF HIS CONTENTION, HE STRONGLY RELIED UPON THE DECISION OF HONBLE CALCUT TA HIGH COURT IN THE CASE OF ROYAL CALCUTTA TURF CLUB V. CIT (1983) 144 ITR 709 (CAL). IN THIS DECISION HE SUBMITTED THAT SIMILAR ISSUE WITH REGARD TO THE LOSSES ON ACCOUNT OF BREEDING HORSES AND PIGS WHICH ARE EX EMPT U/S. 10(27) WHETHER CAN BE SET OFF AGAINST ITS INCOME OF OTHER SOURCE UNDER THE HEAD BUSINESS. THE HONBLE HIGH COURT AFTER CONSI DERING THE RELEVANT PROVISIONS OF SECTION 10(27) AND SECTION 7 0, HELD THAT SECTION 10(27) EXCLUDES IN EXPRESSED TERMS ONLY ANY INCOME DERIVED FROM BUSINESS OF LIVESTOCK BREEDING, POULTRY OR DAIRY FA RMING. IT DOES NOT EXCLUDE THE BUSINESS OF LIVESTOCK BREEDING, POULTRY OR DAIRY FARMING FROM THE OPERATION OF THE ACT. THE LOSSES SUFFERED BY THE ASSESSEE IN RESPECT OF LIVESTOCK, BREEDING WERE HELD TO BE ADMI SSIBLE FOR DEDUCTION AND WERE ALLOWED TO BE SET OFF AGAINST OTHER BUSINE SS INCOME. HE DREW OUR ATTENTION TO THE VARIOUS OBSERVATIONS AND FINDINGS OF THE HONBLE HIGH COURT AND ALSO THE RELIANCE PLACED BY THEIR LORDSHIPS TO ITA NO. 4751/MUM/2012 M/S. VIBHADEEP INVESTMENTS & TRADING LTD. 5 VARIOUS DECISIONS OF HONBLE SUPREME COURT, ESPECIA LLY IN THE CASE OF CIT VS. KARAMCHAND PREMCHAND LTD. (1960) 40 ITR 106 . HE ALSO REFERRED TO VARIOUS OBSERVATIONS OF HONBLE SUPREME COURT FROM THE SAID DECISION. THUS, HE SUBMITTED THAT THE LOSSES ON ACCOUNT OF SALE OF SHARES SHOULD BE ALLOWED TO BE SET OFF AGAINST L ONG TERM CAPITAL GAIN ON SALE OF LAND. IN HIS FAIRNESS, HE ALSO POI NTED OUT BEFORE US THAT THERE IS A DECISION OF HONBLE GUJARAT HIGH CO URT IN THE CASE OF KISHOREBHAI BHIKHABHAI VIRANI VS. ASST. CIT (2014) 367 ITR 261 (GUJ), WHICH HAS DECIDED THIS ISSUE AGAINST THE ASSESSEE. HOWEVER, HE SUBMITTED THAT IN THE SAID DECISION, THE DECISION O F HONBLE CALCUTTA HIGH COURT HAS NOT BEEN REFERRED AT ALL. THEREFORE , THIS DECISION DOES NOT HAVE PRECEDENCE VALUE AS COMPARED TO THE CALCUT TA HIGH COURT DECISION, WHICH IS BASED ON SUPREME COURT DECISION ON THIS POINT. HE ALSO POINTED OUT THAT ITAT MUMBAI BENCH ALSO IN THE CASE OF SCHRADER DUNCAN LTD. VS. ADDL. CIT (2012) 50 SOT 68 HAS DECI DED SOMEWHAT SIMILAR ISSUE AGAINST THE ASSESSEE. HOWEVER, HE DI STINGUISHED THE SAID DECISION AND HIGHLIGHTED THE POINTS AS TO WHY SAID DECISION CANNOT BE FOLLOWED. 