2016 (6) TMI 523 - AT - Income Tax

Long Term Capital Gains - sale of mutual fund units of HSBC Fixed Term Series 59 - options to pay tax on LTCG @20% or 10% with or without indexation - Held that - The taxes are to be collected by the authority of law as per the mandate of the Act. Merely because the assessee has not filed the details of long term capital gain in the return of income filed with the Revenue , the assessee cannot be denied the benefit of provisions of Section 112(1)(a) of the Act read with the first proviso to Section 112(1) of the Act. The assessee being an individual is entitled to choose the option whichever is more beneficial to the assessee as are available u/s 112(1)(a) read with first proviso to Section 112(1) of the Act , provided other conditions are fulfilled. The assessee has right to choose to be taxed on long term capital gains arising from the transfer of HSBC MF either @ 20% after claiming the benefit of cost inflation indexation as provided in Section 112(1)(a) of the Act read with second proviso to Section 48 of the Act , to compute indexed cost of acquisition or indexed cost of improvement of the capital asset , or to be chargeable to tax @ 10% without adjusting the cost of acquisition or improvement with cost inflation index as per provisions of Section 112(1)(a) of the Act read with first proviso to Section 112(1) of the Act in the case of long term capital gain arising on transfer of listed securities or units or zero coupon bonds as applicable for the instant assessment year,provided other conditions are fulfilled. Thus, the A.O. is directed to allow the benefit of choosing the option to the assessee in accordance with the provisions of section 112(1)(a) of the Act read with first proviso to Section 112(1) of the Act , after verifying that all other conditions as stipulated under the Act for claiming the afore-stated benefits are duly fulfilled by the assessee. - Decided in favour of assessee

Summary

Issues:
Denial of indexation benefit on Long Term Capital Gains.

Analysis:
The appeal was filed by the assessee against the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The primary issue raised by the assessee was the denial of indexation benefit on Long Term Capital Gains accruing from the sale of mutual fund units. The assessee argued that the option of exercising indexed cost and paying tax on long term capital gains at 20% or not exercising the option and paying tax at 10% is the prerogative of the assessee and cannot be denied by the revenue authorities. The assessee contended that the benefit of indexation should be allowed while computing Long Term Capital gains.

During the assessment proceedings, it was observed that the assessee had not offered any explanation for certain credit entries in the bank statement. The Assessing Officer added the income arising from the redemption of mutual fund units to the total income of the assessee and taxed it at a special rate of 20% without providing the benefit of cost inflation indexation. The Commissioner of Income Tax (Appeals) upheld the addition made by the Assessing Officer but directed the Assessing Officer to calculate tax on the long term capital gain at a rate of 10% without indexation or 20% with indexation, whichever was favorable to the revenue.

The assessee, aggrieved by the order of the Commissioner of Income Tax (Appeals), filed a second appeal with the Tribunal. The Tribunal considered the provisions of the Income Tax Act and held that the assessee, being an individual, was entitled to choose the option of paying tax on long term capital gains at 20% after indexation or 10% without availing the benefit of indexation. The Tribunal emphasized that the right to choose the tax rate was available to the taxpayer as per the relevant provisions of the Act, irrespective of whether the gains were declared in the return of income. The Tribunal directed the Assessing Officer to allow the benefit of choosing the tax rate option to the assessee, provided all other conditions for claiming the benefits were fulfilled.

In conclusion, the Tribunal allowed the appeal filed by the assessee for the assessment year 2010-11, emphasizing the taxpayer's right to choose the tax rate on long term capital gains as per the provisions of the Income Tax Act.