J P TRUST,MUMBAI V. DY COMM. OF INCOME TAX IT CIRCLE 32(1), MUMBAI

ITA 6379/MUM/2024

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The case involves J. P. Trust, an Association of Persons (AOP) engaged in share trading, who appealed against the order of the Commissioner of Income Tax (Appeals) which upheld the denial of set-off of short-term capital loss against short-term capital gain by the Central Processing Centre (CPC). The primary legal contention was whether the short-term capital loss incurred on equity shares, which was taxable at a concessional rate of 15% under section 111A of the Income Tax Act, could be set off against short-term capital gains taxable at the normal rate of 30%. The Tribunal examined the provisions of section 70(2) of the Act and relevant judicial precedents to arrive at its decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 25638 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2015-2016
• Other Referred Cases: CIT v. Rungamatee Trexim (Pvt.) Ltd., iShare MSCI EN UCITS ETF USD ACC vs DCIT(IT), First State Investments (Hongkong) Ltd. vs ADITIT
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B LAXMI KANTH
• Assessee Lawyers: MILAN BAKHIA
• Keywords: Capital asset; Question of law; Cost of acquisition; Capital Gains
• Section: 154; 143(1); 48

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE NARENDER KUMAR CHOUDHRY, JM & MS PADMAVATHY S, AM I.T.A. No. 6379/Mum/2024 (Assessment Year: 2015-16) J. P. Trust, Plot No. 33, ABCD, Government Industrial Estate, Charkop, Mumbai-400067. PAN : AAATJ9309H Vs. DCIT, IT Circle-32(1), Kautilya Bhawan, Bandra Kurla Complex, Bandra (East), Mumbai – 400051. Appellant) : Respondent) Appellant /Assessee by : Shri Milan Bakhia, AR Revenue / Respondent by : Shri B Laxmi Kanth, Sr. DR Date of Hearing : 20.01.2025 Date of Pronouncement : 20.01.2025 O R D E R Per Padmavathy S, AM: This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre, Delhi [for short 'the CIT(A)] dated 25.10.2024 for the AY 2015-16. The assessee raised the following grounds of appeal:- “1. Ld. CIT(A) has erred in confirming the action of CPC by not granting set-off of current year short-term capital loss of Rs. 43,75,895/-sustained u/s 111A, against current year short term capital gains and thereby assessing total income at Rs. 9,92,76,220/- instead of returned income of Rs. 9,49,00,320. 2 ITA No.6379/Mum/2024 J. P. Trust On the facts and in circumstances of the case and in law, current year short-term capital loss incurred u/s 111A amounting to Rs. 43,75,895/- ought to be set off against current year short term capital gains taxable under normal provision. 2. The appellant craves leave to add, amend, alter, edit, delete, modify, or change all of appeal at the time of or before the hearing of the appeal.” 2. The assessee is an AOP engaged in the business of share trading. The assessee filed the return of income for AY 2015-16 on 29.09.2015 declaring a total income of Rs.9,49,00,320/-. In the return of income the assessee declared Short Term Capital Gains (STCG) after adjusting the Short Term Capital Loss (STCL) as per below working: Particular STCG on Equity (taxable u/s.111A @ 15%) – Rs. STCG on Debts (taxable @ normal rate) – Rs. STCG 29,00,610 1,78,56,119 Less : STCL on Debts Nil (2,99,547) STCL on Equity Nil (43,75,895) STCG offered to tax 29,00,610 1,31,80,677 3. The return was processed under section 143(1) of the Income Tax Act 196 (the Act) where in the STCL on equity which was adjusted against the STCG on debts was not allowed. Accordingly the income was assessed at Rs.9,92,76,220/-. The assessee filed petition for rectification under section 154 of the Act and the order was passed without allowing the adjustment of STCL as claimed by the assessee. The assessee filed further appeal before the CIT(A) who upheld the order under section 154 of the Act thereby denying the adjustment of STCL on equity to the assessee. The relevant observations of the CIT(A) is extracted below – “3.3 I have gone through the submissions of the appellant and the case laws cited and found that it has no merit. The appellant has stated that - During the year under consideration, the assessee had dealt in shares wherein he had both, short term capital gain (STCG) of Rs 29,00,610/- and a short term capital loss (STCL) of Rs. 43,75,895/- on sale of equity shares which were 3 ITA No.6379/Mum/2024 J. P. Trust taxable at a concessional rate of 15% u/s 111A of the IT Act 1961. In the same year, the assessee also had short term capital gain from transfer of other capital assets, of Rs. 1,75,56,572 taxable at the normal rate of 30% For computing the tax liability, the assessee paid the entire tax on STCG u/s 111A amounting to Rs 29,00,610/- and then, set off the STCL u/s 111A amounting to Rs 43,75,895/- against the STCG taxable at the normal rate of Rs 1,75,56,572/- In this regard, the provision u/s 70(2) of the IT Act is relevant and reproduced below:- \"(2) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset.\" The provision of the Income Tax Act u/s 70(2) is very clear that short term capital loss will be set off against the income arrived at under a similar computation made for the assessment year in respect of any other capital asset. Meaning thereby that short term capital loss taxable at concessional rate of 15% will get set off only against short term capital gain taxable at concessional rate of 15%. However, the appellant has sought the setting-off of short term capital loss taxable at concessional rate of 15% against short term capital gain taxable at normal rate, which is not permissible. Further, the issue is debatable and cannot be rectified u/s 154 of the IT Act as it is not apparent from record. In view of these facts and circumstances, the ground of appeal is fit to be dismissed.” 4. The ld. AR submitted that section 70(2) of the Act does not prevent the set off of STCG against the STCL and wherever the intention of the legislature is to restrict the intra head setoff it has been explicitly provided in the provisions of the Act. The ld. AR further submitted that the impugned issue is settled by various decisions of the Co-ordinate Bench and that the Hon'ble Calcutta High Court in the case of CIT v. Rungamatee Trexim (Pvt.) Ltd. [2008] (ITA No. 812 of 2008) while considering a similar issue has taken a view in favour of the assessee. The ld AR also placed reliance on the order of the coordinate bench in the case of iShare 4 ITA No.6379/Mum/2024 J. P. Trust MSCI EN UCITS ETF USD ACC vs DCIT(IT) [(2024) 164 taxmann.com 56 (Mumbai Trib)] 5. The ld. DR on the other hand submitted that the wordings used in section 70(2) which contains provisions with regard to set off of STCL states that the set off should be allowed for 'similar computations' which would mean that the computations which are subject to similar tax. The ld. DR therefore, argued that the STCL which is taxed at 15% cannot be allowed to be set off against the Capital Gain which is taxed at 30%. 6. We heard the parties and perused the material on record. We notice that Hon'ble Calcutta High Court in the case of Rungamatee Trexim Pvt. Ltd. (supra) has considered a similar issue and held that “In Ground Nos.5 and 6 the assessee has objected to the mode of set off adopted by the Assessing Officer in assessing income from short term capital cases. During the year under consideration the assessee earned short term capital gain of Rs.7,29,584/- in transaction in shares where security transaction tax was not paid and income was subject to tax at normal rate. The assessee also earned short term capital gain of Rs.2,27,564/- in transaction in shares where security transaction tax was paid and income was eligible for concessional rate of tax under section 111A. The assensee also suffered short term capital loss of Rs.7.17,660/- in transactions in shares involving payment of security transaction tax. In the impugned order the A.0. computed the capital gain in the following manner without discussing any reasons for adopting such mode of computation. Calculation of income/loss from capital gain Short term capital loss with STT (-) 7,17.660/- Short term capital gain with STT 2,27,564/- Net Short Term capital loss with STT (-) 4,90,096/- Short term capital gain without STT 7,29,584/- Net Short term capital gain 2,39,488/- Less Brokerage 5,914/- Taxable short term capital gain of normal rate 2,33,574/- 5 ITA No.6379/Mum/2024 J. P. Trust Long term capital gain at 10% rate (as per computation) 1,49,431/- I have perused the assessment order and have considered submissions of the A/R. In the impugned order the A.O has not given any reasons for fleet sitting off short term capital gain with STT against short term capital STT and then allow ofset off of remaining loan of Rs.4,90,096/- against short term capital gain without STT. The mode ofset off adopted by the A.O. shown that be accepted in principle that short term capital loss with STT can be legally set off against short term capital gain without STT. According to the assessee, the chronology for the set off by the A.O. was contrary to chronology adopted by the assessee, only because the assessee's mode resulted in concessional rate of the tax being applied to higher amount of short term capital gain which resulted more tax benefit to an assessee. On perusal of the provision of section 70, I find that there is no prohibition nor the Act compels the assessee to first set off short term capital gain with STT against short term capital loss with STT and then allows set off against short term capital gain without STT. In absence of any specific mode of set off provided in the Act and in absence of any prohibition and in absence of any specific chronology for set off prescribed in the