6. ON THE OTHER HAND, THE LEARNED DR STRONGLY RELIE D UPON THE ORDER OF THE AO AND CIT(A) AND SUBMITTED THAT, FIRSTLY, I F THE INCOME FROM THE LONG TERM CAPITAL GAIN ON SALE OF SHARES IS EXEMPT, THEN THE LOSS FROM SUCH SALE OF SHARES WILL ALSO NOT FORM PART OF THE TOTAL INCOME AND THEREFORE, THERE IS NO QUESTION OF SET OFF AGAINST OTHER INCOME OR LONG TERM CAPITAL GAIN ON DIFFERENT CAPITAL ASSET. SECO NDLY, THE DECISIONS OF HONBLE GUJARAT HIGH COURT AND ITAT MUMBAI TRIBUNAL SHOULD BE FOLLOWED. HE FURTHER SUBMITTED THAT IT IS QUITE A SETTLED LAW THAT INCOME INCLUDES LOSS ALSO AND, THEREFORE, IF THE IN COME FROM SALE OF SHARES DOES NOT FORM PART OF THE TOTAL INCOME, THEN THE LOSSES FROM SUCH SHARES ALSO WILL NOT FORM PART OF THE TOTAL IN COME. THUS, THE ORDER OF THE CIT(A) SHOULD BE CONFIRMED. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDERS. THE MAIN IS SUE BEFORE US IS, WHETHER LONG TERM CAPITAL LOSS ON SALE OF EQUITY SH ARES CAN BE SET OFF AGAINST LONG TERM CAPITAL GAIN ARISING ON SALE OF L AND OR NOT, AS THE INCOME FROM LONG TERM CAPITAL GAIN ON SALE OF SUCH SHARES ARE EXEMPT U/S. 10(38). THE NATURE OF INCOME HERE IN THIS CAS E IS FROM SALE OF LONG TERM CAPITAL ASSET, WHICH ARE EQUITY SHARES IN A COMPANY AND UNIT OF AN EQUITY ORIENTED FUND WHICH IS CHARGEABLE TO STT. FIRST OF ALL, LONG TERM CAPITAL GAIN HAS BEEN DEFINED UNDER SECTION 2(39A), AS CAPITAL GAINS ARISING FROM TRANSFER OF A LONG TERM CAPITAL ASSET. SECTION 2(14) DEFINES CAPITAL ASSET AND VARIOUS E XCEPTIONS AND EXCLUSIONS HAVE BEEN PROVIDED WHICH ARE NOT TREATED AS CAPITAL ASSET. SECTION 45 IS THE CHARGING SECTION FOR ANY PROFITS OR GAIN ARISING FROM A TRANSFER OF A CAPITAL ASSET IN THE PREVIOUS YEAR I. E. TAXABILITY OF CAPITAL GAINS. SECTION 47 ENLISTS VARIOUS EXCEPTIONS AND T RANSACTIONS WHICH ARE NOT TREATED AS TRANSFER FOR THE PURPOSE OF CAPI TAL GAIN U/S. 45. THE MODE OF COMPUTATION TO ARRIVE AT CAPITAL GAIN O R LOSS HAS BEEN ENUMERATED FROM SECTIONS 48 TO 55. FURTHER SUB SEC TION (3) OF SECTION 70 AND SECTION 71 PROVIDES FOR SET OFF OF LOSS IN R ESPECT OF CAPITAL GAIN. ITA NO. 4751/MUM/2012 M/S. VIBHADEEP INVESTMENTS & TRADING LTD. 6 8. FROM THE CONJOINT READING AND PLAIN UNDERSTANDIN G OF ALL THESE SECTIONS IT CAN BE SEEN THAT, FIRSTLY, SHARES IN TH E COMPANY ARE TREATED AS CAPITAL ASSET AND NO EXCEPTION HAS BEEN CARVED O UT IN SECTION 2(14), FOR EXCLUDING THE EQUITY SHARES AND UNIT OF EQUITY ORIENTED FUNDS THAT THEY ARE NOT TREATED AS CAPITAL ASSET. S ECONDLY, ANY GAINS ARISING FROM TRANSFER OF LONG TERM CAPITAL ASSET IS TREATED AS CAPITAL GAIN WHICH IS CHARGEABLE U/S. 45; THIRDLY, SECTION 47 DOES NOT ENLIST ANY SUCH EXCEPTION THAT TRANSFER OF LONG TERM EQUIT Y SHARES/FUNDS ARE NOT TREATED AS TRANSFER FOR THE PURPOSE OF SECTION 45 AND SECTION 48 PROVIDES FOR COMPUTATION OF CAPITAL GAIN, WHICH IS ARRIVED AT AFTER DEDUCTING COST OF ACQUISITION I.E. COST OF ANY IMPR OVEMENT AND EXPENDITURE INCURRED IN CONNECTION WITH TRANSFER OF CAPITAL ASSET, EVEN FOR ARRIVING OF GAIN IN TRANSFER OF EQUITY SHARES; LASTLY, SECTION 70 & 71 ELABORATES THE MECHANISM FOR SET OFF OF CAPITAL GAIN. NOWHERE, ANY EXCEPTION HAS BEEN MADE/ CARVED OUT WITH REGARD TO LONG TERM CAPITAL GAIN ARISING ON SALE OF EQUITY SHARES. THE WHOLE GENRE OF INCOME UNDER THE HEAD CAPITAL GAIN ON TRANSFER OF S HARES IS A SOURCE, WHICH IS TAXABLE UNDER THE ACT. IF THE ENTIRE SOUR CE IS EXEMPT OR IS CONSIDERED AS NOT TO BE INCLUDED WHILE COMPUTING TH E TOTAL INCOME THEN IN SUCH A CASE, THE PROFIT OR LOSS RESULTING F ROM SUCH A SOURCE DO NOT ENTER INTO THE COMPUTATION AT ALL. HOWEVER, IF A PART OF THE SOURCE IS EXEMPT BY VIRTUE OF PARTICULAR PROVISION OF TH E ACT FOR PROVIDING BENEFIT TO THE ASSESSEE, THEN IN OUR CONSIDERED VIE W IT CANNOT BE HELD THAT THE ENTIRE SOURCE WILL NOT ENTER INTO COMPUTAT ION OF TOTAL INCOME. IN OUR VIEW, THE CONCEPT OF INCOME INCLUDING LOSS W ILL APPLY ONLY WHEN THE ENTIRE SOURCE IS EXEMPT AND NOT IN THE CASES WH ERE ONLY ONE PARTICULAR STREAM OF INCOME FALLING WITHIN A SOURCE IS FALLING WITHIN EXEMPT PROVISIONS. SECTION 10(38) PROVIDES EXEMPTI ON OF INCOME ONLY FROM TRANSFER OF LONG TERM EQUITY SHARES AND EQUITY ORIENTED FUND AND NOT ONLY THAT, THERE ARE CERTAIN CONDITIONS STIPULA TED FOR EXEMPTING SUCH INCOME I.E. PAYMENT OF SECURITY TRANSACTION TA X AND WHETHER THE TRANSACTION ON SALE OF SUCH EQUITY SHARE OR UNIT IS ENTERED INTO ON OR AFTER THE DATE ON WHICH CHAPTER VII OF FINANCE (NO. 2) ACT 2004 COMES INTO FORCE. IF SUCH CONDITIONS ARE NOT FULFILLED T HEN EXEMPTION IS NOT GIVEN. THUS, THE INCOME CONTEMPLATED IN SECTION 10 (38) IS ONLY A PART OF THE SOURCE OF CAPITAL GAIN ON SHARES AND ONLY A LIMITED PORTION OF SOURCE IS TREATED AS EXEMPT AND NOT THE ENTIRE CAPI TAL GAIN (ON SALE OF SHARES). IF AN EQUITY SHARE IS SOLD WITHIN THE PER IOD OF TWELVE MONTHS THEN IT IS CHARGEABLE TO TAX AND ONLY IF IT FALLS W ITHIN THE DEFINITION OF LONG TERM CAPITAL ASSET AND, FURTHER FULFILS THE CO NDITIONS MENTIONED IN SUBSECTION (38) OF SECTION 10 THEN ONLY SUCH PORTIO N OF INCOME IS TREATED AS EXEMPT. THERE ARE FURTHER INSTANCES LIK E DEBT ORIENTED SECURITIES AND EQUITY SHARES WHERE STT IS NOT PAID, THEN GAIN OR PROFIT FROM SUCH SHARES ARE TAXABLE. SECTION 10 PROVIDES T HAT CERTAIN INCOME ARE NOT TO BE INCLUDED WHILE COMPUTING THE TOTAL IN COME OF THE ASSESSEE AND IN SUCH A CASE THE PROFIT OR LOSS RESU LTING FROM SUCH A SOURCE OF INCOME DO NOT ENTER INTO COMPUTATION AT A LL. HOWEVER, A DISTINCTION HAS BEEN DRAWN WHERE THE ENTIRE SOURCE OF INCOME IS EXEMPT OR ONLY A PART OF SOURCE IS EXEMPT. HERE IT NEEDS TO BE SEEN WHETHER SECTION 10(38) IS SOURCE OF INCOME WHICH DO ES NOT ENTER INTO ITA NO. 4751/MUM/2012 M/S. VIBHADEEP INVESTMENTS & TRADING LTD. 7 COMPUTATION AT ALL OR IS A PART OF THE SOURCE, THE INCOME IN RESPECT OF WHICH IS EXCLUDED IN THE COMPUTATION OF TOTAL INCOM E. FOR INSTANCE, IF THE ASSESSEE HAS INCOME FROM SHORT TERM CAPITAL GAI N ON SALE OF SHARES; LONG TERM CAPITAL GAIN ON DEBT FUNDS; AND L ONG TERM CAPITAL GAIN FROM SALE OF EQUITY SHARES, THEN WHILE COMPUTI NG THE TAXABLE INCOME, THE WHOLE OF INCOME WOULD BE COMPUTED IN TH E TOTAL INCOME AND ONLY THE PORTION OF LONG TERM CAPITAL GAIN ON S ALE OF EQUITY SHARES WOULD BE REMOVED FROM THE TAXABLE INCOME AS THE SAM E IS EXEMPT U/S 10(38). THIS PRECISE ISSUE HAD COME UP FOR CONSIDE RATION BEFORE THE HONBLE CALCUTTA HIGH COURT IN ROYAL TURF CLUB, WHE REIN THE HONBLE HIGH COURT OBSERVED THAT UNDER THE INCOME TAX ACT 1961 THERE ARE CERTAIN INCOMES WHICH DO NOT ENTER INTO THE COMPUTA TION OF THE TOTAL INCOME AT ALL. IN COMPUTING THE TOTAL INCOME OF A R ESIDENT ASSESSEE, CERTAIN INCOMES ARE NOT INCLUDED UNDER S.10 OF THE ACT. IT DEPENDS ON THE PARTICULAR CASE; WHERE THE ACT IS MADE INAPPLIC ABLE TO INCOME FROM A CERTAIN SOURCE UNDER THE SCHEME OF THE ACT, THE P ROFIT AND LOSS RESULTING FROM SUCH A SOURCE WILL NOT ENTER INTO TH E COMPUTATION AT ALL. BUT THERE ARE OTHER SOURCES WHICH, FOR CERTAIN ECON OMIC REASONS, ARE NOT INCLUDED OR EXCLUDED BY THE WILL OF THE LEGISLA TURE. IN SUCH A CASE, ONE MUST LOOK TO THE SPECIFIC EXCLUSION THAT HAS BEEN MADE. THE HONBLE HIGH COURT WAS BESIEGED WITH THE FOLLOW ING QUESTION WHETHER UNDER S.10(27) READ WITH S.70 OF THE I.T.A CT, 1961, WAS THE ASSESSEE TO SET OFF THE LOSS ON THE TWO HEA DS, NAMELY, BROODMARES ENTITLED ACCOUNT AND THE PIG ACCOUNT, AG AINST ITS INCOME OF OTHER SOURCES UNDER THE HEAD BUSINESS THEIR LORDSHIPS AFTER ANALYSING THE PROVISIONS OF S ECTION 70 AND SECTION 10(27) OBSERVED IN THE FOLLOWING MANNER: IN THIS CASE IT IS IMPORTANT TO BEAR IN MIND THAT SET-OFF IS BEING CLAIMED UNDER SECTION 70 OF THE 1961 ACT WHICH PERM ITS SET OFF OF ANY INCOME FALLING UNDER ANY HEAD OF INCOME OTHE R THAN THE CAPITAL GAIN WHICH IS A LOSS, THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST HIS IN COME FROM ANY OTHER SOURCE UNDER THE SAME HEAD. WE HAVE NOTIC ED THAT IN THE INSTANT CASE THE EXCLUSION HAS BEEN CONCEDED IN COMPUTING THE BUSINESS INCOME OR THE SOURCE OF INCOME FROM TH E