DCIT RG 8(2), MUMBAI V. MALHAR TRADERS P.LTD, MUMBAI

ITA 707/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83924 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 13-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 25-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R N DSOUZA
• Assessee Lawyers: RACHANA KANOI
• Keywords: Business income; Maximum Marginal Rate
• Section: 6; 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , , , BEFORE SHRI B.R. BASKARAN , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER . / ITA NO. 707 /MUM./ 2011 ( / ASSESSMENT YEAR : 20 07 08 ) DY . COMMISSIONER OF INCOME TAX (TDS) CIRCLE 8(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 . . / APPELLANT V/S M/S. MALH AR TRADERS PVT. LTD. B 7, 4RD FLOOR, NEW PARADISE SOCIETY BEHIND SHOPPERS STOP S.V. ROAD, ANDHERI (W) MUMBAI 400 058 .. . . / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAACL2683D / ASSESSEE BY : SM T. RACHANA KANOI / REVENUE BY : SHRI R.N. D SOUZA / DATE OF HEARING 13 . 10 .2014 / DATE OF ORDE R 21.10.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRES ENT APPEAL HA S BEEN PREFERRED BY THE REVENUE, CHALLENGING THE IMPUGNED ORDER DATE D 29 TH OCTOBER 2010 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) XV II , MUMBAI, FOR THE QUANTUM OF M/S. MALHAR TRADERS PVT. LTD. 2 ASSESSMENT PASSED UNDER SECTION 143(3), FOR THE ASSESSMENT YEAR 2007 08, VI DE WHICH, FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DIRECTING TO EXCLUDE SHORT TERM CAPITAL GAINS FOR THE PURPOSE OF CALCULATING 'AVERAGE RAGE OF TAX' FOR DETERMINING REB ATE U/S. 88E OF THE I . T . ACT, WITHOUT APPRECIATING THE FACT THAT SUCH METHOD OF COMPUTATION IS CONTRARY TO LEGISLATIVE INTENT AS IN SUCH A SITUATION, THE TAX RATE WOULD ALWAYS BE THE RATE APPLICABLE TO THE BUSINESS PROFIT ONLY. I . E . MAXIMUM MARGINAL RATE OF TAXATION' NOT APPRECIATING THE FACT THAT FOR THE PURPOSE OF CLAUSE(III) OF EXPLANATION 1 TO SECTION 115JB, ELIGIBILITY FOR DEDUCTION IS TO BE CONSIDERED ON YEAR TO YEAR BASIS' 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ER RED IN NOT APPRECIATING THAT THE A . O . HAD RIGHTLY COMPUTED THE REBATE U/S . 88E AT RS . 1 , 42 , 462/ - INSTEAD OF RS . 8 , 42 , 413/ - AS CLAIMED INTO RETURN OF INCOME. 2 . IN THE ASSESSMENT ORDER UNDER SECTION 143(3) DATED 18 TH DECEMBER 2009, THE REBATE UNDER SECTION 88 E HAS BEEN WORKED OUT AS UNDER: INCOME FROM BUSINESS 75,06,488 STCG 32,99,567 TOTAL INCOME 1,08,06,015 TAX ON TOTAL INCOME ON STCG 3,29,957 ON INCOME FROM OTHER THAN STCG 22,51,934 25,81,891 AVERAGE RATE OF TAX (25,81,891*100/1,08,06,020) 23. 