Act, the assessee wan entitled to exercise his option with regard to the chronology of set off which was most beneficial to the assessee. It is settled proposition of law that when a provision of the Act gives option to the assessee, such option should be exercised which will favour the assessee and not the revenue. The A/R for the assessee was well justified in relying on the decision of the Calcutta High Court and the Circular of the Board dated 7.7.1955 since the principles laid down therein appeared to be fully applicable.” The Commissioner of Income Tax (Appeals) therefore cane to the conclusion in favour of the assessee. He further came to the conclusion that the disallowance has been made on presumption. In these circumstances, the order passed by the Commissioner of Income Tax and subsequent thereto, the Commissioner of Income Tax (Appeals) had already considered the case of the department and upheld the order passed by it. We have carefully considered the said question and in our considered opinion, there i no illegality or irregularity in respect of the order so passed by the learned Tribunal. We, accordingly, find that there is no reason to interfere with the order so passed by the learned Tribunal and further the order so passed by the learned Tribunal does not suffer from any illegality or irregularity and we find that no substantial question of law is involved in this appeal. Hence, we dismiss the appeal.” 6 ITA No.6379/Mum/2024 J. P. Trust 7. We notice that the ratio laid down by the Hon'ble High Court is that when there is no specific mode of setoff is provided in the Act, the assessee has the option to setoff that is most beneficial to the assessee. We also notice that the coordinate bench in the case of iShare MSCI EN UCITS ETF USD ACC (supra) has considered a similar issued where it has been held that – “16. This Leaves us with the only grounds relating to computation of short-term capital gain and set off of short-term capital loss. The only issue in this appeal is that assessee has earned short-term capital gain of ₹ 791,221/– which is chargeable to tax at the rate of 30%. Assessee claims that it has short-term capital loss on which securities transaction taxes are paid, and therefore such loss should be set-off against the short-term capital gain irrespective of the tax bracket of such gain and losses. 17. The only dispute between the assessee and revenue is as under:- Sr No Assessee's version Revenue's Version 1 Short-term capital loss was set off against the net short-term capital gain on which no securities transaction taxes paid Short-term capital loss should be first set of against short-term capital gain on which securities transaction tax is paid 2 Balance short-term capital loss shall be first set of against short- term capital gain on which securities transaction taxes paid If short-term capital loss still remains it is to be carried forward and not that of against short-term capital gain on which no securities transaction tax is paid and consequently short-term capital gain on which no securities transaction tax is paid is to be taxed at the rate of 30% 3 If short-term capital gain on which securities transaction tax is paid still remains, such gains are set of against available brought forward short term capital loss One short-term capital gain on which no securities transaction tax is paid is proposed to be taxed at the rate of 30% the brought forward short term capital loss is allowed to be carried forward without utilizing such brought forward short-term capital loss was set off 18. Provisions of section 70 of the income tax act provides for the set off of losses from one source against income from another source under the same head of 7 ITA No.6379/Mum/2024 J. P. Trust income. According to section 70 (1) where assessee suffers loss in respect of any source under any head of income other than capital gain, assessee is entitled to have the amount of such loss set of against his income from any other source under the same had. Therefore, these provisions speaks about inter head adjustment other than the head of capital gains. For capital gains provisions of section 70 (2) of the act provides that where assessee suffers short-term capital loss, assessee shall be entitled to set off such losses against capital gain computed in a similar manner as under section 48 to 55 of the act. According to section 70 (3) of the act where assessee suffers long-term capital loss, assessee shall be entitled to set of such losses against longterm capital gains computed in similar manner as provided under section 48 to section 55 of the act. It is clear that section 48 to section 55 does not provide for rate of tax on capital gain. It specifically lays down the computation mechanism of capital gain and certainly not tax on such capital gains. 