2017 (11) TMI 1940 - AT - Income Tax

Long Term Capital Loss carried forward - transaction is covered with purview of provision of section 10(38) - HELD THAT - We notice that the Ld. CIT (A) has decided the issue in favour of the assessee relying on the decision of the Co-ordinate Bench of the ITAT rendered in the case of Raptakos Becott Company Ltd. vs. DCIT 2015 (6) TMI 529 - ITAT MUMBAI In Kishorebhai Bhikhabhai Virani Vs. ACIT 2015 (2) TMI 807 - GUJARAT HIGH COURT the Hon ble Gujarat High Court has decided the identical issue against the assessee and dismissed the appeal of the assessee wherein held contention of the learned counsel for the assessee that for the purpose of section 10(38) of the Act term income would not include loss cannot be accepted and rightly rejected by the Tribunal. If this is available for set off the Tribunal rightly relied on the decision in the case of Harprashad Co. (P.) Ltd. 1975 (2) TMI 2 - SUPREME COURT to come to a conclusion that the term income under section 10(38) of the Act would also include the loss. In the said decision, the apex court observed that the concept of carry forward of loss does not stand in vacuo. It involves the notion of set off it postulates permissibility and possibility of the carried forward loss being absorbed or set off against the profits and gains profit to reduce the tax demand. It was held that if such set off is not permissible or possible owing to the income or profits of the subsequent year being from a non-taxable source, there would be no point in allowing loss to be carried forward . Conversely, if the loss arising in the previous year was under a head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in a subsequent year, from a taxable source. - Decided against assessee.

Summary

Issues:
- Appeal and cross objection against order dated 30/11/2015 by Ld. CIT (A)-24, Mumbai for Assessment Year 2005-06.
- Allowance of Long Term Capital Loss carry forward on sale of shares subjected to STT under section 10(38) of the Income Tax Act, 1961.

Analysis:
1. The case involves an appeal and cross objection against the order passed by Ld. CIT (A)-24, Mumbai for the Assessment Year 2005-06. The dispute pertains to the allowance of Long Term Capital Loss carry forward on the sale of shares subjected to Securities Transaction Tax (STT) under section 10(38) of the Income Tax Act, 1961.

2. The appellant, engaged in the pharmaceutical business, declared a total income for the year 2005-06. The Assessing Officer (AO) later rectified the total income, leading to a dispute regarding the carry forward of Long Term Capital Loss on the sale of shares. The AO rejected the claim based on section 10(38) exemption for income arising from shares on which STT was paid. The assessee challenged this decision, arguing for the allowance of the loss carry forward.

3. The Ld. CIT (A) allowed the ground of appeal, citing a Tribunal decision and emphasizing that the AO had initially allowed the loss in the original assessment. The revenue appealed this decision, contending that the Ld. CIT (A) erred in directing the Long Term Capital Loss to be carried forward under section 10(38).

4. The Departmental Representative argued against the Ld. CIT (A)'s decision, citing a judgment of the Gujarat High Court that loss from shares covered by section 10(38) should not be set off. In contrast, the counsel for the assessee defended the decision, highlighting provisions governing capital gains, losses, and set-offs under the Income Tax Act.

5. Upon review, the Tribunal considered the conflicting arguments and referred to the Gujarat High Court's judgment. Following the High Court's decision, the Tribunal ruled in favor of the revenue, stating that the assessee was not entitled to carry forward the Long Term Capital Loss under section 10(38).

6. Additionally, a cross objection was filed by the assessee, seeking to carry forward the loss. However, as the appeal by the revenue was allowed, the cross objection was deemed infructuous and dismissed by the Tribunal.

In conclusion, the Tribunal upheld the revenue's appeal, denying the assessee's claim for carrying forward the Long Term Capital Loss on shares sold with STT. The cross objection was dismissed as infructuous due to the outcome of the appeal.