A.D.I.T. CIRCLE 2(2), MUMBAI V. T ROWE PRICE INTERNATIONAL DISCOVERY FUND, MUMBAI

ITA 7627/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3677 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 08-05-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 11-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L MUMBAI . , , , BEFORE MR. B.RAMAKOTAIAH, A.M. AND MR. VIVEK VARMA, J.M. ITA. NO. 7627/MUM/2011 ASSESSMENT YEAR 2008-09 ACIT(IT)-2(2), SCINDIA HOUSE, BALLARD PIER, MUMBAI-400038 V/S M/S T. ROWE PRICE INTERNATIONAL DISCOVERY FUND, C/O-S.R.BATLIBOI & CO., 18 TH FLOOR, EXPRESS TOWERS, NIRMAN POINT MUMBAI-400021 PAN-AACT6074A (APPLICANT) (RESPONDENT) APPLICANT BY MR. MAHESH KUMAR RESPONDENT BY MR. M.P. LOHIA DATE OF HEARING : 08-05-2013 DATE OF PRONOUNCEMENT : 08-05-2013 PER VIVEK VARMA, JM THE APPEAL ARISES FROM THE ORDER OF CIT(A) 11, MUMB AI, DATED 30.08.11, WHEREIN, THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEES CLAIM OF SET O FF OF SHORT TERM CAPITAL LOSS (STT PAID) CHARGEABLE TO TAX U/S 111A @ 10% AGAINST SHORT TERM CAPITAL GAINS(NON STT PAID) CHARGEABLE TO TAX AT NORMAL RAT E @ 30% IS CORRECT. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT OF THE CASE THAT WHETHER SHORT TERM CAPITAL LOSS ELIGIBLE TO TAX @ 10% CAN BE SET OFF AGAINST S HORT TERM CAPITAL GAIN ELIGIBLE TO TAX @ 30% EVEN IN A CASE WHERE THE ASSESSEE HAS ANOTHER SHORT TERM CAPITAL GAIN ELIGIBLE TO TAX @ 10%. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND INLAW, THE LD. CIT(A) HAS ERRED IN APPLYING THE DECISION OF THE HONBLE ITAT IN THE CASE OF JCIT-VS- MONTGOMERY EMERGING MARKETS FUND {100 ITD 217} TO T HE FACTS OF THIS CASE. ITA NO.7627/MUM/2011 M/S.T.ROWE PRICE INTERNATIONAL DISCOVERY FUND 2 THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A ) ON THE ABOVE GROUND(S) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORE D. 2. THE ISSUE BEFORE US IS WHETHER THE CIT(A) WAS CORRE CT TO ALLOW SET OFF OF SHORT TERM CAPITAL LOSS CHARGEABLE TO TAX U/S 111A OF THE INCOME TAX ACT AT 10% INSTEAD OF CHARGEABLE AT NORMAL RATE OF 30%. 3. AT THE TIME OF HEARING, THE AR POINTED OUT AT THE IMPUGNED ORDER, THE CIT(A) HAS PLACED RELIANCE ON THE DECISIONS OF (I) FIRST STATE INVESTMENT (HONG KONG) LTD. REPORTED IN 33 SOT 26, (II) FIDELI TY INVESTMENT TRUST FIDELITY OVERSEAS FUND REPORTED IN 2009-TIOL-595-IT AT-MUM AND (III) AMERICAN CENTURY TWENTIETH CENTURY INTERNATIONAL DI SCOVERY FUND, ITA NO. 3602/MUM/2009, WHERE IDENTICAL ISSUE HAS BEEN ADJUD ICATED. THE AR ALSO PLACED ON RECORD ANOTHER DECISION IN THE CASE OF DD IT(IT) VS DWS INDIA EQUITY FUND, ITA NO. 5055/MUM/2010, WHERE ALSO, THE ISSUE HAS BEEN ADJUDICATED IN THE FAVOUR OF THE ASSESSEE. 