19. Thus it is clear that assessee has incurred short-term capital losses of ₹ 49,454,381/– (which is subject to securities transaction tax) and also earned short- term capital gain of ₹ 791,221/– (which is not subject to securities transaction tax and taxable as per section 115AD at the rate of 30%). Thus, assessee submits that that short-term capital loss on which securities transaction taxes paid, can be set of against the short-term capital gain which is not subject to securities transaction tax. Further such capital gain is also computed as per section 115AD of the act. 20. It is not the case before us that either in the computation of short-term capital gains or short-term capital loss there is any difference in the manner of computation. Therefore, shortterm capital gain arising during the year and short- term capital loss arising during the year are computed in a similar manner as provided under section 48 to section 55 of the income tax act. Further as we have already stated that section 48 to section 55 of the income tax act does not lay down any rate of tax payable on short-term capital gain. 21. Therefore, we do not find any reason to deprive the assessee from set-off of short-term capital losses suffered by the assessee for the same year against the short-term capital gains earned by the assessee. Such claim is in accordance with the provisions of section 70 (2) of the act. 22. We find that several judicial precedents relied upon by the assessee also supports the case of the assessee. The honourable Calcutta High Court in Rungamatee Trexim ITA number 812 of 2008 dated 19 December 2008 held that there is no provision nor the act compels the assessee to 1st set of short-term capital gain which STT against short-term capital loss with STT and then allows set of against short-term capital gain without STT. Therefore, without multiplying 8 ITA No.6379/Mum/2024 J. P. Trust judicial precedents, following the decision of the honourable Calcutta High Court, and several other judicial precedents of the coordinate benches relied upon before us, we allow ground number 4 – 10 of the appeal of the assessee and direct the assessing officer to allow set-off of short-term capital loss suffered by the assessee against short-term capital gain of ₹ 791,221/–.” 8. We further notice that in the case of First State Investments (Hongkong) Ltd. vs ADITIT) [(2011) 8 ITR(T) 315 (Mum-Trib)] under similar situation, the Assessing Officers rejected Assessee's manner of set-off of STCL in category liable to tax at 15% against STCG taxable at 30%. The Revenue made similar argument as is made in the instant case with regard to expression used in section 70(2), i.e., 'under similar computation'. The Co- ordinate Bench rejected arguments of the Department by holding as under: \"12. A lot of emphasis has been laid by the learned CIT(A) on the words \"under similar computation made\" as used in sub-section (2). He has opined that there are two different categories of the transactions resulting into short-term capital gain, viz., those taxable in the first period at the rate of 30 per cent and those taxable in the second period at the rate of 10 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 learned CIT(A) on this issue. Sections 111A and 115AD fall in Chapter XII, which provides 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, these 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 computation 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 comes into being. Income under the head Capital gains' is determined as per sections 45 to 55A. Section 48 with 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 the transfer of the capital asset, the expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset along with the cost of any improvement, if 9 ITA No.6379/Mum/2024 J. P. Trust any. Thus, the computation of capital 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 computed. 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 sections 111A and 115AD. 13. In view of the foregoing discussion, we hold that the authorities below erred in negating the assessee's computation of short-term capital gain We, therefore, overturn the impugned order and allow this ground of appeal.\" 9. We also noticed similar view has been expressed in many other of decisions of the co-ordinate bench. The facts in assessee's case are similar and therefore, respectfully following the decision of the Hon'ble High Court and the Co-ordinate bench we hold that the CIT(A) is not correct in denying the set off of STCL against the STCG to the assessee for the reason that they are taxed at different rates. Accordingly the ground raised by the assessee in this regard is allowed. 10. In result, the appeal of assessee is allowed. Order pronounced in the open court on 20-01-2025. Sd/- Sd/- (NARENDER KUMAR CHOUDHRY) (PADMAVATHY S) Judicial Member Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai "