2019 (9) TMI 366 - AT - Income Tax

TDS u/s 194C - Addition u/s 40(a)(ia) - assessee company had incurred horse expenses - HELD THAT - Primary argument of the Ld AR is that the payee i.e. M/s Royal Calcutta Turf Club has duly included the subject mentioned receipts in their return of income and had paid taxes thereon which may be verified by the AO. DR also fairly agreed for the same. In view of the amendment to second proviso to section 40(a)(ia) read with section 201(1) if the payees have included the subject mentioned receipts in their returns and paid taxes thereon, if any, then the disallowance u/s 40(a)(ia) would not operate in the hands of the payer. Hence in the interest of justice and fairplay, we deem it fit and appropriate, to remand this issue to the file of the AO for denovo adjudication of the issue in the light of second proviso to section 40(a)(ia). The assessee is also given liberty to adduce fresh evidences in support of its claim before the AO. Accordingly, Ground No.1 raised by the assessee is allowed for statistical purposes. Carry forward of long term capital loss incurred on sale of listed securities - HELD THAT - As decided in case of Raptakos Brett Co. Ltd 2015 (6) TMI 529 - ITAT MUMBAI assessee had incurred loss on sale of shares after paying STT these shares were held on investment a/c for period more than 12 months. The assessee claimed that the loss incurred was to be assessed under the head capital gains and its set off was permissible against capital gain earned on transfer of other capital assets. The AO however disallowed the assessee s claim for assessment of long term capital loss on the ground that income earned in similar transactions was not chargeable to tax in view of exemption granted by S. 10(38) of the I.T. Act. In the AO s opinion Sec. 10(38) was applicable equally to all transactions of sale of investment shares involving STT payment irrespective whether the resultant effect was profit/income or loss. On further appeal this Tribunal relying on the judgment of the Hon ble Calcutta High Court (supra) held that same considerations did not apply to the income exempt u/s 10 and the loss incurred in similar transactions. The ITAT therefore held that assessee was entitled to get its loss assessed was also entitled to get such loss set off. We direct the AO to assess the long term capital loss incurred by the appellant on sale of listed shares and allow its carry forward in accordance with law. Ground No. 2 is therefore allowed.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act.
2. Denial of carry forward of long-term capital loss on listed securities.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income Tax Act:

The first ground of appeal concerns the disallowance of ?4,48,776/- out of the total addition of ?23,70,602/- made by the Assessing Officer (AO) under Section 40(a)(ia) for non-deduction of TDS under Section 194C. The assessee argued that the payment to the Royal Calcutta Turf Club was a reimbursement and not subject to TDS. The AO, after an enquiry under Section 133(6), determined that the payment was made under a works agreement, necessitating TDS. Consequently, the AO disallowed the entire expenditure. On appeal, the CIT(A) found that ?19,21,824/- was not in the nature of 'works' and thus not subject to Section 194C, reducing the disallowance to ?4,48,776/-.

Upon review, the Tribunal noted that if the payee (Royal Calcutta Turf Club) had included the receipts in their income and paid taxes, the disallowance under Section 40(a)(ia) would not apply. The Tribunal remanded the issue back to the AO for verification, allowing the assessee to present fresh evidence. Thus, Ground No.1 was allowed for statistical purposes.

2. Denial of Carry Forward of Long-Term Capital Loss on Listed Securities:

The second ground of appeal was against the denial of carry forward of a long-term capital loss of ?6,05,425/- incurred on the sale of listed securities. The assessee, engaged in horse racing and acting as a commission agent, had sold listed shares resulting in a long-term capital gain of ?77,330/- and a long-term capital loss of ?6,05,425/-. The AO denied the carry forward due to the lack of proper details. The CIT(A) held that the gain was exempt under Section 10(38) and thus the loss should be ignored.

The Tribunal examined whether the long-term capital loss from the sale of listed shares could be set off and carried forward. The Tribunal found that Section 10(38) exempts only the positive income from tax and does not exclude the entire source. The Tribunal cited the judgment of the Calcutta High Court in Royal Calcutta Turf Club v. CIT, which allowed the set-off of losses even if the income from the same source was exempt. The Tribunal also referenced the decision of the ITAT Mumbai in Raptakos Brett & Co. Ltd Vs DCIT, which supported the assessee's claim for set-off.

The Tribunal concluded that the long-term capital loss on the sale of listed shares should be assessed and allowed to be carried forward, directing the AO to follow this ruling. Consequently, Ground No.2 was allowed.

Conclusion:

The appeal was allowed for statistical purposes, with the Tribunal remanding the first issue to the AO for verification and directing the AO to allow the carry forward of the long-term capital loss on listed securities. The order was pronounced in the open court on 01 July 2019.