4. THE DR RELIED UPON THE DECISION OF THE AO. 5. WE HAVE GONE THROUGH THE IMPUGNED ORDER WHEREIN THE CIT(A) HAS EXTRACTED THE RELEVANT PORTION OR THE DECISION RENDERED IN TH E CASE OF FIRST INVESTMENT (HONG KONG) LTD, WHICH READS AS UNDER, : THE DECISION OF THE ITAT IN FIRST STATE INVESTMENT (SUPRA). PARA 11 & 12 OF THE SAID ORDER READS AS UNDER: IN THE PRESENT APPEAL, THE CONTROVERSY IS STILL NAR ROWER INASMUCH AS THE SHORT-TERM CAPITAL LOSS WHICH WAS SET OFF BY TH E ASSESSEE AGAINST THE SHORT- TERM CAPITAL GAIN, HAS BEEN ACCEPTED AND THE NEXT F IGURE 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-TERM CAPIT AL GAIN EARNED PRIOR TO THE CUT- OFF DATE. THIS POSITION HAS ARISEN DUE TO THE INTRO DUCTION OF SECTION 111A FOR THE FIRST TIME FROM THIS YEAR ONLY WHICH PROVIDES FOR L OWER RATE OF TAX ON SHORT-TERM CAPITAL GAINS ARISING ON THE TRANSACTIONS WHICH HAV E 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 PR OVISION AND CANNOT CROP UP IN THE LATER YEARS. HERE WE ARE CONCERNED WITH THE SET-OFF OF SHORT-TE RM CAPITAL LOSS FROM ONE OR MORE TRANSACTIONS WITH THE SHORT-T ERM CAPITAL GAIN FROM ONE OR MORE TRANSACTIONS SPREAD OVER THE YEAR, BOTH BEF ORE 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 ANY 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. SUPP OSE THE ASSESSEE ENTERED INTO ONE TRANSACTION OF PURCHASE AND SALE OF 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 SHO RT-TERM CAPITAL LOSS OR SHORT- TERM CAPITAL GAIN AS THE CASE MAY BE, IT IS MANDATO RY TO DETERMINE SHORT-TERM CAPITAL LOSS OR SHORT-TERM CAPITAL GAIN IN RESPECT OF EACH OF THE 10 TRANSACTIONS. ITA NO.7627/MUM/2011 M/S.T.ROWE PRICE INTERNATIONAL DISCOVERY FUND 3 THEN THE EMPLOYMENT OF THE EXPRESSION ANY OTHER C APITAL ASSET IN THE LATER PART OF THE SUB-SECTION FOR THE PURPOSE OF SET-OFF CLEARLY INDICATES THAT THE SHORT- TERM CAPITAL LOSS FROM ONE TRANSACTION HAS TO BE CO NSIDERED DISJOINTEDLY FOR SET- OFF AGAINST THE SHORT-TERM CAPITAL GAIN OF ANY OTHE R TRANSACTION. FURTHER PRESUME THAT IN THE ABOVE EXAMPLE, ALL 9 OTHER TRANSACTIONS RESULTED INTO PROFIT. NOW THE 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 LOSS FR OM THE FIRST TRANSACTION WITH THE SHORT-TERM CAPITAL GAIN IN ANY OR THE OTHER 9 TRANS ACTIONS. 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 A GAINST THE INCOME IN RESPECT OF ANY OTHER CAPITAL ASSET. PRIMA-FACIE THERE IS CUE I N THE LANGUAGE OF THE SUB- SECTION THAT THE OPTION IS WITH THE ASSESSEE 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 TRANSACTION NO.2 OR 3 OR 4, ETC., AS THE CASE MAY BE. OUR VIEW ABOUT THE VESTING OF THE DISCRETION IN AS SESSEE FOR THE PURPOSES OF SET-OFF OF SHORT-TERM CAPITAL LOSS AGAINST ANY SHOR T-TERM CAPITAL GAIN IS FORTIFIED WHEN THE LANGUAGE OF SUB-SECTION (3) OF SECTION 70 IS CONSIDERED, WHICH SPECIFICALLY PROHIBITS THE SETTING OFF OF LONG TERM CAPITAL LOSS AGAINST SHORT TERM CAPITAL GAIN. IT HAS BEEN PROVIDED IN UNAMBIGUOUS WORDS IN SUB-S ECTION (3) THAT THE LONG TERM CAPITAL LOSS CAN BE SET OFF ONLY AGAI NST LONG-TERM CAPITAL GAIN AND NOT AGAINST THE SHORT TERM CAPITAL GAIN. IF THE INT ENTION OF THE LEGISLATURE HAD BEEN NOT TO CONFER THE CHOICE ON THE ASSESSEE IN TH E MATTER OF SETTING OFF OF THE SHORT-TERM CAPITAL LOSS SUFFERED IN THE POST CUT-OF F DATE AGAINST THE SHORT-TERM CAPITAL 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 B EEN DONE IN SUB-SECTION (3). IN THE ABSENCE OF ANY STIPULATION IN THIS REGARD IN SU B-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 TRA NSACTION AGAINST ANY OTHER SHORT-TERM CAPITAL GAIN, WHETHER WITHIN OR OUTSIDE THE CUT-OFF DATE. IF HIGHER BENEFITS POURS IN FROM THE EXERCISE OF THE OPTION I N A PARTICULAR WAY VIS-A-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 MONTGOMERY EMERGING MARKETS FUND (SUPRA) HAS ALSO R ULED IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE SET-OFF LONG-TERM CAPI TAL LOSS AGAINST THE SHORT-TERM CAPITAL GAIN WAS PERMISSIBLE UNDER SECTION 70, IN T HE PERIOD PRIOR TO THE AMENDMENT. ALMOST SIMILAR VIEW WAS TAKEN ALLOWING THE ASSESSEE TO EXERCISE OPTION IN V.R. NIMBKARS CASE (SUPRA). A LOT OF EMPHASIS HAS BE EN LAID BY THE LEARNED CIT(A) ON THE WORDS UNDER SIMILAR COMPUTATION MADE USED IN SUB-SECTIO N (2). HE HAS OPINED THAT THERE ARE TWO DIFFERENT CATEGORIES OF THE TRANSACTI ONS RESULTING INTO SHORT-TERM CAPITAL GAIN, VIZ., THOSE TAXABLE IN THE FIRST PERI OD AT THE RATE OF 30 PER CENT AND THOSE TAXABLE IN THE SECOND PERIOD AT THE RATE OF 1 0 PER CENT AND SIMILAR COMPUTATION MADE REFERS TO EITHER OF THE TWO. IN OUR CONSIDERED OPINION, THERE IS A BASIC FALLACY IN THE VIEW ADOPTED BY THE LEARN ED CIT(A) ON THIS ISSUE. SECTIONS 111A AND 115D FALL IN CHAPTER XII, WHICH P ROVIDES FOR DETERMINATION OF TAX IN CERTAIN SPECIAL CASES. THUS, IT IS CLEAR THAT ALL THESE SECTIONS FROM 110 TO 115BC PROVIDE FOR A PARTICULAR RATE OF TAX TO BE APPLIED ON THE INCOMES COVERED UNDER THESE SECTIONS INDIVIDUALLY. HENCE, T HESE 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 C OMPUTATION OF INCOME IS A SUBJECT WHICH COMES ANTERIOR TO THE APPLICATION OF THE RATE OF TAX. ONLY WHEN THE INCOME IS COMPUTED AS PER THE PROVISIONS OF THE ACT THAT THE QUESTION OF THE APPLICABILITY OF THE CORRECT RATE OF INCOME-TAX COM ES INTO BEING INCOME UNDER THE HEAD CAPITAL GAINS IS DETERMINED AS PER SECTI ONS 45 TO 55A. SECTION 48 WITH THE HEADING MODE OF COMPUTATION PROVIDES THA T THE INCOME CHARGEABLE ITA NO.7627/MUM/2011 M/S.T.ROWE PRICE INTERNATIONAL DISCOVERY FUND 4 UNDER THE HEAD CAPITAL GAINS SHALL BE COMPUTED BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET, THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY 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 CAPIT AL GAIN, WHICH IS PRESCRIBED UNDER SECTION 48, CANNOT BE CONFUSED WITH THE RATE OF TAX LIABLE TO BE CHARGED ON THE INCOME UNDER THE HEAD CAPITAL GAIN SO COMPUTE D. 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 SE CTIONS 111A AND 115AD. IN VIEW OF THE FOREGOING DISCUSSION WE HOLD THAT TH E AUTHORITIES BELOW ERRED IN NEGATING THE ASSESSEES COMPUTATION OF SHO RT TERM CAPITAL GAIN. WE, THEREFORE, OVERTURN THE IMPUGNED ORDER AND ALLOW TH IS GROUND OF APPEAL. SIMILAR VIEW HAS BEEN TAKEN BY THE ITAT IN OTHER JUDGMENTS ALSO RELIED UPON BY THE LD. A.R. THEREFORE, FOLLOWING THE SAME , I HOLD THAT SET OFF OF LOSS OF SHORT TERM CAPITAL GAINS AS CLAIMED BY THE ASSESSEE IS CORRECT IN VIEW OF THE SAID JUDGMENT OF THE ITAT. ACCORDINGLY, THE APPEAL IS A LLOWED. 6. TAKING INTO CONSIDERATION THE ABOVE CITED CASES AND AS PER THE EXTRACTED PORTION OF FIRST INVESTMENT (HONG KONG) LTD. (SUPRA), THE CIT(A) ALLOWED THE ASSESSEES CONTENTION. AS MENTIONED ABOVE, AR ALSO PLACED THE DECISION OF DWS INDIA EQUITY FUND, ITA NO. 5055/MUM/2010, WHERE (SUPRA) WHEREIN THE COORDINATE BENCH HELD, WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIV AL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING SET OFF OF SHORT TERM CAPITAL LOSS ARI SING FROM STT PAID SHARE TRANSACTIONS AGAINST SHORT TERM CAPI TAL GAIN ARISING FROM NON STT TRANSACTIONS. THE ASSESSEE HAD EARNED SHORT TERM CAPITAL GAIN OF RS.40,25,93,717/- FROM NON STT TRANSACTIONS AND IT HAD INCURRED SHORT TERM CAPITAL LOSS OF RS. 1,26,45,10,006/- FROM STT PAID TRANSACTIONS. THE ISSUE IS WHETHER SHORT TERM CAPITAL LOSS CAN BE SET OFF AGAI NST SHORT TERM CAPITAL GAIN MENTIONED ABOVE. UNDER THE PROVISIONS OF SECTION 70 (2), SHORT TERM CAPITAL LOSS ARISING FROM ANY ASSET CAN BE SET OFF AGAINST SHORT TERM CAPITAL GAIN ARISING FROM ANY OTHER ASSET UNDER A SIMILAR COMPUTATION MADE. T HE AO HELD THAT SINCE GAIN WAS FROM SHARES ON WHICH NO STT WAS PAID AND LOSS F ROM STT PAID TRANSACTION, THESE FELL IN DIFFERENT CATEGORIES AND COULD NOT BE SET OFF AGAINST EACH OTHER. WE FIND THAT THIS ASPECT HAS ALREADY BEEN EXAMINED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF FIRST STATE INVESTMENTS (H ONG KONG) LTD. VS. ADIT (SUPRA), IN WHICH IT HAS BEEN HELD THAT THE PHRASE UNDER SIMILAR COMPUTATION MADE REFERS TO COMPUTATION OF INCOME, THE PROVISIO NS FOR WHICH ARE CONTAINED UNDER SECTIONS 45 TO 55A OF THE ACT. THE TRIBUNAL A LSO HELD THAT THE MATTER OF COMPUTATION OF INCOME WAS A SUBJECT WHICH CAME ANTE RIOR TO THE APPLICATION OF RATE OF TAX WHICH ARE CONTAINED IN SECTION 110 TO 1 15BBC. THEREFORE, MERELY BECAUSE THE TWO SET OF TRANSACTIONS ARE LIABLE FOR DIFFERENT RATE OF TAX, IT CAN NOT BE SAID THAT INCOME FROM THESE TRANSACTIONS DOES NO T ARISE FROM SIMILAR COMPUTATION MADE AS COMPUTATION IN BOTH THE CASES H AS TO BE MADE IN SIMILAR MANNER UNDER THE SAME PROVISIONS. THE TRIBUNAL THER EFORE, HELD THAT SHORT TERM CAPITAL LOSS ARISING FROM STT PAID TRANSACTIONS CAN BE SET OFF AGAINST SHORT TERM CAPITAL GAIN ARISING FROM NON STT TRANSACTIONS. THE CASE OF THE ASSESSEE IS IDENTICAL. THEREFORE, RESPECTFULLY FOLLOWING THE DE CISION OF THE TRIBUNAL, WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) AND THE SAME IS , THEREFORE, UPHELD. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ITA NO.7627/MUM/2011 M/S.T.ROWE PRICE INTERNATIONAL DISCOVERY FUND 5 7. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE F ACTS BEING IDENTICAL IN THE INSTANT CASE WITH THAT OF THE CASES CITED BEFORE US , RESPECTFULLY THE FOLLOWING THE DECISIONS, AS CITED BY THE CIT(A) IN THE IMPUGN ED ORDER AND REFERRED TO BY THE AR AT THE TIME OF HEARING, WE SUSTAIN THE ORDER OF CIT(A) AS THERE IS NO INFIRMITIES IN THE IMPUGNED ORDER. 8. IN THE RESULT THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED. 9. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH MAY, 2013. !'# $ % 8 TH MAY , 2013 &' ( SD/- SD/- ( . ,/ B.RAMAKOTAIAH ) ( /VIVEK VARMA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER #' % / MUMBAI, !'# / DATE : 8 TH MAY, 2013 SHEKHAR COPY TO: 1. APPLICANT 2. RESPONDENT 3. THE CONCERNED CIT (A).. 4. THE CONCERNED CIT 5. DR .. BENCH, ITAT, MUMBAI 6. GUARD FILE *+, -, //TRUE COPY// / BY ORDER, .+// +#0 DY./ASST. REGISTRAR 1+2 134 , #' % / ITAT, MUMBAI