2020 (4) TMI 403 - AT - Income Tax

Profit from sale of shares - Benefit of Indexation - special tax rate or exemption of long term capital gains - Whether genuineness of transactions and antecedents of that company was not established in course of assessment proceedings or before the Ld. CIT(A) to be genuine transactions? - M/s. TUIHL is very much an Indian company or foreign company - HELD THAT - AO had proceeded to make the addition on the basis that the assessee had sold the shares of M/s. TUIHL which was a foreign company. However, during the appellate proceedings the assessee was able to produce documents to substantiate that it (M/s. TUIHL) was indeed is an Indian company which was duly registered with ROC, Kolkata since year 1981 and, therefore, is an Indian Company. We note that the remand report of the AO called for by the Ld. CIT(A) does not controvert this fact - basic premise on which the AO has made the addition fails and the Ld. CIT(A) is right in his conclusion that M/s. TUIHL is an Indian Company and its equity shares were in fact sold by the assessee. CIT(A) has noted the submission of the assessee that M/s. TUIHL is an Indian company and since the equity shares of the company s share was held for more than twelve months it has to be treated as a capital asset and the indexation benefit was available on the said asset. For that Ld. CIT(A) relied on section 2(29A), 2(42A) and 2(48A) of the Act and the Ld. CIT(A) noted that the STT is to be paid only if the shares were sold in the stock exchange and since the assessee has not sold the shares on the stock exchange, according to him, the question of payment of STT does not arise. CIT(A) has taken note that the assessee had held the shares of M/s. TUIHL for more than twelve months and hence, the gain on sale of shares is to be treated as long term capital gain and in view of the provision of sec. 48 of the Act he was of the opinion that the assessee had correctly deducted the index cost of acquisition from the sale proceeds of the shares. The Ld. CIT(A) has noted that the assessee was holding the shares of M/s. TUIHL as investment and, therefore, the gain on its sale is to be taxed under the head long term capital gain. It is also noted that in the instant case assessee has not claimed special tax rate or exemption of long term capital gains - Decided against revenue

Summary

Issues:
1. Adjudication of ground nos. 3 and 4 in an appeal filed by the revenue against the order of Ld. CIT(A)-VIII, Kolkata for AY 2008-09.
2. Consideration of whether profit from the sale of shares of TCG Urban Infra Holding Limited (TUIHL) was Capital Gain and indexation was to be allowed without establishing the genuineness of transactions and antecedents of the company.

Issue 1: Adjudication of Ground Nos. 3 and 4
The Appellate Tribunal was tasked with re-examining ground nos. 3 and 4 of the revenue's appeal for AY 2008-09. The Tribunal had previously adjudicated ground no. 3, concerning the long term and short term capital losses incurred by the assessee company in shares of Galaxy Entertainment Corp Ltd. The Tribunal upheld the decision of Ld. CIT(A) directing the assessing officer to compute the capital losses, dismissing the revenue's appeal on this ground. The Tribunal reiterated its order on ground no. 3 and dismissed the revenue's appeal on this issue.

Issue 2: Profit from Sale of Shares of TCG Urban Infra Holding Limited (TUIHL)
The second issue revolved around the profit from the sale of shares of TUIHL by the assessee company. The Assessing Officer (AO) contended that the investments in TUIHL were foreign and not listed on any stock exchange, leading to disallowance of indexation benefits. The Ld. CIT(A) disagreed, noting that TUIHL was an Indian company registered with the Registrar of Companies since 1981. The AO's premise for disallowing benefits failed as the company was proven to be Indian. The Ld. CIT(A) held that the sale of TUIHL shares qualified as long term capital gain, allowing indexation benefits. The Tribunal concurred with the Ld. CIT(A), upholding the decision that the gain on sale of TUIHL shares was to be taxed as long term capital gain. The Tribunal found no infirmity in the Ld. CIT(A)'s order and dismissed the revenue's appeal on this ground as well.

In conclusion, the Appellate Tribunal ITAT Kolkata addressed the issues raised by the revenue in the appeal for AY 2008-09. The Tribunal upheld the decision of Ld. CIT(A) regarding the computation of capital losses and the treatment of profit from the sale of TUIHL shares as long term capital gain. The Tribunal's detailed analysis and reasoning affirmed the Ld. CIT(A)'s conclusions, leading to the dismissal of the revenue's appeal on both grounds.