ADIT (IT)-3(2), MUMBAI V. RUSSELL INVESTMENT PLC EMERGING MARKETS EQUITY FUND ( FORMERLY KNOWAN AS FRANK RUSSELL INVESTMENT CO. PLC EMERGING MARKETS EQUITY FUND), MUMBAI

ITA 5052/MUM/2009

• Counselvise Citation: 505219914 RSA 2009
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 28-10-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 04-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUM EET KUMAR
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Capital asset; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI P.M. JAGTAP AND SHRI R.S. PADVEKAR, JM I.T.A.NO.5052/MUM/2009 ASSESSMENT YEAR: 2005-06 THE ASST.DIRECTOR OF INCOME-TAX, (INTERNATIONAL TAXATION)-2(1), R.NO. 120, SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD, MUMBAI 400 001 VS. M/S. RUSSELL INVESTMENT PLC EMERGING MARKETS EQUITY FUND (FORMERLY KNOWN AS FRANK RUSSELL INVESTMENT CO. PLC EMERGING MARKETS EQUITY FUND), C/O. DEUTSCHE BANK AG, KODAK HOUSE, 222, D.N. ROAD, FORT, MUMBAI 400 001. PAN: AAACF 7864 J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUMEET KUMAR RESPONDENT BY : SHRI SANJIV M. SHAH O R D E R PER P.M. JAGTAP, AM: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS)-XXXI, MUMBAI, D ATED 16.06.2009 FOR THE ASSESSMENT YEAR 2005-06, AND THE SOLITARY ISSUE ARI SING OUT OF THE SAME IS WHETHER THE LEARNED CIT(A) IS JUSTIFIED IN HOLDING THAT THE ASSESSEE IS ENTITLED TO SET OFF THE SHORT-TERM CAPITAL LOSS ON TRANSACTIONS OF SALE ( O F EQUITY SHARES) SUBJECTED TO SECURITIES TRANSACTION TAX (STT) AGAINST SHORT TERM CAPITAL GAIN ON TRANSACTIONS OF SALE (OF EQUITY SHARES) NOT SUBJECTED TO STT EVEN T HOUGH THERE WAS SUFFICIENT SHORT TERM CAPITAL GAINS ON TRANSACTIONS OF SALE (OF EQUI TY SHARES) SUBJECTED TO STT AVAILABLE FOR SET OFF. 2. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT T HE ISSUE INVOLVED IN THE PRESENT APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSE E AND AGAINST THE REVENUE BY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUN AL IN THE CASE OF FIRST STATE INVESTMENTS (HONGKONG) LIMITED A/C. FIRST STATE ASI A INNOVATION & TECHNOLOGY ITA NO.5052/M/2009 M/S.RUSSELL INVESTMENT PLC EMERGING MARKETS 2 FUND VS. ASST. DIRECTOR OF INCOME-TAX (INTERNATIONA L TAXATION) RENDERED VIDE ITS ORDER DATED 23 RD JULY, 2009 PASSED IN ITA NO. 2895/MUM/2008, WHEREI N AFTER TAKING INTO CONSIDERATION THE RELEVANT PROVISIONS O F SECTION 70, THE TRIBUNAL HAS DECIDED A SIMILAR ISSUE IN FAVOR OF THE ASSESSEE FO R THE FOLLOWING REASONS GIVEN IN PARAS 11 & 12 OF ITS ORDER : 11. IN THE PRESENT APPEAL, THE CONTROVERSY IS STIL L NARROWER, INASMUCH AS THE SHORT TERM CAPITAL LOSS WHICH WAS SET OFF BY TH E ASSESSEE AGAINST THE SHORT TERM CAPITAL GAIN, HA BEEN ACCEPTED AND THE N ET FIGURE OF SHORT TERM CAPITAL GAIN AFTER SET OFF OF SHORT TERM CAPITAL LO SS CONTINUES TO REMAIN THE SAME. THE DISPUTE IS ONLY ABOUT THE CHOICE OF SETTI NG OFF OF SHORT TERM CAPITAL LOSS SUFFERED AFTER THE CUT OFF DATE AGAINS T THE SHORT TERM CAPITAL GAIN EARNED PRIOR TO THE CUT OFF DATE. THIS POSITIO N HAS ARISEN DUE TO THE INTRODUCTION OF