2020 (8) TMI 508 - AT - Income Tax

Long-term capital loss - AO in not allowing carry forward of long term capital loss claimed by the appellant - entitled to set off and/or carry forward long term capital loss - CIT(A) holding that since the income includes loss , hence section 10(38) will not only apply to STT paid transactions generating positive income but also similar transactions generating negative income (loss) - Whether source of income arising from transfer of shares held as long term capital asset is not exempt from tax? - HELD THAT - Provisions of Section 10 (38) of the income tax act, any income arising from the transfer of a long-term capital asset , being an equity shares in the company or unit of an equity oriented fund, shall not be included in the total income of the previous year of any person, provided the transaction of the sale of such shares or equity are subject to securities transaction tax, if the same transaction is entered into after chapter VII is enacted. There is no dispute between the assessee and the revenue that if the income arising on the sale of such shares is positive i.e. profit/gain, it would be exempt under this Section. But dispute is that when assessee incurs Loss on transfer of such long term capital assets , whether same shall be ignored for the purpose of computation of the income of the assessee or shall be considered part of the income computation mechanism and should be allowed to be set-off in accordance with other provisions of the act and shall also be carried forward. This issue has arise in because in this year assessee has incurred long- term capital loss on sale of shares which was subject to securities transaction tax. The assessee wants that this loss should be allowed to enter into the computation of total income of the assessee and if is not set-off against any other capital gain in that year, then it should be allowed to be carried forward in future years. In nutshell, the controversy is exemption provisions u/s 10 (38) that income arising from transfer of a long-term capital asset shall only include positive i.e. Gain or the negative i.e. Losses also. Lower authorities have not committed any error in ignoring the loss incurred by the assessee on sale of shares and securities, on which assessee has paid securities transaction tax, holding that when the income is exempt, then both positive income as well as the negative loss , both, do not enter into the regular computation of the assessee. Accordingly, the orders of the lower authorities are upheld wherein the assessee has been denied the set of and or carry forward of long-term capital loss on transfer of shares on which the assessee has paid securities transaction tax and are covered by the provisions of Section 10 (38) of the Act Assessee has also slipped in its written submission that when there are two views on an issue, the opinion which is favourable to the assessee should be adopted. As given our thoughtful consideration to this issue and find that when honourable Supreme Court has decided on issue that income includes losss also, it decides from the day one when the law is enacted. Therefore, now there are no two views on the issue so, we are constrained to take a view in favour of the revenue and against the assessee.

Summary

Issues Involved:

1. Condonation of delay in filing the appeal.
2. Allowability of carry forward of long-term capital loss on STT-paid transactions.

Issue-wise Detailed Analysis:

Condonation of Delay:

The appeal was filed with an 18-day delay. The appellant cited reasons including the receipt of the appellate order by an executive of the employer company, confusion about the appropriate forum for filing the appeal, and a subsequent delay in forwarding the order to the counsel. The Tribunal found the delay to be minor and supported by justifiable reasons. It referenced the Supreme Court's liberal approach in condoning delays where sufficient cause is shown, as established in "The Collector of Land Acquisition vs. MST Khatiji 167 ITR 471". The Tribunal condoned the delay and admitted the appeal, emphasizing that issues should be decided on their merits rather than dismissed on technical grounds.

Allowability of Carry Forward of Long-term Capital Loss:

The appellant incurred a long-term capital loss of ?90,80,571 on STT-paid transactions, which was not claimed in the revised return. The appellant argued that such losses should be allowable for set-off and carry forward, relying on judicial precedents, including the Calcutta High Court's decision in "Royal Calcutta Turf Club 144 ITR 709". The appellant contended that capital gains as a source of income are not completely exempt from tax, and only specific income arising from such transactions is exempt under Section 10(38) of the Income Tax Act.

The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) rejected this contention, holding that the term "income" includes "loss". Therefore, the exemption under Section 10(38) applies to both positive and negative income. The AO maintained that since the appellant did not claim the loss in the revised return, it could not be allowed.

The Tribunal analyzed various judicial precedents, including the Supreme Court's decisions in "CIT vs. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118" and "CIT vs. Karamchand Premchand Ltd. (1960) 40 ITR 106". It noted that the term "income" includes "loss", and if income from a source is exempt, the loss from that source cannot be included in the computation of total income. The Tribunal also referenced the Gujarat High Court's decision in "Kishorebhai Bhikhabhai Virani vs. ACIT [2015] 55 taxmann.com 91", which held that losses from exempt sources are not allowable for set-off or carry forward.

The Tribunal concluded that the provisions of Section 10(38) exclude both positive income and losses from the computation of total income. It held that the appellant's long-term capital loss on STT-paid transactions could not be set off or carried forward, affirming the decisions of the AO and CIT(A). The Tribunal dismissed the appellant's appeal, emphasizing that the law is settled that "income" includes "loss" and that losses from exempt sources cannot be included in the computation of total income.