89% TAX REBATE U/S 88E STT PAID 8,42,413 INCOME FROM SECURITIES TRANSACTIONS SUBJECT TO STT (5,96,325,@ 23.89% 1,42,462 LOWER OF TWO 1,42,462 M/S. MALHAR TRADERS PVT. LTD. 3 3 . BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE HAD CONTENDED THAT THE SHORT TERM CAPITAL GAIN SHO ULD BE EXCLUDED FOR THE PURPOSE OF CALCULATION OF AVERAGE RATE OF TAX. THE LEARNED COMMISSIONER (APPEALS) ACCEPTED THE ASSESSEE S CONTENTION AND DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE SHORT TERM CAPITAL GAIN FROM THE COMPUTATION OF AVERAGE RATE OF T AX. ACCORDINGLY, THE REBATE UNDER SECTION 88E HAS BEEN REVISED AS UNDER: (IN RS.) GROSS TOTAL INCOME 1 , 05 , 06 , 771 LESS: STCG 32 , 99 , 567 INCOME OTHER THAN STCG TAX ON INCOME FROM OTHER THAN STCG 72 , 07 , 204 AVERAGE RATE OF TAX (2425944*100/7207204 2 4 , 25 , 944 TAX REBATE U/S 88E 33.65% STT PAID 8 , 42 , 413 INCOME FROM SECURITIES TRANSACTIONS SUBJECT TO STT (596325/ @ 33.65%) 2 , 00 , 663 LOWER OF TWO 2 , 00 , 663 4 . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT , IF SHORT TERM CAPITAL GAIN IS TO B E EXCLUDED FOR THE PURPOSE OF AVERAGE RATE OF TAX , THEN THE TAX RATE WOULD ALWAYS BE THE RATE APPLICABLE TO THE BUSINESS PROFIT ONLY , I.E., MAXIMUM MARGINAL RATE OF TAXATION. HE THUS M/S. MALHAR TRADERS PVT. LTD. 4 SUBMITTED THAT THE SHORT TERM CAPITAL GAIN CANNOT BE EXCLUDED FOR THE PUR POSE OF CALCULATION OF AVERAGE RATE OF TAX AS GIVEN IN SECTION 88E. 5 . BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE SECURITY TRANSACTION TAX IS A METHOD OF TAX COLLECTION AT THE POINT OF TRANSACTION. THE PURPOSE OF PROVIDING REBATE UNDER SECTION 88E IS TO GIVE CREDIT OF SUCH TAXES WHICH HAS ALREADY BEEN PAID ON THE INCOME DECLARED UNDER THE HEAD BUSINESS INCOME. HENCE, IF THE COMPANY IS LIABLE TO PAY HIGHER TAXES AT MAXIMUM MARGINAL RATE ON SUCH INCOME, THEN IT SHOULD BE ENTITLED FOR CREDIT OF TAXES PAID AT THE MAXIMUM MARGINAL RATE ONLY. THUS, THE LEARNED COMMISSIONER (APPEALS) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE SHORT TERM CAPITAL GAIN FOR THE PURPOSE OF CALCULATING AVERAGE TAX RATE FOR DETERMINING THE REBATE UNDER SECTION 88E. 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. SECTION 88E PROVIDES REBATE IN RESPECT OF SECURITY TRANSACTION TAX PAID , WHICH ENVISAGES THAT WHERE THE TOTAL INCOME OF THE ASSESSEE IN A PREVIOUS YEAR INCLUDES ANY INCOME CHA RGEABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION ARISING FROM TAXABLE SECURITY TRANSACTIONS , HE SHALL BE ENTITLED TO DEDUCTION FROM THE AMOUNT OF INCOME TAX ON SUCH INCOME ARISING FROM SUCH TRANSACTIONS WHICH IS COMPUTED IN THE MANNER PROV IDED IN SUB SECTION (2). SUB SECTIONS (1) AND (2) READS AS UNDER: - M/S. MALHAR TRADERS PVT. LTD. 5 88E. REBATE IN RESPECT OF SECURITIES TRANSACTION TAX. (1) WHERE THE TOTAL INCOME OF AN ASSESSEE IN A PREVIOUS YEAR INCLUDES ANY INCOME, CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION , ARISING FROM TAXABLE SECURITIES TRANSACTIONS, HE SHALL BE ENTITLED TO A DEDUCTION, FROM THE AMOUNT OF INCOME - TAX ON SUCH INCOME ARISING FROM SUCH TRANSACTIONS, COMPUTED IN THE MANNER PROVIDED IN SUB - SECTION (2), OF AN AMOUNT EQUAL TO THE SECURITIES TRANSACTION TAX PAID BY HIM IN RESPECT OF THE TAXABLE SECURITIES TRANSACTIONS