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2022 (10) TMI 1048 - AT - Income TaxCorrect head of Income - income from sale of shares - Business Income or Capital Gains - HELD THAT - The carry over loss is a nature of capital gain loss which the assessee can adjust with the capital gain profit of this year. AO erred to treat the income from capital gain as a business income. The Coordinate Bench is already covered the issue for A.Y. 2008-09 to 2010-11. We find no infirmity in the claim of the assessee the income as capital gain and eligible to adjust this gain with a capital gain loss. Proportionate deduction @21.35% on total expenses which is worked out amount u/s 57(iii) - CIT(A) disallowed the assessee s claim in the ground that the assessee had not deducted TDS amount to Rs 613,789/- on payment of interest which is contravening the Section 40(a)(ia) of the Act. The appellant during the hearing unable to bring to details calculation related claim of Section 57(iii) in respect income from other sources. The ld. CIT. Dr only relied on order of the revenue authorities. In our opinion the claim of deduction u/s 57(iii) should be allowed amount. TDS u/s 195 - addition for violation of section 115QA - HELD THAT - CIT(A) s divergent view is related to application of section 115 QA. Since section 115QA was introduced in statute by Finance Act, 2013 with effect from 1-6-2013, payment made by assessee on account of purchase of its own shares prior to 1-6-2013 could not be termed as dividend as per provisions of section 115QA. The fact that section 115QA was not applicable to appellant company as the payment is related to FY 12-13. The order of CIT(A) is ruled out for wrong ascertaining fact against the assessee. Mr Dileep Raghu Nath is a NRI and a resident of Singapore and accordingly the provision of DTAA article 13, applied to him. As per the provisions of Indo Singapore DTAA jurisdiction for taxing the capital gains arising in the hands of Mr. Dileep Raghu Nath is in Singapore and not in India. Therefore, the application of section 195 is not applicable for assessee-company. Accordingly, the addition for violation of section 40(a)(ia) read with section 195 amount is quashed. Decided in favour of assessee.
Issues Involved:
1. Classification of income from sale of shares and units as "Business Income" or "Capital Gains." 2. Deduction of expenses under Section 37(1). 3. Deduction of expenses under Section 57(iii). 4. Disallowance under Section 40(a)(ia) for non-deduction of TDS on payments to non-resident shareholders. Detailed Analysis: Issue 1: Classification of Income from Sale of Shares and Units The primary issue was whether the income from the sale of shares and units should be treated as "Business Income" or "Capital Gains." The assessee argued that the income of Rs.9,73,045/- should be classified as capital gains, consistent with previous years' orders for AYs 2008-09, 2009-10, and 2010-11, where the ITAT had accepted the income as chargeable under the head "Capital Gains." The CIT(A) had erred by relying on irrelevant findings and figures not related to the ground itself. The Tribunal, upon reviewing the facts and submissions, agreed with the assessee, noting that the carryover loss was a capital gain loss, which the assessee could adjust with the capital gain profit of the current year. The AO's treatment of this income as business income was incorrect. The Tribunal allowed the assessee's claim, treating the income as capital gains and eligible for adjustment with capital gain loss. Issue 2: Deduction of Expenses under Section 37(1) This ground was not pressed by the assessee's counsel during the proceedings and thus was not adjudicated upon. Issue 3: Deduction of Expenses under Section 57(iii) The assessee claimed a proportionate deduction of Rs.36,68,051/- under Section 57(iii), based on the interest income earned, which was 21.35% of the total revenue. The CIT(A) had disallowed this claim, stating that no TDS was deducted on the interest payment of Rs.613,789/-, thus contravening Section 40(a)(ia). The Tribunal, after considering the submissions and the lack of detailed calculations from the assessee, allowed a partial deduction of Rs.49,275/- (Rs.663,064/- minus Rs.613,789/-), acknowledging the assessee's claim to some extent but upholding the disallowance for the portion where TDS was not deducted. Issue 4: Disallowance under Section 40(a)(ia) for Non-Deduction of TDS The assessee had bought back shares from a non-resident shareholder, a resident of Singapore, and argued that as per the DTAA between India and Singapore, the capital gains arising to a resident of Singapore are subject to tax in Singapore and not in India. The AO had added back Rs.15,34,68,000/- to the assessee's income for non-deduction of TDS under Section 195. The CIT(A) upheld this addition but introduced a different rationale, citing Section 115QA, which was effective from AY 2014-15. The Tribunal found that Section 115QA was not applicable as the transaction occurred in FY 2012-13, and the DTAA provisions took precedence, meaning the capital gains should be taxed in Singapore. Consequently, the Tribunal quashed the addition for violation of Section 40(a)(ia) read with Section 195, allowing the assessee's claim. Conclusion: The Tribunal allowed Grounds 1 and 4-6 of the assessee, partly allowed Ground 3, and noted that Ground 2 was not pressed. The appeal was thus partly allowed. The order was pronounced in the open court on 27.10.2022.
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