2015 (10) TMI 16 - AT - Income Tax

Short term capital gain - sale of equity shares through a recognized stock exchange on which Securities Transaction Tax (STT) - whether has been wrongly taxed at normal rate, whereas, it should be taxed at special rate of 10% as specified u/s 111A? - Held that - Approach adopted by the income tax authorities in the present situation is quite myopic and deserves to be repelled. The statutory provision of section 111A of the Act providing for a concessional tax rate on short term capital gain arising out of sale of equity shares through a recognized stock exchange on which STT has been paid, is not in dispute. It is also not in dispute that the assessee has successfully proved before the lower authorities that he has earned the income of ₹ 4,20,550/- which deserved to be taxed in terms of section 111A of the Act. In our view, the aforesaid undisputed features does not justify the stand of the Revenue in taxing such income under the normal rate of tax. Furthermore, the non mentioning of such income in one of the columns of the income tax return is to be understood as an inadvertent mistake because in the same form of return of income, at more than one place, assessee has shown such income to be entitled for concessional rate of taxation. In the aforesaid light, in our view, the CIT(A) erred in not allowing the claim of assessee for taxing the short term capital gain as per the special rate specified u/s 111A of the Act. Accordingly, the order of CIT(A) is set aside and the Assessing Officer is directed to re-work the tax liability of the assessee after considering the short term capital gain of ₹ 4,20,550/- to be an income liable to be taxed in terms of section 111A of the Act. - Decided in favour of assessee.

Issues involved:
1. Taxation of short term capital gains on sale of equity shares at normal rate instead of special rate under section 111A of the Income Tax Act, 1961.
2. Rejection of rectification application by the Assessing Officer and CIT(A).
3. Denial of opportunity to substantiate the payment of Securities Transaction Tax on the sale of equity shares.
4. Interpretation of the provisions of section 111A of the Act regarding the concessional tax rate on short term capital gains.

Issue 1: Taxation of short term capital gains at normal rate instead of special rate under section 111A:
The appellant contested the assessment of short term capital gains at the normal rate instead of the special rate specified under section 111A of the Income Tax Act, 1961. The appellant argued that the securities transaction tax was already paid on the sale of equity shares through a recognized stock exchange, making them eligible for the special rate. The authorities had based their decision on a discrepancy in the return of income form, where the claim for concessional tax rate was not explicitly stated. However, the appellant demonstrated that the mistake was inadvertent, as evidenced by other sections of the return form indicating the eligibility for the special rate. The Tribunal found in favor of the appellant, emphasizing that the statutory provision of section 111A for concessional tax rate on such gains was applicable, and the appellant had adequately proven the entitlement to the special rate. The Tribunal set aside the CIT(A)'s decision and directed the Assessing Officer to rework the tax liability considering the short term capital gains for taxation under section 111A.

Issue 2: Rejection of rectification application:
The appellant had initially filed a rectification application under section 154 of the Act to correct the assessment mistake, which was rejected by the Assessing Officer and later by the CIT(A). The authorities primarily based their rejection on the absence of the claim for concessional tax rate in a specific section of the return form. However, the appellant argued that the mistake was unintentional and provided evidence from other parts of the return form supporting the eligibility for the special rate. The Tribunal found the rejection unjustified, emphasizing that the inadvertent error in one section of the return form should not override the clear intention and calculation of tax liability at the concessional rate in other parts of the form.

Issue 3: Denial of opportunity to substantiate Securities Transaction Tax payment:
The appellant also raised a grievance regarding the denial of an opportunity to substantiate the payment of Securities Transaction Tax on the sale of equity shares. The Assessing Officer proceeded to tax the short term capital gains at the normal rate without allowing the appellant to present evidence of the tax already paid. The Tribunal acknowledged the appellant's right to be heard and highlighted the importance of providing an opportunity for the appellant to substantiate the tax payment, especially when claiming the concessional tax rate under section 111A.

Issue 4: Interpretation of section 111A for concessional tax rate:
The Tribunal analyzed the provisions of section 111A of the Act, which provide for a concessional tax rate on short term capital gains arising from the sale of equity shares through a recognized stock exchange where Securities Transaction Tax has been paid. The Tribunal affirmed that the appellant had met the conditions specified under section 111A and deserved to be taxed at the special rate of 10%. The decision highlighted the legislative intent behind the provision to avoid double taxation on such transactions and emphasized the need to interpret and apply the law in a manner that aligns with its purpose.

In conclusion, the Tribunal allowed the appeal of the assessed, setting aside the CIT(A)'s decision and directing the Assessing Officer to rework the tax liability considering the short term capital gains for taxation under section 111A.

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