SECTION 111A FOR THE FIRST TIME FR OM THIS YEAR ONLY WHICH PROVIDES FOR LOWER RATE OF TAX ON SHORT TERM CAPITA L GAINS ARISING ON THE TRANSACTIONS WHICH HAVE SUFFERED SECURITIES TRANSAC TION 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. HENCE, WE ARE CONCERNED WITH THE SET OFF OF SHORT T ERM CAPITAL LOSS FROM ONE OR MORE TRANSACTIONS WITH THE SHORT TERM CAPITA L GAIN FROM ONE OR MORE TRANSACTIONS SPREAD OVER THE YEAR, BOTH BEFORE AND AFTER THE CUT OFF DATE. EFFECTIVELY THE QUESTION IS ABOUT THE SETTING OFF O F SHORT TERM CAPITAL LOSS AND SUCH SET OFF IS GOVERNED BY SUB-SECTION (2) OF SECTION 70, WHICH HAS BEEN REPRODUCED ABOVE. PRIMARILY THE USE OF WORD A NY TO REPRESENT THE TRANSACTION WHICH RESULTED IN THE SHORT TERM CAPITA L LOSS IS INDICATOR OF THE INITIAL DETERMINATION OF SHORT TERM CAPITAL LOSS OR SHORT TERM CAPITAL GAIN, AS THE CASE MAY BE, FROM EACH TRANSACTION DISTINCTLY. SUPPOSE THE ASSESSEE ENTERED INTO ONE TRANSACTION OF PURCHASE AND SALE O F THE SHARES OF COMPANY A, WHICH RESULTED INTO 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 CAPITAL LOSS OR S HORT TERM CAPITAL GAIN IN RESPECT OF EACH OF THE 10 TRANSACTIONS. THEN THE E MPLOYMENT OF THE EXPRESSION ANY OTHER CAPITAL ASSET IN THE LATER P ART OF THE SUB-SECTION FOR THE PURPOSE OF SET OFF CLEARLY INDICATES THAT THE S HORT TERM CAPITAL LOSS FROM ONE TRANSACTION HAS TO BE CONSIDERED DISJOINTEDLY F OR SET OFF AGAINST THE SHORT TERM CAPITAL GAIN OF ANY OTHER TRANSACTION. FURTHER PRESUME THAT IN THE ABOVE EXAMPLE, ALL 9 OTHER TRANSACTIONS RESULTE D INTO PROFIT. NOW THE ITA NO.5052/M/2009 M/S.RUSSELL INVESTMENT PLC EMERGING MARKETS 3 QUESTION TO BE DECIDED IS AS TO WHO WILL HAVE THE L AST WORD TO DETERMINE THE PREFERENCE OVER THE ORDER OF THE SET OFF OF LOS S FROM THE FIRST TRANSACTION WITH THE SHORT TERM CAPITAL GAIN IN ANY OR THE OTHER 9 TRANSACTIONS. THE RELEVANT WORDS USED SOMEWHERE IN BETWEEN SUB-SECTION (2) ARE THAT THE ASSESSEE SHALL BE ENTITLED TO HA VE THE AMOUNT OF SUCH LOSS SET OFF AGAINST THE INCOME IN RESPECT OF ANY O THER CAPITAL ASSET. PRIMA FACIE THERE IS CUE IN THE LANGUAGE OF THE SUB-SECTI ON THAT THE OPTION IS WITH THE ASSESSEE AND HE WILL DECIDE AS TO WHETHER THE S HORT TERM CAPITAL LOSS FROM THE FIRST TRANSACTION OUGHT TO BE SET OFF AGAI NST THE SHORT TERM CAPITAL GAIN OF THE TRANSACTIONS NO.2 OR 3 OR 4 ETC., AS TH E CASE MAY BE. OUR VIEW ABOUT THE VESTING OF THE DISCRETION IN ASSESSEE FOR THE PURPOSES OF SET OFF OF SHORT TERM CAPITAL LOSS AGAINST ANY SHORT TERM CAP ITAL GAIN IS FORTIFIED WHEN THE LANGUAGE OF SUB-SECTION (3) OF SECTION 70 IS CO NSIDERED, WHICH SPECIFICALLY PROHIBITS THE SETTING OFF OF LONG TERM CAPITAL LOSS AGAINST SHORT TERM CAPITAL GAIN. IT HAS BEEN PROVIDED IN UNAMBIG UOUS 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 CA PITAL GAIN. IF THE INTENTION OF THE LEGISLATURE HAD BEEN NOT TO CONFER 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 CAP ITAL GAIN OF THE PRE-CUT- OFF DATE, IT WOULD HAVE CLEARLY SET OUT SUCH INTENT ION IN THE LANGUAGE OF SUB-SECTION (2) ITSELF, AS HAS BEEN DONE IN SUB-SEC