ENTERED INTO IN THE COURSE OF HIS BUSINESS DURING THAT PREVIOUS YEAR : PROVIDED THAT NO DEDUCTION UNDER THIS SUB - SECTION SHALL BE ALLOWED UNLESS THE ASSESSEE FURN ISHES ALONG WITH THE RETURN OF INCOME, EVIDENCE OF PAYMENT OF SECURITIES TRANSACTION TAX IN THE PRESCRIBED FORM : PROVIDED FURTHER THAT THE AMOUNT OF DEDUCTION UNDER THIS SUB - SECTION SHALL NOT EXCEED THE AMOUNT OF INCOME - TAX ON SUCH INCOME COMPUTED IN THE MANNER PROVIDED IN SUB - SECTION (2). (2) FOR THE PURPOSES OF SUB - SECTION (1), THE AMOUNT OF INCOME - TAX ON THE INCOME ARISING FROM THE TAXABLE SECURITIES TRANSACTIONS, REFERRED TO IN THAT SUB - SECTION, SHALL BE EQUAL TO THE AMOUNT CALCULATED BY APPLYING THE AVERAGE RATE OF INCOME - TAX ON SUCH INCOME. (3) NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED IN, OR AFTER, THE ASSESSMENT YEAR BEGINNING ON THE FIRST DAY OF APRIL, 2009. 7. SUB SECTION (1) CLEARLY PROVIDES THAT THE DEDUCTION OF SECURITY TRANSACTION PAID WOULD BE ENTITLED , IF THE TOTAL INCOME OF THE ASSESSEE INCLUDES INCOME CHARGEABLE UNDER THE HEAD PROFIT S AND GAIN S OF BUSINESS OR PROFESSION . THE SECOND PROVISO PROVIDES THAT THE AMOUNT OF DEDUCTION SHALL NOT EXCEED THE AMOUNT OF INCOME TAX ON SUCH INCOME. SUB SECTION (2) PROVIDES THAT THE AMOUNT OF INCOME TAX ON THE M/S. MALHAR TRADERS PVT. LTD. 6 INCOME ARISING FROM TAXABLE SECURITY TRANSACTION SHALL BE EQUAL TO THE AMOUNT OF CALCULATION BY APPLYING THE AVERAGE RATE OF INCOME TAX ON SUCH INCOME. THUS, THE AVERAGE RATE OF INCOME TAX IS TO BE APPLIED ON THE INCOME WHICH IS COMPUTED UNDER THE HEAD PROFIT S AND GAIN S OF BUSINESS OR PROFESSION. SUCH INCOME HAS TO BE REFERRED ONLY IN THE CONTEXT OF MEANING GIVEN IN SUB SECTION (1). IF THE BUSINESS INCOME OF THE ASSESSEE COMPANY IS TAXED AT MAXIMUM MARGINAL RATE , THEN REBATE IS TO BE ALLOWED FOR THE SECURITY TRANSACTION TAX PAID ON SUCH INCOME ONLY UNDER SECTION 88E. THE SHORT TERM CAPITAL GAIN IS TAXED AT LOWER RATE UNDER SECTION 111A , BUT AT THE SAME TIME, NO SECURITY TRANSACTION TAX CR EDIT IS ALLOWED AGAINST THE SAME. THE TAX RATE OF BUSINESS INCOME IS GOVERNED BY ALTOGETHER DIFFERENT PROVISIONS OF THE ACT WHICH COULD NOT BE IMPORTED OR READ INTO SECTION 88E. THE PHRASE AMOUNT CALCULATED BY APPLYING THE AVERAGE RATE OF INCOME TAX AS U SED IN SUB SECTION (2) HAS TO BE RECKONED AS AVERAGE RATE OF INCOME TAX ON BUSINESS INCOME ONLY . THUS, WE DO NOT FIND ANY MERIT IN THE GROUND RAISED BY THE DEPARTMENT A S THE DIRECTIONS GIVEN BY THE LEARNED COMMISSIONER (APPEALS) IS IN ACCORDANCE WITH THE P ROVISIONS OF THE LAW. THUS, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 8 . 8 . IN THE RESULT, REVENUE S APPEAL IS DISMISSED. M/S. MALHAR TRADERS PVT. LTD. 7 ORDER PRONOUNCED IN T HE OPEN COURT O N 21 ST OCTOBER, 2014. SD/ - SD/ - . . B.R. BASKARAN ACCOUNTANT MEMBER SD/ - SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 21.10.2014. / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI