2012 (8) TMI 339 - AT - Income Tax

Set off of unabsorbed capital loss - application of provisions of section 74 as amended by Finance Act, 2002 to unabsorbed capital losses relating to the AYs prior to the AY 2003-04 - STCG of ₹ 2.21 crores earned during the year set off against the long-term capital loss relating to AY 2001-02 - reference to Special Bench - Held that - Section 74(1), as substituted w.e.f. 01.04.2003, uses the present tense and refers to the long-term capital loss of the current year. The said provisions thus are applicable to the long-term capital loss of AY 2003-04 onwards and not to the long-term capital loss relating to the period prior to AY 2003-04. The set-off of long-term capital loss relating to a period prior to AY 2003-04 is governed by s. 74(1) as it stood prior to the amendment made by the Finance Act, 2002. Therefore, assessee is entitled to claim set off of any brought forward long term capital loss relating to AY 2001-02 against short-term capital gain. The golden rule of construction is that, in the absence of anything in the enactment to show that it is to have retrospective operation, it cannot be so construed as to have the effect of altering the law applicable to a claim in litigation at the time when the Act was passed. Unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right otherwise than as regards the matters of procedure. See Shah Sadiq and Sons (1987 (4) TMI 2 - SUPREME COURT), Govindas & others vs ITO (1975 (12) TMI 144 - SUPREME COURT) - Decided in favor of assessee Interest on Income Tax Refund - Held that - It being a statutory obligation would be assessable under the head Income from other sources Interest on excess refund - Section 234D - Held that - Explanation 2 has been inserted in sec.234D by the Finance Act, 2012 with retrospective effect from 1.6.2003 clarifying that the provisions of sec.234D shall also apply to the assessment year commencing before the first day of June, 2003 if the proceedings in respect of such assessment year is completed after the said date. Since proceedings in respect of the said AY 03-04 has been completed on 30.11.2005, we are of the view that the assessee is liable to pay an interest u/s.234D

Summary

Issues Involved:
1. Applicability of amended Section 74 to unabsorbed capital losses prior to AY 2003-04.
2. Head of income for interest received under Section 244A on income tax refund.
3. Levy of interest under Section 234D.

Detailed Analysis:

1. Applicability of Amended Section 74:

The core issue was whether the provisions of Section 74, as amended by the Finance Act, 2002, apply to unabsorbed capital losses from assessment years prior to AY 2003-04. The assessee, an investment banking company, filed a return declaring a short-term capital gain (STCG) and set it off against a brought forward long-term capital loss (LTCL) from AY 2001-02. The Assessing Officer (AO) disallowed this set off based on the amended Section 74, which restricts the set off of LTCL only against long-term capital gains (LTCG) from AY 2003-04 onwards.

The assessee contended that the right to set off LTCL against STCG was vested under the pre-amended Section 74 and could not be negated by subsequent amendments. They relied on judicial precedents, including the Supreme Court's decision in CIT vs. Shah Sadiq and Sons, which upheld that accrued rights are protected by Section 6(c) of the General Clauses Act.

The Special Bench of the Tribunal analyzed the language of the amended Section 74 and concluded that the use of present tense ("is," "carried forward," "cannot be") indicates that the amended provisions apply only to LTCL from AY 2003-04 onwards. They referenced the Special Bench decision in DCIT vs. M/s. Times Guaranty Limited, which held that liberalized provisions apply only to the years they were introduced.

The Tribunal also considered the decision in Reliance Jute Industries vs. CIT, where the Supreme Court held that the law applicable on the first day of the assessment year governs the assessment for that year. However, they distinguished this case, noting that the issue here was whether the amended Section 74 applies retrospectively to LTCL from prior years. They concluded that the amended Section 74 does not apply to LTCL from AY 2001-02, allowing the set off against STCG for AY 2003-04.

2. Head of Income for Interest Received Under Section 244A:

The Tribunal addressed whether interest received by the assessee under Section 244A on income tax refund should be taxed under the head "Income from other sources" or "Business income." The Tribunal upheld the CIT(A)'s decision, relying on the Madras High Court's ruling in Smt. B. Seshamma vs. CIT, which held that such interest is a statutory obligation and assessable under "Income from other sources." This position was also supported by the Tribunal's decision in Sala Mining Industries Ltd. vs. Dy. CIT.

3. Levy of Interest Under Section 234D:

The issue was whether interest under Section 234D applies to AY 2003-04. The Tribunal noted the insertion of Explanation 2 to Section 234D by the Finance Act, 2012, with retrospective effect from 1.6.2003. This explanation clarified that Section 234D applies to assessment years before 1.6.2003 if the proceedings were completed after this date. Since the proceedings for AY 2003-04 were completed on 30.11.2005, the Tribunal upheld the levy of interest under Section 234D.

Conclusion:

The Tribunal allowed the assessee's appeal regarding the set off of LTCL against STCG for AY 2003-04, holding that the amended Section 74 applies only to LTCL from AY 2003-04 onwards. However, the Tribunal dismissed the assessee's appeal on the head of income for interest received under Section 244A and the levy of interest under Section 234D, upholding the CIT(A)'s decisions on these issues. The appeal was thus partly allowed.