TION (3). IN THE ABSENCE OF ANY STIPULATION IN THIS REGARD IN SUB-SECTION (2 ), WE ARE SATISFIED THAT THE CHOICE HAS BEEN LEFT OVER TO THE ASSESSEE IN TAKING DECISION ABOUT THE SETTING OFF OF SHORT TERM CAPITAL LOSS FROM ONE TR ANSACTION AGAINST ANY OTHER SHORT TERM CAPITAL GAIN, WHETHER WITHIN OR OU TSIDE THE CUT OFF DATE. IF HIGHER BENEFIT POURS IN FROM THE EXERCISE OF THE OP TION IN A PARTICULAR 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 MAR KET FUND (SUPRA) HAS ALSO RULED IN FAVOR OF THE ASSESSEE BY HOLDING THAT THE SET OFF OF LONG TERM CAPITAL LOSS AGAINST THE SHORT TERM CAPITAL GAIN WA S PERMISSIBLE UNDER SECTION 70, IN THE PERIOD PRIOR TO THE AMENDMENT. A LMOST SIMILAR VIEW WAS TAKEN ALLOWING THE ASSESSEE TO EXERCISE OPTION IN V .R. NIMBAKAR (SUPRA). 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 T HE TRANSACTIONS RESULTING INTO SHOT TERM CAPITAL GAIN VIZ. THOSE TAXABLE IN T HE FIRST PERIOD @ 30% AND THOSE TAXABLE IN THE SECOND PERIOD @ 10% AND SIMIL AR COMPUTATION MADE ITA NO.5052/M/2009 M/S.RUSSELL INVESTMENT PLC EMERGING MARKETS 4 REFERS TO EITHER OF THE TWO. IN OUR CONSIDERED OPI NION, THERE IS A BASIC FALLACY IN THE VIEW ADOPTED BY THE LEARNED CIT(A) O N THIS ISSUE. SECTIONS 111A AND 115AD FALL IN CHAPTER XII, WHICH PROVIDES FOR DETERMINATION OF TAX IN CERTAIN SPECIAL CASES. THUS, IT IS CLEAR TH AT ALL THESE SECTIONS FROM 110 TO 115BC PROVIDE FOR A PARTICULAR RATE OF TAX T O 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 TO THE INCOME. IT IS SIMPLE AND PLA IN THAT THE MATTER OF COMPUTATION OF INCOME IS A SUBJECT WHICH COMES ANTE RIOR TO THE APPLICATION OF THE RATE OF TAX. ONLY WHEN THE INCOME IS COMPUT ED AS PER THE PROVISIONS OF THE ACT, THAT THE QUESTION OF THE APPLICABILITY OF THE CORRECT RATE OF INCOME TAX COMES INTO BEING. INCOME UNDER THE HEAD CAPITAL GAINS IS DETERMINED AS PER SECTIONS 45 TO 55A. SECTION 48 WI TH THE HEADING MODE OF COMPUTATION PROVIDES THAT THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS SHALL BE COMPUTED BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING 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 GAIN SO COMPUTED. WHEREAS, COMPUTATION OF CAPITAL GAIN IS GOVERNED BY SECTION 48, BUT THE RATES OF TAX, IN SO FAR AS WE ARE CONCERNED IN THE PRESENT APPEAL, ARE GOVERNED BY SECTION 111A AND 115AD. 3. AS THE ISSUE INVOLVED IN THE PRESENT CASE IS SIM ILAR TO THAT OF THE CASE OF THE FIRST STATE INVESTMENTS (HONGKONG) LTD., WE RES PECTFULLY FOLLOW THE DECISION OF THE TRIBUNAL RENDERED IN THE SAID CASE AND UPHOLD T HE IMPUGNED ORDER OF THE LEARNED CIT(A) GIVING RELIEF TO THE ASSESSEE ON THI S ISSUE. 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS _27 TH DAY OF APRIL, 2011. SD. SD. (R.S. PADVEKAR) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED THE 27 TH APRIL, 2011. KN ITA NO.5052/M/2009 M/S.RUSSELL INVESTMENT PLC EMERGING MARKETS 5 COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE DIT (INTERNATIONAL TAXATION), MUMBAI. 4. THE CIT(A)-XXXI, MUMBAI 5. THE DR D BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, ITAT, MUMBAI