HEAD OF BUSINESS AND IN COMPUTING THAT BUSINESS INCOME, THE LOSS FROM ONE PARTICULAR SOURCE, THAT IS, BROODMARES ACCOUNT AND THE PIG ACCOUNT, HAD BEEN EXCLUDED CONTRARY TO THE SUBMISSI ON OF THE ASSESSEE. THE ASSESSEE WANTED THESE LOSSES TO BE SE T OFF. THE REVENUE CONTENDS THAT AS THE SOURCES OF THE INCOME ARE NOT TO BE INCLUDED IN VIEW OF THE PROVISIONS OF CLAUSE (27 ) OF S. 10 OF THE 1961 ACT, THE LOSS SUFFERED FROM THIS SOURCE CO ULD ALSO NOT MERIT THE EXCLUSION. UNDER THE I.T. ACT, THERE ARE CERTAIN INCOMES WHICH DO NOT ENTER INTO THE COMPUTATION OF THE TOTA L INCOME AT ALL. IN THIS CONNECTION WE HAVE TO BEAR IN MIND THE SCHEME OF THE CHARGING SECTION WHICH PROVIDES THAT THE INCOME S SHALL BE CHARGED AND S. 4 OF THE ACT PROVIDES THAT THE CENTR AL ACT ENACTS THAT THE INCOMES SHALL BE CHARGED FOR ANY ASSESSMEN T YEAR AND ITA NO. 4751/MUM/2012 M/S. VIBHADEEP INVESTMENTS & TRADING LTD. 8 IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THE 1961 ACT IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OR YEARS OR WHATEVER THE CASE MAY BE. THE SCHEME OF ' TOTAL INC OME ' HAS BEEN EXPLAINED BY S. 5 OF THE ACT WHICH PROVIDES TH AT SUBJECT TO THE PROVISIONS OF THE ACT, THE TOTAL INCOME OF THE PREVIOUS YEAR OF A PERSON WHO IS A RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE IT IS DERIVED. IN COMPUTING THE TOTAL INCOME , CERTAIN INCOMES ARE NOT INCLUDED UNDER S. 10 OF THE ACT. IT DEPENDS ON THE PARTICULAR CASE WHERE CERTAIN INCOME, IN RESPEC T OF WHICH THE ACT IS MADE INAPPLICABLE TO THE SCHEME OF THE A CT, AND IN SUCH A CASE, THE PROFIT AND LOSS RESULTING FROM SUC H A SOURCE DO NOT ENTER INTO THE COMPUTATION AT ALL. BUT THERE AR E OTHER SOURCES WHICH FOR CERTAIN ECONOMIC REASONS ARE NOT INCLUDED OR EXCLUDED BY THE WILL OF THE LEGISLATURE. IN SUCH A CASE WE M UST LOOK TO THE SPECIFIC EXCLUSION THAT HAS BEEN MADE. THE QUES TION IS IN THIS CASE WHETHER S. 10(27) IS A SOURCE WHICH DOES NOT ENTER INTO THE COMPUTATION AT ALL OR IS A SOURCE THE INCO ME IN RESPECT OF WHICH IS EXCLUDED IN THE COMPUTATION OF TOTAL IN COME. HOW THIS QUESTION WILL HAVE TO BE VIEWED, HAS BEEN LOOK ED INTO BY THE SUPREME COURT IN SEVERAL DECISIONS TO SOME OF W HICH OUR ATTENTION WAS DRAWN. AFTER DISCUSSING THE VARIOUS DECISIONS OF THE HONB LE SUPREME COURT SPECIFICALLY THE DECISION OF IN THE CASE OF KARAMCH AND PREMCHAND (SUPRA), THE HONBLE HIGH COURT CAME TO THE FOLLOWI NG CONCLUSION: CL.(27) OF S.10 EXCLUDES IN EXPRESS TERMS ONLY AN Y INCOME DERIVED FROM A BUSINESS OF LIVE-STOCK BREEDING OR P OULTRY OR DAIRY FARMING. IT DOES NOT EXCLUDE THE BUSINESS OF LIVESTOCK BREEDING OR POULTRY OR DAIRY FARMING FROM THE OPERA TION OF THE ACT. THEREFORE, THE LOSSES SUFFERED BY THE ASSESSE E IN THE BROODMARES ACCOUNT AND IN THE PIG ACCOUNT WERE ADMI SSIBLE DEDUCTIONS IN COMPUTING ITS TOTAL INCOME THUS, THE RATIO LAID DOWN BY THE HONBLE CALCUTTA H IGH COURT IS CLEARLY APPLICABLE AND ACCORDINGLY WE FOLLOW THE SAME IN TH E PRESENT CASE. 9. NOW COMING TO THE ARGUMENT OF THE LEARNED DR AND LEARNED CIT(A) THAT INCOME INCLUDES LOSS AND IF INCOME IS E XEMPT THEN LOSS WILL ALSO NOT BE TAKEN INTO COMPUTATION OF THE INCOME, A ND SUCH AN ARGUMENT IS WITH REFERENCE TO THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF CIT VS. HARIPRASAD & COMPANY PVT. LT D. (1975) 99 ITR 118 . THE HONBLE SUPREME COURT, OPINED THAT, IF L OSS WAS FROM THE SOURCE OR HEAD OF INCOME NOT LIABLE TO TAX OR CONGE NITALLY EXEMPT FROM INCOME TAX, NEITHER THE ASSESSEE WAS REQUIRED TO SH OW THE SAME IN THE RETURN NOR WAS THE ASSESSING OFFICER UNDER ANY OBLIGATION TO COMPUTE OR ASSESS IT MUCH LESS FOR THE PURPOSE OF C ARRY FORWARD. FURTHER, THE HONBLE SUPREME COURT OBSERVED THAT 'F ROM THE CHARGING PROVISIONS OF THE ACT, IT IS DISCERNIBLE THAT THE W ORDS ' INCOME ' OR ' PROFITS AND GAINS' SHOULD BE UNDERSTOOD AS INCLUDIN G LOSSES ALSO, SO THAT, IN ONE SENSE 'PROFITS AND GAINS' REPRESENT ' PLUS INCOME ' WHEREAS LOSSES REPRESENT 'MINUS INCOME'. IN OTHER WORDS, LO SS IS NEGATIVE ITA NO. 4751/MUM/2012 M/S. VIBHADEEP INVESTMENTS & TRADING LTD. 9 PROFIT. BOTH POSITIVE AND NEGATIVE PROFITS ARE OF A REVENUE CHARACTER. BOTH MUST ENTER INTO COMPUTATION, WHEREVER IT BECOM ES MATERIAL, IN THE SAME MODE OF THE TAXABLE INCOME OF THE ASSESSEE . ALTHOUGH SECTION 6 CLASSIFIES INCOME UNDER SIX HEADS, THE MA IN CHARGING PROVISION IS SECTION 3 WHICH LEVIES INCOME-TAX, AS ONLY ONE TAX, ON THE 'TOTAL INCOME ' OF THE ASSESSEE AS DEFINED IN SECTI ON 2(15). AN INCOME IN ORDER TO COME WITHIN THE PURVIEW OF THAT DEFINIT ION MUST SATISFY TWO CONDITIONS. FIRSTLY, IT MUST COMPRISE THE ' TOTAL A MOUNT OF INCOME, PROFITS AND GAINS REFERRED TO IN SECTION 4(1)'. SEC ONDLY, IT MUST BE 'COMPUTED IN THE MANNER LAID DOWN IN THE ACT'. IF E ITHER OF THESE CONDITIONS FAILS, THE INCOME WILL NOT BE A PART OF THE TOTAL INCOME THAT CAN BE BROUGHT TO CHARGE.' WHILE CONCLUDING THE ISSUE THEIR LORDSHIPS OBSERVED THAT IT MAY BE REMEMBERED THAT THE CONCEPT OF CARRY FORWARD OF LOS S DOES NOT STAND IN VACUO. IT INVOLVES THE NOTION OF SET- OFF. ITS SO LE PURPOSE IS TO SET OFF THE LOSS AGAINST THE PROFITS OF A SUBSEQUENT YEAR. IT PRE-SUPPOSES THE PERMISSIBILITY