2015 (6) TMI 528 - AT - Income Tax

Profit on sale of equity shares - MAT calculation - whether the proviso to section 10(38) is a charging section and consequently the long term capital gain on sale of equity shares is chargeable as book profit under section 115JB and not the profit on sale of equity shares as held by the learned CIT(A) - Held that - The book profits as contemplated in section 115JB means the net profit, which has been shown/credited in the profit & loss account as prepared under the relevant provisions of the Companies Act. Under the Companies Act, only the net gain/loss from sale of shares is to be included. It does not speak of Long term capital gain or Short term capital gain. Thus, while computing the book profit, income u/s. 10(38) will not be reduced and this income here would mean income credited to the Profit & loss account. Once, Explanation to section 115JB provides that the amount of income which is to be reduced or not, which inter alia means any such amount which is credited to the Profit & loss account then only such amount credited in the Profit & loss account shall alone be taken into consideration for computing the book profit. The concept of indexation while computing the Long term capital gain cannot be imported to the computation of book profit u/s. 115JB as per the expressed provisions of the said section itself which is a complete code in itself. Thus the net amount on account of sale of shares will alone be taken into account in computation of book profit and not the amount of Long term capital gain after indexation. - Decided against assessee. Non inclusion of securities transaction tax STT as a deduction in computing the book profit under Section 115JB - Held that - Here we agree with the contention of the learned counsel, because the assessee in the Profit & loss account has credited the net gain after net off of STT of ₹ 25,65,015/-. Thus, the STT amount will not be included in the computation of book profit and only the net gain of ₹ 1,90,39,06,630/- shall alone be taken into account. - Decided in favour of assessee.

Summary

Issues Involved:
1. Computation of book profit under Section 115JB of the Income Tax Act, 1961.
2. Inclusion of long-term capital gain on sale of equity shares in book profit.
3. Deduction of Securities Transaction Tax (STT) in computing book profit under Section 115JB.

Detailed Analysis:

1. Computation of Book Profit under Section 115JB:

The primary issue was whether the book profit under Section 115JB should include the profit on the sale of equity shares as shown in the Profit & Loss account or the long-term capital gain computed after indexation as per the proviso to Section 10(38). The assessee argued that the long-term capital gain of Rs. 1,72,55,70,760/- should be considered for computing book profit, not the profit on sale of equity shares amounting to Rs. 1,90,39,06,630/-.

The Tribunal held that Section 115JB is a non-obstante provision and a complete code by itself, mandating the preparation of the Profit & Loss account as per the Companies Act. The book profit should be computed based on the net gain credited in the Profit & Loss account, which was Rs. 1,90,39,06,630/-. The Tribunal emphasized that the concept of indexation applicable to long-term capital gains under Section 48 cannot be imported into the computation of book profit under Section 115JB.

2. Inclusion of Long-Term Capital Gain on Sale of Equity Shares in Book Profit:

The assessee contended that the long-term capital gain after indexation should be considered for book profit computation. The Tribunal clarified that the book profit means the net profit as shown in the Profit & Loss account prepared under the Companies Act. The Tribunal stated that the net gain from the sale of investments, as credited in the Profit & Loss account, should be included in the book profit. The Tribunal concluded that the net amount of Rs. 1,90,39,06,630/- should be taken into account for computing book profit, not the indexed long-term capital gain of Rs. 1,72,55,70,760/-.

3. Deduction of Securities Transaction Tax (STT) in Computing Book Profit:

The assessee argued that the STT of Rs. 25,65,015/- should be allowed as a deduction while computing the book profit under Section 115JB. The Tribunal agreed with the assessee, noting that the Profit & Loss account had credited the net gain after deducting the STT amount. Therefore, the STT amount should not be included in the computation of book profit, and only the net gain of Rs. 1,90,39,06,630/- should be considered.

Conclusion:

The Tribunal dismissed the assessee's contention regarding the computation of book profit with the indexed long-term capital gain, affirming that the net gain credited in the Profit & Loss account should be considered. However, the Tribunal allowed the deduction of STT in computing the book profit, resulting in a partial allowance of the assessee's appeal.

Order Pronounced:
The appeal of the assessee was partly allowed, with the decision pronounced in the open court on 10th June 2015.