Indira S.Mehta, CHENNAI V. ITO, CHENNAI

ITA 779/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0940 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-02-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 12-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: D ANAND
• Keywords: Capital asset; Cost of acquisition; Wrong claim

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 779/MDS/2012 (ASSESSMENT YEAR : 2005-06) SMT. INDIRA S. MEHTA, CENTURY COURT, NO.8/1, GROUND FLOOR, KASTURI ESTATE, II STREET, CHENNAI - 600 086. PAN : AFDPM 9164 R (APPELLANT) V. THE INCOME TAX OFFICER, BUSINESS WARD XV(4), CHENNAI - 600 034. (RESPONDENT) APPELLANT BY : SHRI D. ANAND, ADVOCATE RESPONDENT BY : DR. S. MOHARANA, CIT-DR DATE OF HEARING : 04.02.2013 DATE OF PRONOUNCEMENT : 04.02.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, ITS GRIEVAN CE IS THAT SHE WAS LEVIED TAX ON LONG-TERM CAPITAL GAINS AT THE RA TE OF 20%. AS PER ASSESSEE, PROVISO TO SECTION 112(1)(D) OF INCOME-TA X ACT, 1961 (IN SHORT 'THE ACT'), DID NOT REQUIRE ANY OPTION TO BE EXERCISED BY AN I.T.A. NO. 779/MDS/12 2 ASSESSEE FOR GETTING A LOWER RATE OF TAX ON LONG-TE RM CAPITAL GAINS, AS MENTIONED THEREIN. 2. FACTS APROPOS ARE THAT ASSESSEE, AN INDIVIDUAL, HAVING INCOME FROM BUSINESS, CAPITAL GAINS AND PROPERTY AS WELL A S OTHER SOURCES, HAD FILED ITS RETURN FOR IMPUGNED ASSESSMENT YEAR D ECLARING A LOSS OF ` 1,87,810/-. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, IT WAS NOT6ED BY THE ASSESSING OFFICER THAT ASSESSEE HAD C LAIMED EXEMPTION FOR LONG-TERM CAPITAL GAINS OF ` 20,37,899/- ARISING OUT OF SALE OF CERTAIN MUTUAL FUND UNITS. ASSESSEE WAS RE QUIRED TO GIVE DETAILS OF THE RELEVANT TRANSACTIONS. ASSESSING OF FICER ALSO ADDRESSED A LETTER TO M/S SUNDARAM MUTUAL FUND TO ASCERTAIN C ORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT LONG-TERM CAPITAL GAINS WAS ` 20,37,899/- ONLY. THE SAID SUNDARAM MUTUAL FUND REPLIED THAT T HE UNITS, WHICH WERE REDEEMED BY THE ASSESSEE, WHICH GAVE RISE TO T HE SURPLUS, WERE BONUS UNITS ALLOTTED TO HER ON 19.3.2003. IT WAS ALSO CLARIFIED BY M/S SUNDARAM MUTUAL FUND THAT NO SECURITIES TRANSAC TION TAX (STT) WAS PAID SINCE STT WAS NOT APPLICABLE TO UNITS OF D EBT FUNDS. ASSESSING OFFICER WAS OF THE OPINION THAT ASSESSEE HAD MADE A WRONG CLAIM FOR EXEMPTION UNDER SECTION 10(38) OF T HE ACT. ACCORDING TO HIM, WHEN THE UNITS WERE REDEEMED ON 2 2.4.2004, THERE I.T.A. NO. 779/MDS/12 3 WAS NO STT AND HENCE SECTION 10(38) WAS NOT APPLICA BLE. HE, THEREFORE, HELD THAT PROCEEDS OF THE LONG-TERM CAPI TAL GAINS WAS EXIGIBLE TO TAX AND TAX WAS LEVIED AT 20%. SINCE T HE REDEEMED UNITS WERE BONUS UNITS, COST WAS CONSIDERED AS NIL. 3. ASSESSEE MOVED IN APPEAL BEFORE CIT(APPEALS). S