AND POSSIBILITY OF THE CARRIED-FORWA RD LOSS BEING ABSORBED OR SET OFF AGAINST THE PROFITS AND GAINS, IF ANY, O F THE SUBSEQUENT YEAR. SET OFF IMPLIES THAT THE TAX IS EXIGIBLE AND THE AS SESSEE WANTS TO ADJUST THE LOSS AGAINST PROFIT TO REDUCE THE TAX DEMAND. IT FOLLOWS THAT IF SUCH SET-OFF IS NOT PERMISSIBLE OR POSSIBLE OWING TO THE INCOME OR PROFITS OF THE SUBSEQUENT YEAR BEING FROM A NON-TAXABLE SOURCE, TH ERE WOULD BE NO POINT IN ALLOWING THE LOSS TO BE CARRIED FORWARD. CONVERSELY, IF THE LOSS ARISING IN THE PREVIOUS YEAR WAS UNDER A HEAD NOT C HARGEABLE TO TAX, IT COULD NOT BE ALLOWED TO BE CARRIED FORWARD AND ABSO RBED AGAINST INCOME IN A SUBSEQUENT YEAR FROM A TAXABLE SOURCE. THE R ATIO AND THE PRINCIPLE LAID DOWN BY THE HONBLE APEX COURT WOULD NOT APPLY HERE IN THIS CASE, BECAUSE THE CONCEPT OF INCOME INCLUDES LOSS WILL AP PLY ONLY WHEN ENTIRE SOURCE IS EXEMPT OR IS NOT LIABLE TO TAX AND NOT IN THE CASE WHERE ONLY ONE OF THE INCOME FALLING WITHIN SUCH SOURCE IS TRE ATED AS EXEMPT. THE HONBLE APEX COURT ON THE OTHER HAND, ITSELF HAS ST ATED THAT IF LOSS FROM THE SOURCE OR HEAD OF INCOME IS NOT LIABLE FOR TAX OR CONGENITALLY EXEMPT FROM INCOME TAX, THEN IT NEED NOT BE COMPUTED OR SH OWN IN THE RETURN AND ASSESSING OFFICER ALSO NEED NOT ASSESS IT. THI S DISTINCTION HAS TO BE KEPT IN MIND. HONBLE CALCUTTA HIGH COURT IN ROYAL TURF CLUB HAVE DISCUSSED THE AFORESAID DECISION OF THE HONBLE SUP REME COURT AND HELD THAT THE SAME WILL NOT APPLY IN SUCH CASES. THUS, IN OUR CONCLUSION, WE HOLD THAT SECTION 10(38) EXCLUDES IN EXPRESSED TERM S ONLY THE INCOME ARISING FROM TRANSFER OF LONG TERM CAPITAL ASSET BE ING EQUITY SHARE OR EQUITY FUND WHICH IS CHARGEABLE TO STT AND NOT ENTI RE SOURCE OF INCOME FROM CAPITAL GAINS ARISING FROM TRANSFER OF SHARES. IT DOES NOT LEAD TO EXCLUSION OF COMPUTATION OF CAPITAL GAIN OF LONG TE RM CAPITAL ASSET OR SHORT TERM CAPITAL ASSET BEING SHARES. ACCORDINGLY , LONG TERM CAPITAL LOSS ON SALE OF SHARES WOULD BE ALLOWED TO BE SET O FF AGAINST LONG TERM CAPITAL GAIN ON SALE OF LAND IN ACCORDANCE WITH SEC TION 70(3) 10. COMING TO THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF SCHRADER DUNCAN LTD.(SUPRA), THE ISSUE INVOLVED THE RE WAS, WHETHER THE LOSS ON TRANSFER OF CAPITAL ASSET BEING UNITS U S 64 SCHEME OF UNIT TRUST OF INDIA CAN BE ALLOWED AND ENTITLED TO CARRY FORWARD THE SAME ITA NO. 4751/MUM/2012 M/S. VIBHADEEP INVESTMENTS & TRADING LTD. 10 FOR SET OFF OF IN SUBSEQUENT ASSESSMENT YEARS, WHEN THE INCOME ARISING FROM SUCH TRANSFER OF UNIT IS EXEMPT U/S. 1 0(33). THE TRIBUNAL HELD THAT THE SOURCE BOTH CAPITAL GAIN AND CAPITAL LOSS ON SALE OF UNITS OF US64 IS ITSELF EXCLUDED AND NOT ONLY THE INCOME ARISING OUT OF CAPITAL GAIN. THE HONBLE TRIBUNAL HAVE NOTED THE HISTORY OF US64 SCHEME AND THE PURPOSE FOR WHICH SUCH SCHEME WAS LA UNCHED. IN THIS CONTEXT OF TRANSFER OF US64 SCHEME THE TRIBUNA L HELD THAT THE PROVISIONS WERE NOT MEANT TO ENABLE THE ASSESSEE TO CLAIM LOSS BY INDEXATION FOR SET OFF AGAINST OTHER CAPITAL GAIN C HARGEABLE TO TAX. THIS DECISION IS SLIGHTLY DISTINGUISHABLE AND SECON DLY, WE HAVE ALREADY DISCUSSED THE ISSUE AT LENGTH AND HAVE HELD THAT THE RATIO OF HONBLE CALCUTTA IS APPLICABLE IN THE PRESENT CASE. LASTLY, COMING TO THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE C ASE OF KISHOREBHAI BHIKHABHAI VIRANI (SUPRA), WE FIND THAT THE ISSUE I NVOLVED IN THE PRESENT CASE WAS ALMOST THE SAME, WHEREIN THE HONB LE HIGH COURT AFTER FOLLOWING THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF HARPRASAD & COMPANY PVT. LTD. (SUPRA), HAD DECIDED THE ISSUE AGAINST THE ASSESSEE. SINCE WE HAVE ALREADY NOTED DOWN THE RATIO OF HONBLE CALCUTTA HIGH COURT, WHEREIN THE HONBLE HI GH COURT HAS DISCUSSED THIS ISSUE IN DETAIL AFTER RELYING UPON S ERIES OF DECISIONS OF HONBLE SUPREME COURT AND HAVE REACHED TO A CONCLUS ION AS DISCUSSED ABOVE, AND, THEREFORE, WE ARE RESPECTFULL Y FOLLOWING THE RATIO OF THE DECISION OF THE CALCUTTA HIGH COURT. FURTHER THE SAID DECISION HAVE NOT BEEN REFERRED OR DISTINGUISHED BY THE HONBLE GUJARAT HIGH COURT. ACCORDINGLY, WE ALLOW THE ASSE SSEES GROUND NO.1 AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF SET OFF OF LONG TERM CAPITAL LOSS ON SALE OF SHARES AGAINST TH E LONG TERM CAPITAL GAIN ARISING ON SALE OF LAND. 4.3.3 FOLLOWING THE DECISION OF THE COORDINATE BENC H IN THE CASE OF RAPTAKOS BRETT & CO. LTD. (SUPRA), WE DIRECT THE AS SESSING OFFICER TO ALLOW THE ASSESSEES CLAIM FOR CARRY FORWARD OF LTCL ON S ALE OF SHARES OF NOCIL LTD. FOR SET OFF IN SUBSEQUENT YEARS IN ACCORDANCE WITH LAW. CONSEQUENTLY, GROUND NO. 1 OF ASSESSEES APPEAL IS ALLOWED. 5. GROUND NO. 2 BEING GENERAL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON. 6. IN THE RESULT, THE ASSESSEES APPEAL FOR A.Y. 2005- 06 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER, 2016. SD/ SD/ - (SANDEEP GOSAIN) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 28 TH OCTOBER, 2016 ITA NO. 4751/MUM/2012 M/S. VIBHADEEP INVESTMENTS & TRADING LTD. 11 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -7, MUMBAI 4. THE CIT - 3, MUMBAI 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.