2014 (4) TMI 167 - HC - Income Tax

Deduction u/s 8O-HHc of the Act Computation of total turnover Held that - The decision in Pogagen AMP Nagarsheth Powertronics Ltd. 2014 (3) TMI 934 - GUJARAT HIGH COURT followed The tax under the Act is upon income, profits and gains. It is not a tax on gross receipts - Under Section 2(24) of the Act the word income includes profits and gains - Decided against Revenue. Claim of LTCG on sale of Mutual Funds - Whether the Tribunal is right in directing to allow the claim of Long Term Capital Loss on sale of units of Mutual Funds Held that - The decision in CIT., Mumbai Versus M/s. Walfort Share & Stock Brokers P. Ltd. 2010 (7) TMI 15 - SUPREME COURT has to be followed - after 1.4.2002, also the Parliament had not treated the dividend stripping transactions as sham or bogus and in that view of the matter by applying section 94(7) of the Act also loss to be ignored would only be to the extent of dividend received and not the entire loss - The Tribunal committed an error in ignoring the fact that the decision in the case of the assessee for the earlier year was rendered in the background of un-amended section 94 here, amended section 94 and in particular sub-section(7) had to be applied the AO is directed to compute the loss Decided partly in favour of Revenue.

Summary

Issues:
1. Whether the Appellate Tribunal correctly confirmed the order regarding the Central Excise & Sales Tax in the total turnover for deduction u/s.80HHC of the Act.
2. Whether the Appellate Tribunal correctly confirmed the order allowing the claim of Long Term Capital Loss on the sale of units of Mutual Funds.

Analysis:
1. The first issue pertains to the correctness of the Appellate Tribunal's decision on adding Central Excise & Sales Tax in the total turnover for deduction u/s.80HHC. The High Court, referring to a previous judgment, ruled against the Revenue, stating that the question was already settled in a prior case.

2. The second issue involves a detailed analysis of the Long Term Capital Loss claim on the sale of mutual fund units. The Court examined the background of the case, highlighting the Revenue's objection to the assessee's claim due to conflicting tax-free income from dividends and losses from mutual fund transactions. The Court discussed the application of section 94(7) of the Income Tax Act, particularly focusing on amendments post-1.4.2002.

3. The Court referred to a Supreme Court judgment regarding the treatment of dividend stripping transactions and the interpretation of section 94(7). It emphasized that losses exceeding the dividend received should still be allowed post the specified date, indicating that the Parliament did not consider such transactions as sham or bogus.

4. The Tribunal's decision was criticized for not considering the amendment under section 94 of the Act applicable to the Assessment Year 2002-03. The Court highlighted the error in applying an unamended section 94 and directed the Assessing Officer to compute the loss in accordance with the Supreme Court's decision, partially favoring the assessee and partially the Revenue.

In conclusion, the High Court's judgment addressed both issues comprehensively, providing a detailed analysis of the legal principles and precedents governing the disputes raised by the Revenue and the assessee. The Court's decision clarified the application of relevant sections of the Income Tax Act and directed the proper computation of losses in line with established legal interpretations.