OLE GRIEVANCE RAISED BY IT WAS THAT RATE OF TAX, WHICH OUGHT HAVE BEEN CHARGED, WAS 20% AND NOT 10%. AS PER ASSESSEE, WHE RE TAX PAYABLE IN RESPECT OF LONG-TERM CAPITAL GAINS ON UN ITS TRANSFERRED EXCEEDED 10% OF THE CAPITAL GAINS ITSELF, THEN SUCH EXCESS HAD TO BE IGNORED. HOWEVER, CIT(APPEALS) WAS NOT APPRECIATIV E OF THIS CONTENTION OF THE ASSESSEE. ACCORDING TO HIM, ASSE SSEE HAD NOT MADE ANY CLAIM FOR TAXING LONG-TERM CAPITAL GAINS A T 10%, WITHOUT CONSIDERING INDEXATION. FOR ALL THE EARLIER ASSESS MENT YEARS, ASSESSEE HAD PAID TAX ON LONG-TERM CAPITAL GAINS AT 20%. IN ANY CASE, ACCORDING TO HIM, THE GAINS WERE ON REDEMPTIO N OF UNITS, WHICH WERE RECEIVED AS BONUS. SINCE BONUS UNITS HAD NO C OST ACQUISITION, THERE WAS NO QUESTION OF ANY INDEXATION AT ALL. LD . CIT(APPEALS) WAS OF THE OPINION THAT THE SAME TREATMENT AS GIVEN TO ORIGINAL UNITS, HAD TO BE GIVEN TO BONUS UNITS ALSO. ACCORDING TO HIM, GAINS ARISING ON ORIGINAL UNITS HAVING BEEN TAXED EARLIER AT 20%, GA INS ARISING ON SALE I.T.A. NO. 779/MDS/12 4 OF BONUS UNITS ALSO HAD TO BE TAXED AT THE SAME RAT E. IN THIS VIEW OF THE MATTER, HE CONFIRMED THE ORDER OF THE A.O. CHAR GING TAX AT THE RATE OF 20% ON THE LONG-TERM CAPITAL GAINS ARISING OUT O F THE REDEMPTION OF BONUS UNITS. 4. NOW BEFORE US, LEARNED A.R. ASSAILING THE ORDERS OF AUTHORITIES BELOW, SUBMITTED THAT ASSESSEE WAS ELIGIBLE FOR GET TING CONCESSIONAL RATE OF 10%. 5. PER CONTRA, LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF CIT(APPEALS). ACCORDING TO HIM, ORIGINAL UNITS WER E SOLD AND ASSESSEE HAD PAID LONG-TERM CAPITAL GAINS TAX AT 20 %. BONUS UNITS HAD NO COST AND THEREFORE, THERE WAS NO QUESTION OF ANY INDEXATION BEING GIVEN TO IT. IN ANY CASE, ACCORDING TO HIM, ASSESSEE HAD NEVER CLAIMED APPLICATION OF LOWER TAX RATE OF 10% BEFORE ASSESSING OFFICER, BUT HAD MADE SUCH A CLAIM FIRST TIME BEFORE CIT(APP EALS). THUS, ACCORDING TO HIM, LD. CIT(APPEALS) WAS, THEREFORE, JUSTIFIED IN DENYING SUCH CLAIM. 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. TWO QUESTIONS ARISE HERE. FIRST IS WHETHER GAINS A RISING OUT OF REDEMPTION OF ORIGINAL UNITS AND REDEMPTION OF BONU S UNITS HAVE TO BE I.T.A. NO. 779/MDS/12 5 TREATED IN A SIMILAR MANNER FOR THE PURPOSE OF APPL YING THE RATE OF TAX. SECOND QUESTION IS WHETHER IT IS NECESSARY FOR AN A SSESSEE TO CLAIM TAX AT CONCESSIONAL RATE OF 10% SPECIFICALLY. WE W ILL ANSWER THE SECOND QUESTION FIRST. ADMITTEDLY THE GAINS HAD CO ME ABOUT ON REDEMPTION OF UNITS WHICH WERE BONUS UNITS. THERE IS ALSO NO DISPUTE THAT GAIN ON ORIGINAL UNITS, ON WHICH BONUS UNITS W ERE RECEIVED BY THE ASSESSEE, WHEN TRANSFERRED, WERE TAXED AT THE RATE OF 20%. AS PER LD. CIT(APPEALS), BOTH SHOULD BE GIVEN SAME TREATME NT FOR THE