2017 (7) TMI 532 - AT - Income Tax

Entitled to the benefit of proviso to section 112(1) on sale of equity shares of M/s Jagatjit Industries Ltd. a listed company - Held that - It is evident that where the tax payable in respect of the transfer of a long term capital asset in the case of a listed company exceeds 10% of the amount of the capital gain before giving effect to the provisions of second proviso to Section 48, then such excess shall be ignored for the purpose of computing the tax payable by the assessee. In the case under appeal before us, admittedly, the assessee is a non-resident and JIL is a listed company. Therefore, proviso to section 112(1) was squarely applicable and learned CIT(A) rightly directed to Assessing Officer to give benefit of proviso to Section 112(1). We, therefore, find no infirmity in the order of learned CIT(A). The same is sustained. - Decided against revenue

Summary

Issues:
- Interpretation of proviso to section 112(1) of the Income Tax Act regarding capital gains tax on the sale of shares of a listed company by a non-resident.

Analysis:
The judgment pertains to an appeal by the Revenue against the order of the CIT(A) regarding the assessment year 2010-11. The main issue raised by the Revenue was whether the assessee, a non-resident, was entitled to the benefit of the proviso to section 112(1) of the Income Tax Act on the sale of equity shares of a listed company. The Assessing Officer had computed the capital gain without allowing indexation and charged tax at 20%. However, the CIT(A) directed the AO to calculate tax as per the proviso to section 112(1) before allowing indexation. The CIT(A) held that if the tax payable as per the proviso was lower than the tax payable at 20% after allowing indexation, then the lower tax rate should apply.

Upon examining the facts and the relevant provisions, the ITAT Delhi found no fault in the CIT(A)'s direction. Section 112(1) of the Income Tax Act outlines the tax on long-term capital gains, with specific provisions for different categories of taxpayers. The proviso to section 112(1) states that if the tax payable on the transfer of a long-term capital asset in the case of a listed company exceeds 10% of the capital gain before indexation, then the excess tax shall be ignored for computing the tax payable. As the assessee was a non-resident and the company whose shares were sold was listed, the proviso to section 112(1) was applicable. Therefore, the ITAT upheld the CIT(A)'s decision to grant the benefit of the proviso to the assessee.

In conclusion, the ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s order. The judgment clarified the application of the proviso to section 112(1) of the Income Tax Act in cases involving the sale of shares of a listed company by a non-resident, ensuring the correct computation of capital gains tax in such scenarios.