2023 (5) TMI 311 - AT - Income Tax

Computation of capital gains - Non-resident - Long term capital Gain / loss on share transactions - Benefit of indexation - applying the provisions of section 112(1)(c)(iii) instead of 1st proviso to section 48 of the Act - HELD THAT - Section 112(1)(c)(iii) is a special provision for the computation of capital gains, in case of a non-resident, arising from the transfer of unlisted shares and securities. While, on the other hand, section 48 of the Act is a general provision, which deals with the mode of computation of capital gains in all the cases of transfer of capital assets. It is a well-settled rule of interpretation that if a special provision is made respecting a certain matter, that matter is excluded from the general provision under the rule which is expressed by the maxim Generallia specialibus non derogant . It is also a well-settled rule of construction that when, in an enactment, two provisions exist, which cannot be reconciled with each other, they should be so interpreted that, if possible, the effect should be given to both. Therefore, if the submission of the assessee that in the present case the income chargeable under the head capital gains is to be computed only as per section 48 of the Act is accepted, then the same would render the computation mechanism provided in section 112(1)(c)(iii) of the Act completely otiose and redundant. We also find no merits in the assessee's submission that if the case of the assessee is governed under two provisions of the Act, then it has the right to choose to be taxed under the provision which leaves him with a lesser tax burden. In the present case, the capital gains has to be computed only by reference to provisions of section 112(1)(c)(iii) of the Act. Further, it cannot be disputed that if as per section 112(1)(c)(iii), the 1st and 2nd proviso to section 48 of the Act are not given effect, the assessee will have a long-term capital gains from the sale of unlisted shares of the Indian company. Therefore, we find no infirmity in the orders passed by the lower authorities taxing the long-term capital gains as per section 112(1)(c)(iii) - As a result, grounds raised by the assessee are dismissed.

Summary

Issues Involved:

1. Assessment of total income.
2. Computation of capital gains.
3. Initiation of penalty proceedings under section 270A.

Summary:

Issue 1: Assessment of Total Income
The assessee challenged the assessment of total income at INR 171,359,838 against 'Nil' reported in the return for AY 2018-19. The Tribunal upheld the Assessing Officer's (AO) decision, which was based on the directions of the Dispute Resolution Panel (DRP), rejecting the assessee's computation and affirming the assessed total income.

Issue 2: Computation of Capital Gains
The core grievance was the computation of capital gains by applying section 112(1)(c)(iii) instead of the first proviso to section 48. The assessee, a UAE-incorporated company, reported a long-term capital loss of INR 36,387,392 from the sale of unlisted shares of an Indian company, computed under the first proviso to section 48. The AO, however, computed the gains under section 112(1)(c)(iii), resulting in long-term capital gains of INR 17,13,59,838, taxable at 10%. The Tribunal held that section 112(1)(c)(iii) is a special provision for non-residents and must be applied, excluding the first and second provisos to section 48, thereby affirming the AO's computation.

Issue 3: Initiation of Penalty Proceedings
The assessee also contested the initiation of penalty proceedings under section 270A. However, the Tribunal did not specifically address this issue in detail, as the primary contention regarding the computation of capital gains was resolved in favor of the Revenue.

Conclusion:
The Tribunal dismissed the appeal, upholding the AO's computation of long-term capital gains under section 112(1)(c)(iii) and the assessed total income, thereby rejecting the assessee's grounds and confirming the initiation of penalty proceedings.