PURPOSE OF INDEXATION. THERE CAN BE NO DOUBT THAT SECTION 10(38) DID NOT APPLY TO THE ASSESSEE SINCE THERE WAS NO STT, A PPLICABLE ON REDEMPTION OF UNITS. ESPECIALLY SO, SINCE THE UNIT S WERE OF DEBT FUNDS FLOATED BY SUNDARAM MUTUAL FUNDS. IT IS REQUIRED T O HAVE A LOOK AT SECTION 112(1) OF THE ACT, AT THIS JUNCTURE:- 112. (1) WHERE THE TOTAL INCOME OF AN ASSESSEE INCLUDES ANY INCOME, ARISING FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET, WHI CH IS CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS', THE TAX PAYABLE BY THE AS SESSEE ON THE TOTAL INCOME SHALL BE THE AGGREGATE OF, ( A ) IN THE CASE OF AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, [BEING A RESIDENT,] ( I ) THE AMOUNT OF INCOME-TAX PAYABLE ON THE TOTAL INC OME AS REDUCED BY THE AMOUNT OF SUCH LONG-TERM CAPITAL GAINS, HAD THE TOTAL INCOME AS SO REDUCED BEEN HIS TOTAL INCOME ; AND ( II ) THE AMOUNT OF INCOME-TAX CALCULATED ON SUCH LONG- TERM CAPITAL GAINS AT THE RATE OF TWENTY PER CENT : I.T.A. NO. 779/MDS/12 6 PROVIDED THAT WHERE THE TOTAL INCOME AS REDUCED BY SUCH LON G-TERM CAPITAL GAINS IS BELOW THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME-TAX, THEN, SUCH LONG-TERM CAPITAL GAINS SHAL L BE REDUCED BY THE AMOUNT BY WHICH THE TOTAL INCOME AS SO REDUCED FALL S SHORT OF THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME-TA X AND THE TAX ON THE BALANCE OF SUCH LONG-TERM CAPITAL GAINS SHALL B E COMPUTED AT THE RATE OF TWENTY PER CENT ; ( B ) IN THE CASE OF A [DOMESTIC] COMPANY, ( I ) THE AMOUNT OF INCOME-TAX PAYABLE ON THE TOTAL INC OME AS REDUCED BY THE AMOUNT OF SUCH LONG-TERM CAPITAL GAINS, HAD THE TOTAL INCOME AS SO REDUCED BEEN ITS TOTAL INCOME ; AND ( II ) THE AMOUNT OF INCOME-TAX CALCULATED ON SUCH LONG- TERM CAPITAL GAINS AT THE RATE OF [TWENTY] PER CENT : [( C ) IN THE CASE OF A NON-RESIDENT (NOT BEING A COMPAN Y) OR A FOREIGN COMPANY, ( I ) THE AMOUNT OF INCOME-TAX PAYABLE ON THE TOTAL INC OME AS REDUCED BY THE AMOUNT OF SUCH LONG-TERM CAPITAL GAINS, HAD THE TOTAL INCOME AS SO REDUCED BEEN ITS TOTAL INCOME ; AND ( II ) THE AMOUNT OF INCOME-TAX CALCULATED ON SUCH LONG- TERM CAPITAL GAINS AT THE RATE OF TWENTY PER CENT ;] [( D )] IN ANY OTHER CASE [OF A RESIDENT], ( I ) THE AMOUNT OF INCOME-TAX PAYABLE ON THE TOTAL INC OME AS REDUCED BY THE AMOUNT OF LONG-TERM CAPITAL GAINS, HAD THE T OTAL INCOME AS SO REDUCED BEEN ITS TOTAL INCOME ; AND ( II ) THE AMOUNT OF INCOME-TAX CALCULATED ON SUCH LONG- TERM CAPITAL GAINS AT THE RATE OF [TWENTY] PER CENT. [ PROVIDED THAT WHERE THE TAX PAYABLE IN RESPECT OF ANY INCOM E ARISING FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET, BEING LI STED SECURITIES [OR UNIT] [OR ZERO COUPON BOND], EXCEEDS TEN PER CENT OF THE AMOU NT OF CAPITAL GAINS BEFORE GIVING EFFECT TO THE PROVISIONS OF THE SECON D PROVISO TO SECTION 48 , I.T.A. NO. 779/MDS/12 7 THEN, SUCH EXCESS SHALL BE IGNORED FOR THE PURPOSE OF COMPUTING THE TAX PAYABLE BY THE ASSESSEE. 7. ASSESSEE IS RELYING ON THE LAST PROVISO. A READ ING OF THE SECTION AND PROVISO WOULD CLEARLY SHOW THAT IF THE TAX PAYA BLE ON INCOME ARISING OUT OF TRANSFER OF LONG-TERM CAPITAL ASSET EXCEEDED 10% OF THE AMOUNT OF CAPITAL GAINS, THEN SUCH EXCESS WAS TO BE IGNORED. CAPITAL GAINS TO BE CONSIDERED WHILE APPLYING THE ABOVE PRO VISO IS THE CAPITAL GAINS WORKED OUT, WITHOUT APPLYING SECOND PROVISO T O SECTION 48. SECOND PROVISO TO SECTION 48 IS REPRODUCED HEREUNDE R:- PROVIDED FURTHER THAT WHERE LONG-TERM CAPITAL GAIN ARISES FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET, OTHER TH AN CAPITAL GAIN ARISING TO A NON-RESIDENT FROM THE TRANSFER OF SHAR ES IN, OR DEBENTURES OF, AN INDIAN COMPANY REFERRED TO IN THE FIRST PROVISO, THE PROVISIONS OF CLAUSE (II) SHALL HAVE E FFECT AS IF FOR THE WORDS COST OF ACQUISITION AND COST OF ANY IM PROVEMENT, THE WORDS INDEXED COST OF ACQUISITION AND INDEXE D COST OF ANY IMPROVEMENT HAD RESPECTIVELY BEEN SUBSTITUTED. THE ABOVE PROVISO SPEAKS OF SUBSTITUTING COST OF A CQUISITION WITH INDEXED COST OF ACQUISITION. HERE THERE IS NO DI SPUTE BETWEEN THE PARTIES THAT THE COST OF ACQUISITION OF UNITS REDEE MED WAS ZERO. THEREFORE, INDEXED COST OF ACQUISITION WOULD ALSO R EMAIN ZERO. THUS THERE IS NO EFFECT OF SECOND PROVISO TO SECTION 48 ON THE GIVEN TRANSACTION. EFFECTIVELY, IF THE TAX CALCULATED AT 20% ON THE CAPITAL GAIN ARISING ON ACCOUNT OF REDEMPTION OF UNITS EXCE EDED 10% OF SUCH I.T.A. NO. 779/MDS/12 8 CAPITAL GAIN, THEN EXCESS HAD TO BE IGNORED. IN OT HER WORDS, WHEN THERE IS NO INDEXATION, MAXIMUM CAPITAL GAIN TAX TH AT WOULD BE CHARGEABLE, IS LIMITED TO 10%. THERE IS NO REQUIR EMENT FOR ANY OPTION TO BE FILED BY THE ASSESSEE. WHILE WORKING OUT THE TAX, THE REVENUE IS BOUND TO GIVE EFFECT TO PROVISO TO SECTION 112(1 )(D). THE PROVISO CANNOT BE IGNORED. THERE IS NO REQUIREMENT IN LAW THAT SURPLUS ARISING OUT OF SALE OF ORIGINAL UNITS AND SURPLUS A RISING OUT OF SALE OF BONUS UNITS, HAVE TO BE TAXED AT THE SAME RATE. IN OUR OPINION, ASSESSEE COULD NOT HAVE BEEN SADDLED WITH A TAX IN EXCESS OF 10% OF CAPITAL GAINS ARISING ON REDEMPTION OF UNITS. ORDE RS OF THE AUTHORITIES BELOW ON THIS ISSUE ARE SET ASIDE. WE DIRECT THE A .O. TO LEVY 10% ON THE LONG-TERM CAPITAL GAINS. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON MONDAY, TH E 4 TH OF FEBRUARY, 2013, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 4 TH FEBRUARY, 2013. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-XII, CHENNAI- 34/ CIT-X, CHENNAI/D.R./GUARD FILE